Category: Management

Oct 25 2017

Scott Dorsey’s Attributes of Great SaaS Leaders

A few weeks ago I was in Atlanta for Techstars Atlanta Demo Day and the Venture Atlanta Conference. I had a great time and it’s fun to see the vibrancy of the Atlanta startup community. My brother Daniel came with me and we had dinner with our cousin Kenny, who lives in Atlanta, so we got some nice, quiet, emotionally intimate family time.

My favorite keynote at Venture Atlanta was from Scott Dorsey. While our paths have intersected for more than a decade and I knew him from a distance, I’ve gotten to know Scott pretty well over the past year. I put him in the awesome category.

If you don’t know Scott, he was the co-founder and CEO of ExactTarget (2000) – one of the original SaaS companies. ExactTarget went public in 2012 and was acquired by Salesforce.com in 2013 for $2.5 billion and became the core of the current Salesforce Marketing Cloud. He was on the Salesforce.com leadership team until he left to start High Alpha in 2015.

If you are doing something SaaS related and you don’t know or follow what Scott says, you should.

At Venture Atlanta, part of his keynote was a riff on the Attributes of Great SaaS Leaders. While the web is peppered with SaaS metrics and the state of SaaS, there’s a dearth of CEO-centric qualitative information. While Scott’s attributes could be for any leader, they are particularly relevant to SaaS CEOs given the dynamic of how high-growth SaaS companies – and great leadership teams – need to work to scale.

His five attributes, which he went deeper on individually in the keynote, reflect his personality and leadership style.

1. Start with the end in mind
2. Are always learning
3. Value team and culture above everything
4. Are both optimistic and never satisfied
5. Give back!

For those of you that are Simon Sinek fans, starting with the end in mind is analogous to starting with your Why. Are always learning is the essence of being a leader in a super high growth rapidly changing world which most SaaS companies operate in. Valuing team and culture above everything is easy to say, but extremely hard to do, especially when your VCs are pressuring you to perform at a certain financial level for rational, or irrational, reasons. Are both optimistic and never satisfied is interestingly similar to Andy Grove’s “only the paranoid survive” while at the same time having a completely different tone.

If you know me, it won’t surprise you that I almost jumped out of my seat at the event and did a happy dance when Scott started talking about Give back! I know I need to train him to say “Give First”, but it’s the same concept. Scott was a leader here, with the creation of the ExactTarget Foundation (now Nextech) in 2011. Nextech works to elevate technical, critical-thinking and problem-solving skills of K-12 students, inspiring and enabling young people from all backgrounds to pursue careers in technology, so he’s been ahead of the curve on the importance of computer science and technical skills in K-12, something which is a big part of addressing many of the social and educational gaps in our country.

Indianapolis’ startup community, like Atlanta’s, is thriving. There’s no question in my mind that Scott’s leadership has contributed to this in a meaningful way.

All of this comes back to the idea that as a leader you should play a very long game. Scott does this brilliantly and it’s been hugely educational and inspiring to me to get to know him.

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Oct 6 2017

Men, Sex, and Power

I had a long conversation with a friend last night that included a segment about men, sex, and power. I had just finished Ellen Pao’s book Reset: My Fight for Inclusion and Lasting Change which I thought was phenomenal (more in a separate post soon) so there was a lot in my mind about this topic.

I woke up to several articles this morning that reinforced a simple concept that so many people miss. Sexual harassment – while it includes sex – is also about power.

Let’s start with Harvey Weinstein. For a preview, read the shorter article titled Another man behaving badly in Hollywood — this time, Harvey Weinstein. What a shocker. This line about narcissism is reflected in the behavior of many prominent men.

“I have always argued that power, particularly the Hollywood strain, infantilizes. Success in Hollywood frequently reduces fully grown adults to narcissistic babies. Babies have no self-control. They scream and cry when they get mad. Their needs are uninhibited. Gratification must be instant. Weinstein may be a talented moviemaker. But he is also just another overgrown Hollywood man-baby.”

