Another Only Once Moment, Sort Of

I’ve never handed over the reins of a company before (no, I’m not leaving, and we aren’t selling Return Path).  But I did the other day, for the first time.  As many people know, last year we reorganized the company to focus entirely on deliverability and whitelisting and spun out Authentic Response, a company in the online market research business, into a completely separate entity. 

Since then, I have been CEO of both companies.  Although Return Path has had more of my focus — Authentic Response had excellent day-to-day leadership under Co-Presidents Jeff Mattes and Rob Mattes — I’ve still been working in both businesses.

Today, we officially announced the hiring of my replacement, Jim Follett.  Jim was formerly CEO of Survey Sampling, a larger company in the online market research business, and has over 20 years of prior experience as a senior executive in market research and information services companies.  While we still share the office in New York and I will stay on as Chairman, the percentage of time I can now devote to Return Path is now 100% — the first time it’s ever been that way (for the deliverability business).

I didn’t start Authentic Response, and I’ve never been deep in the bones of the business the way I am Return Path.  Even so, I definitely experienced a range of emotions at our all-hands meeting where we introduced Jim to the company that I don’t regularly experience at the same time:  mainly a mix of pride in the work the team has done on my watch, excitement for the business, and sadness at not working quite as closely with the nearly 100 people in Authentic Response going forward.

I’m sure someday, I will hand over the reins to Return Path.  No time soon, but that day eventually comes for every entrepreneur.  If this was a preview, it will be an emotional day.

But for now, I’m mainly happy to welcome Jim to the family, and I’m excited for the entire Authentic Response business as it embarks on the next chapter in the company’s journey.

  

The Gift of Feedback, Part II

I’ve written a few times over the years about our 360 feedback process at Return Path.  In Part I of this series in early 2008, I spelled out my development plan coming out of that year’s 360 live review process. I have my new plan now after this year’s process, and I thought I’d share it once again.  This year I have four items to work on:

1. Continue to develop the executive team.  Manage the team more aggressively and intentionally.  Upgrade existing people, push hard on next-level team development, and critically evaluate the organization every 3-6 months to see if the execs are scaling well enough or if they need to replaced or augmented
2. Formalize junior staff interaction.  Create more intentional feedback loops before/after meetings, including with the staff member if needed, and cultivate acceptance of transparency; get managers to do the same.  Be extra skeptical about the feedback I’m getting, realizing that I may not get an accurate or complete picture
3. Foster deeper engagement across the entire organization.  Simplify/streamline company mission and balanced scorecard through a combination of deeper level maps/scorecards, maybe a higher level scorecard, and constant reinforcing communication.  Drive multi-year planning process to be fun, touching the entire company, and culminating in a renewed enthusiasm
4. Disrupt early and often, the right way.  Introduce an element of productive disruption/creative destruction into the way I lead, noting item 2 around feedback loops

Thanks to everyone internally who contributed to this review.  I appreciate your time and input.  Onward!

Scaling Frustrations

Two things have come up in spades lately for me that are frustrations for me as a CEO of a high growth company.  These are both people related — an area that's always been the cornerstone of my leadership patterns.  That probably makes them even more frustrating.

Frustration 1:  Worrying that I don't get completely candid feedback from deep in the organization.  I've always relied on direct interactions with junior staff and personal observation and data collection in order to get a feel for what's going on.  But a couple times lately, people had been warning me (for the first time) when I've relayed feedback with comments like, "Of course you heard that — you're the CEO.  People will tell you what they think you want to hear." 

So now the paranoid Matt kicks in a bit.  Can I actually trust the feedback I'm getting?  I think I can.  I always have.  I think I'm a good judge of character and am able to read between the lines and filter comments and input and responses to questions I ask.  But maybe this gets harder as the organization grows and as personal connections to me are necessarily fewer and farther between. I probably need to start recognizing that as the CEO, people may feel uncomfortable being totally open…and it is my job to figure out how to be sure people understand that I do want to hear their voices…unplugged and constructive.

Frustration 2:  Needing to be increasingly careful with what I say and how I say it.  This comes up in two different ways.  First, I want to make sure that while I'm still providing as transparent leadership as I can, that I'm not saying something that's going to freak out a more junior staff member because they're missing context or might misinterpret what I'm saying.  Ok, this one I can manage.

But the tougher angle on this is having unintended impact on people.  Throwing out a casual idea in a conversation with someone in the company can easily lead to a chain reaction of "Matt said" and "I need to redo my goals" conversations that aren't what I meant.  So I'm doing some work to formalize feedback and communication loops when I have skip-level check-ins, but it's creating more process and thought overhead for me than I'm used to.

Nothing is bad here – just signs of a growing organization – but some definite changes in how I need to behave in order to keep being a strong and successful leader.

Ten Characteristics of Great Investors

Fred had a great post today called Ten Characteristics of Great Companies.  This link includes the comments, which numbered over 70 when I last looked.  Great discussion overall, especially for Fred’s having come up with the list on a 15-minute subway ride.  Fred used to write a series of posts about VC Chiches, and I would periodically write a Counter-Chiche post from the entrepreneur’s perspective.  This post inspired me to do the same.

So I’ve taken 15 minutes here, pretended I’m on the subway, and here is my list of Ten Characteristics of Great Investors, in no particular order:

1. Great investors know how to give strategic advice without being in the operating weeds of a company
2. Great investors get to know whole management teams, not just CEOs — in fact, great investors become part of the extended management team of their portfolio companies
3. Great investors invite you to do diligence on them by giving you a list of every CEO they’ve ever worked with and asking you to pick the ones you want to talk to
4. Great investors ask great questions
5. Great investors don