The longer article in the New York Times that kicked this off, Decades of Sexual Harassment Accusations Against Harvey Weinstein, is worth a complete read. As you put the pieces together, Weinstein’s public response is similar to many self-reflective apologies that come out of this situation when things finally become public.

Back to the first article, here is another great section from Robin Abcarian.

“Weinstein’s behavior is also an excellent example of the hypocrisy that is so rampant in Hollywood — and politics, for that matter. He is a liberal Democrat who publicly champions women’s rights and professional advancement but demeans and exploits them in private. (And yes, I do include Bill Clinton on that list.) The conservative equivalent is the anti-abortion crusader who privately urges his mistress to abort an inconvenient pregnancy or the “devout” Christian who ditches his sick wife to marry his mistress.”

Power. And that led me to the second story I woke up to, which is the anti-abortion crusader, Tim Murphy, who privately urges his mistress to abort an inconvenient pregnancy. The article Inside Tim Murphy’s reign of terror shows very clearly how power is at the root of this. The statement from Congressman Tim Murphy is another typical one, which basically says “I’m resigning, I’ll spend my time remaining working on important things, I’ve accomplished a lot, and please leave me alone.”

At least Harvey Weinstein said, “I appreciate the way I’ve behaved with colleagues in the past has caused a lot of pain, and I sincerely apologize for it.” But, this was his fourth paragraph. As my mother taught me, the way to apologize is to start with the sentence “I’m sorry.” You can write anything you want after that, but start with the apology – that’s the lead – don’t bury it.

I’m really hopeful that we are at the tipping point of sexual harassment being completely unacceptable. I have a profound appreciation for the women coming forward with their experiences. I know there are many multiples of these stories being suppressed by non-disparagement clauses that were signed and sealed with money to keep people quiet. That’s just another form of power being used in this situation.

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Jul 20 2017

Contentment

Amy and I were at a delightful dinner with friends (new and old) last night who are deeply involved in Naropa. After a very long couple of days where I was very tired, it was nice to sit in a cozy house, eat home cooked food, and just talk about life.

Near the end of the evening, I heard a line that will stick with me for a very long time.

“Contentment used to be a virtue. Now it’s a vice.”

As with many things that need to stick with me, I repeated it out loud. We talked for a few minutes about the overall, dominant American culture of achievement. The endless striving. The need to feel busy, important, and successful. The deep cultural norms around ambition.

The word striving stuck out for me (I wasn’t the one who mentioned it first.) Recently I’ve been telling people that I’m done striving. Sure, I expect I’ll accomplish a lot more in my life, but it’s not driven from a place of needing to ego fulfillment of accomplishment. Everything about striving, including the definition (“struggle or fight vigorously”), turns me off at this point. It’s not me, how I think about myself, or how I want people to think about me (as a “striver.”)

Yesterday afternoon before dinner I gave a talk at the Catalyze CU-Boulder accelerator. I try to do this every summer as one of the things I do to support entrepreneurship at CU Boulder. As I got in my car to drive to dinner, I wondered whether the students got what they wanted from me. I spent 45 minutes answering a set of questions they’d put together in advance but gave to me when I showed up. While I answered their questions, sort of, my responses were rambling philosophical views of what I thought was actually underneath the question. It was a lot more fun for me; I hope it was useful for them.

This morning, I realized that many of my public talks, especially Q&As, have become more abstract in the past few years. While some specifics still find their way into what I say, I’m trying to help people think about the questions at a much higher level than they ordinarily do. And, in a lot of cases, I’m not trying to give an answer, but provide stimuli to generate more introspection about the question.

On my drive in today, my phone dropped three times, which is in the normal range of one to six. On the third drop, when I called the person back, I said:

“My life with Verizon can be agitated or amused. I choose amused.”

The person I was talking to, who is a high achiever in a very fast growing company, said “I choose amused also. It’s a better way to live.”

Choose amused. Think about the real issues. Embrace contentment.

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Jun 26 2017

Munger’s Psychology of Human Misjudgment

I’m a huge Charlie Munger fan. I spent the weekend stewing on a few things, including why human beings do what they do.

Andrew Wilkinson sent me this animated and abridged video of a famous Charlie Munger speech called The Psychology of Human Misjudgment. It’s well worth a quiet 15 minutes of your day to sit and watch it.

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Jun 19 2017

Lessons From The Internet Bubble: Growth vs. Profitability

Over the weekend, Mark Suster and Fred Wilson each put up awesome posts discussing the idea of profitability in startups. Mark’s is a master class about how to look at the financial characteristics of a startup and Fred’s discusses what he’s been working on with some of his more mature companies.

They are both worth reading right now. I’ll be here when you get back.

Between the spring of 2000 and the end of 2001, I had the worst, most stressful, and most painful business period of my life. While I’m sure the financial crisis of 2008 was worse for many people, for me it paled in comparison to the misery of this 21-month stretch.

A very simple thing happened that year in my world. The market shifted from rewarding (and funding) growth to rewarding (and funding) profitability. It happened over a few quarters, but with the perspective of time and age, it feels like it happened overnight. I remember the trigger point being a 3/20/2000 article in Barron’s titled Burning Up: Warning: Internet companies are running out of cash — fastI was on the board of several companies on their list of 100 public companies that would be out of money by the end of 2000 and remember that my reaction to the article was anger, frustration with being maligned, and incredulity that Barron’s would write such an irresponsible article.

My reaction was stupid and immature. Instead, I should have paid attention to the message, thought about it, and taken appropriate action. Instead, I, like many of my colleagues (investors, board members, founders, and CEOs), operated in a state of blissful denial until everything blew up.

I learned that the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment.

I was too inexperienced in 2000 to understand this. Given the exuberance, many of my mentors, who had been through other financial cycles, chose to ignore this. The phrase “it’s different this time” echoed broadly throughout the land. I succumbed to the siren song of growth at any cost and paid the price – both literally and figuratively.

Now, I have zero prediction for when the markets will shift from rewarding growth to profitability. Instead, I operate under the assumption that this can happen at any time, and the best companies can grow quickly and either be profitable or be able to become profitable by making manageable modifications to the cost structure within whatever cash constraints they currently have.

Some version of this was on my mind when I wrote the post titled The Rule of 40% For a Healthy SaaS Company in 2015 and the post titled Is 2017 The Year Of Flat Headcount? earlier this year. While I think about this regularly, Mark and Fred’s posts prompted me to pile on to their point and write about it.

There’s a special bonus in Mark’s post, which is in the section titled Revenue is Not Revenue is Not Revenue. He does a nice job of discussing the importance of understanding gross margin and has a line that made me smile.

If you’re shaking your head and thinking, “duh” I promise you that even some of the most sophisticated people I know get off track on this issue of “gross revenue” versus “net revenue.”

I’d add that this includes getting confused about GMV and MRR when talking about revenue and amazingly occasionally confusing revenue with income. It keeps going, when one asks the question “does profitability mean being EBITDA positive, cash flow positive, or net income positive? Or something else?”

If you are a CEO of a company and any of this makes you nervous in any way, I encourage you to grab a few of your investors who have been investing in startups for at least 20 years, take them out to lunch, and talk through these issues with them to understand them better and figure out whether or not to care about this in the context of your company.

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Jun 12 2017

Go For Culture Add, Not Culture Fit

I’ve come to despise the phrase “culture fit.”

I don’t remember when I first heard it, but it was many years ago. Over time, it became woven into the world of entrepreneurship, as companies used it as a primary frame of reference for hiring. VCs turned it into a cliche, espousing the importance of culture fit during the entire spectrum of company creation, from the functioning of the very earliest teams through scaling a business.

For the past few years, I’ve tried to use the phrase “cultural norms” instead of culture whenever the concept of culture fit was mentioned. At first, this felt a little ponderous as I had to regularly explain what I meant by cultural norms and why I didn’t just say the word culture instead. I eventually learned that if I stated that culture meant nothing and was shorthand for saying “I don’t want to think hard about what is going on here,” I usually stimulated enough of a conversation that it ultimately became a useful one.

About a year ago, I was in a conversation (I can’t remember who it was with) and they mentioned the phrase “culture add.” I immediately loved it. Since then, I’ve used it as a direct contrast to culture fit and let it evolve to the phrase “go for culture add, not culture fit” as part of a longer rant on diversity on all dimensions (beyond just gender and race) and the evolution of culture norms in a company.

I felt confident in my understanding of this concept. I’d cite the Rooney Rule as an element of how to hire for culture add. If you aren’t familiar with the Rooney Rule, a relatively recent article in 538 titled Rethinking The NFL’s Rooney Rule For More Diversity At The Top has a short and clear description of it.

“In place since 2003 for head coaches and expanded in 2009 to include general manager jobs and equivalent front-office positions, the rule — named after Dan Rooney, Pittsburgh Steelers chairman and onetime head of the league’s diversity committee — mandates that an NFL team must interview at least one minority candidate for these jobs. The rule, however, has two fatal flaws: the temptation to substitute sham interviews in place of a search for real diversity, and coordinator-level positions, a crucial step to head-coaching jobs, are not under the umbrella.”

As with many things in life, I marched forward, spreading the gospel of the Rooney Rule once I had internalized it as part of the idea of culture add. And then, in February, I ran into a brick wall during a Boulder roundtable on diversity organized by Andrea Guendelman of BeVisible. I was sitting in a big circle in the room, listening carefully, but also feeling like I was contributing my perspective and expertise to the group (which, when I reflect on this, means I was probably feeling smug, self-important, and casually tossing around things like the Rooney Rule) when I heard something referenced from Stefanie Johnson, a CU professor that made me pull out my iPhone and type a few notes to myself.

“Stefanie Johnson just wrote an article that the Rooney Rule doesn’t work. If you have only one female candidate in the finalist pool, it doesn’t increase that probability that you’ll hire a female candidate. The same is true for a non-white candidate. If you want to increase the probability, you have to have at least two female candidates in the finalist pool.”

I may have said something like “can you say that again?” If I didn’t, I should have. Regardless, it was seared into my brain. A few days later, I got an email from Stefanie (who had heard about the conversation) with a link to her recent HBR article titled. If There’s Only One Woman in Your Candidate Pool, There’s Statistically No Chance She’ll Be HiredThe article is clear and has the appropriate statistical support for Stefanie’s assertion. If you don’t feel like reading the article, the chart below summarizes it.

There’s a lot in the article, including this gem:

“Why does being the only woman in a pool of finalists matter? For one thing, it highlights how different she is from the norm. And deviating from the norm can be risky for decision makers, as people tend to ostracize people who are different from the group. For women and minorities, having your differences made salient can also lead to inferences of incompetence.”

and this punchline:

“And the evidence simply does not support concerns surrounding the myth of reverse racism. It is difficult to find studies that show subtle preferences for women over men, and for minorities over whites. But the data does support one idea: When it is apparent that an individual is female or nonwhite, they are rated worse than when their sex or race is obscured.”

As I finish up this ramble, let’s cycle all the way back to the notion of culture add. By using this phrase, one of the things I’m trying to do is break the notion of hiring people like everyone else in the company as a default to supporting the idea of culture. Instead, you are looking for people who add to your culture. This does not invalidate the idea of adding people like you, but it doesn’t let this be the default. It’s more subtle than mechanisms like the Rooney Rule, but hopefully, it will be effective long-term.

More importantly, at a discussion earlier this year, I realized once again how little I know about something I’ve been immersed in for many years. Or, if I’m optimistic, how much I can regularly learn just by paying attention, listening, and participating in a discussion, even when I think I’m one of the experts, advocates, or some other word that makes me feel good about myself. And, most of all thank you, Andrea, for staying after me, and for creating a forum for a major new insight for me that I might have otherwise missed.

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May 11 2017

The Journey From $1m MRR to $2m MRR

There’s a long-standing cliche concerning SaaS companies that once you get to $10m in ARR you are unkillable. As Jason Lemkin says in his post from early 2013:

Inevitability in SaaS comes around $10m in ARR, plus or minus. Once you hit this point, you have a brand, you have a fully baked team, you have a robust product, and you have a self-generating stream of new leads and new business. Will you get from $10m ARR to $100M ARR? I don’t know. Is an IPO in your future? Not sure. But once you hit $10m in ARR or so, you cannot be killed by anything. That’s the power of compounding SaaS revenue. And actually, as we’ll get to, $10m in ARR — this is when it really gets fun.

I’ve struggled with this concept and how to translate it into action in my world. While the phrase “you cannot be killed by anything” is evocative, your actual value can be killed, as there are many problems getting from this stage (whatever we are going to call it) to the next level.

I don’t like to think in ARR when I’m working with SaaS companies. I’ve always found MRR easier to process, especially when thinking about derivative measures, like growth rate and churn, that are so important to pay attention to on a monthly basis. And, instead of ARR thresholds ($10m ARR, $25m ARR, $50m ARR, $100m ARR), I like to use MRR thresholds, which I talked about extensively in a post from 2015 titled The Illusion of Product/Market Fit for SaaS Companies. The MRR thresholds I focus on are $1, $10k, $100k, $500k, and $1m. And $1m MRR is the particular moment that is analogous to the $10m ARR inevitability.

If you can blast through the $500k MRR mark and march to $1m MRR, you’ve found product/market fit. You are now at the magical point some people call “Initial Scale.” Cool – you’ve got a business.

If you believe the cliche, you are now unkillable. I’d suggest that instead, you are now in an entirely different zone as a company, where you will be evaluated on a different set of characteristics and will face different struggles. If you want a hint, read Fred Wilson’s recent post titled Team and Strategy.

If you are a CEO, the real work of scaling a company begins about now. The question you’ll be facing will have a lot less to do with product (and the product strategy), and a lot more to do with – well – strategy!

You can start exploring questions like: Are you the market leader? Who are your competitors? What are you doing to build a moat around your business? If this sounds like Competitive Strategy, instead of Strategy, it is, but it’s a critical starting point. If you don’t want to read Porter’s classic book (or read it again if you read it a long time ago), try a Wikipedia shortcut on Competitive Advantage.

You can shift to more specific questions around a category like sales such as: Are you making progress on lowering churn? Have you moved from monthly to annual deals? Are you trying to get three-year deals done? What is the composition and health of your channel?

These are all things that you likely ignored, or didn’t even think of when you were in the $100k to $500k MRR zone. Well – maybe you thought about churn, especially if it spiked up to a point as to undermine your growth rate and cause another cliche – the leaky bucket – to appear in all of your board discussions. But did you shift from monthly to annual deals so that you could lower your long-term capital needs significantly? If you did – great job!

We have many companies in our portfolio in the $1m MRR to $2m MRR zone. It’s fun, but challenging in a different way than the up to $1m MRR zone is. And, once you blast through $2m MRR, all the things you focus on as a CEO change again.

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Apr 18 2017

Just Finish It

An exec at a company I’m an investor in sent this to me this morning. Does this feel like your life at your company?

I’m an enormous fan of Eric Ries and The Lean Startup. His, and Steve Blank’s, thinking and writing changed how we approach startups. However, the bright shiny object syndrome is alive and well in StartupLand and, when conflated with MVPs and fail fast, often results in misery.

Finishing a product and shipping is extremely challenging. It’s different for hardware, as there is a physical instantiation of a product that you have to put in the proverbial box and send out the door. With software, you can ship a buggy piece of shit and keep updating it daily (or continuously) to improve it. But when the product includes some hardware, once it’s out the door you’ve got to live with it.

But, for both hardware and software, the lack of focus on finishing is toxic. When you read Jeff Bezos’ annual letter and internalize “customer obsession” you realize that if you view the world from the perspective of the customer, everything in your business hinges on getting your product into their hands, and then totally delighting them.

At my first company, we did releases of software for multiple clients each week (we were a custom software company.) In some ways, this process has the same characteristics as a weekly sprint, except for it was the early 1990s, and we often had to ship floppy disks by Fedex to our clients. I knew the exact time I had to walk out the door of my office to walk to South Station (in Boston) to get in a cab to go to the Fedex depot at Logan Airport to make the FedEx cutoff. Whenever I did that, I always had a euphoric feeling when I got back in the cab, sat back, and headed home for the night. We’ve come a long way from that dynamic in the last 25 years, but the awesome feeling of shipping hasn’t changed.

This may sound simple and trite but think about it for a second. If you are a CEO or a founder, are you creating an illusion of shipping, but creating a cycle of bright shiny object syndrome?

And with that, this post is shipped …

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Apr 14 2017

Bezos Annual Letter

I just sent this note out to our CEO list. I was going to write a different post today about The Founder Wellness Pact: How Accelerators are Addressing Depression Among Founders but I’m going to save it for next week. After sending this note out, I decided it was the clearest thing I could add to your world today going into the weekend. 

Jeff Bezos’ annual letter is now up there with Warren Buffett’s annual letter as must reads for me. However, it is a lot shorter (5 minutes vs. 20 minutes).

You’ve probably seen lots of techy news, tweets, and medium posts about this. Don’t read them. Just read the letter. It won’t take long, and if you think about it while you are reading it, it will mean something that sticks.

Ask yourself several questions when you are finished:

1. Do you have a customer-obsessed culture?

2. Do you make decisions with 70% of the information?

3. Do you have a “disagree but commit” culture (especially when it’s you that is disagreeing)?

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Feb 28 2017

Don’t Play Hurt

I heard a great line from a CEO recently: “I don’t want to play hurt.”

I loved that line.

In my world, some companies beat their Q416 numbers. Others made their Q416 numbers. Some missed their Q416 numbers. That’s life. Any VC who says otherwise (e.g. “All my companies are killing it”) is either full of shit or doesn’t have very many investments. It’s especially true by Q4 when a budget was finalized in Q1 since Q4 is by far the hardest quarter to forecast / predict.

We are now 67% of the way through Q117.  Plans for 2017 are either locked or getting finalized. These plans get reset based on the 2016 data, especially trends and progress (or lack thereof) from the second half of 2016. A year ago seems a very, very long time ago.

Let’s assume you missed Q416. I don’t care what the reason was for the miss. Your entire team is bringing that thinking into the budget process. “We need more resources to grow faster.” Or “There’s no way we can grow that fast.” Or “We made some expectations about what was going to have in Q4 around Christmas that didn’t come true.”

At a high level, these are rational reactions. But they don’t really help in thinking about 2017 or the budget process because they don’t get to the root cause. Using the Five Whys or some other process is key. Figure out what happened as your starting point. If you’ve already built and approved your plan without doing this, go ahead and stress test your plan by doing this now. Use the root cause analysis to lower your costs and increase your revenue so that you beat your plan. Ask yourself why what happened, happened. Keep asking why to the answers until you feel like you’ve gotten to the root cause.

Let’s assume 2016 resulted in some layoffs in the second half of the year. You were on a growth trajectory that wasn’t working, or you had invested in some products you decided to shut down. Or in 2015 you had raised a bunch of money, hired a lot of people, and assumed it was all going to just work out according to the spreadsheet model you used to build headcount and revenue expectations based on the headcount. And then it didn’t.

It’s now 2017. You’ve made real cuts and now have a core team that is sized correctly for your current business. The process sucked, but it’s more than a quarter behind you. The dust has settled and people are heads down working. You had a more sanguine budget process this year, with solid revenue growth but much lower head count growth.

Don’t play hurt. Get back on the metaphorical field. As CEO, put the Q4 miss or the Q3 layoffs behind you. Pick your head up and realize that you have a real business, but you hit a giant air pocket last year. That is normal – it happens all the time on the way to building a great business. Any CEO who denies that (as in “Yup – everything was awesome all the time – there were never any issues in our success”) as as full of shit as the VC who says something like “Every one of my companies is doing great.”

I encourage those VCs (and entrepreneurs) to read my post Something New Is Fucked Up In My World Every Day and reflect on their actual reality.

The struggle can be extremely painful, especially in the moment. But, if you are a great CEO (or manager), keep focusing on what you need to do to fix the immediate problem while continuing to play your long term game. And, most importantly, don’t deny reality in any way whatsoever.

And … Don’t play hurt.

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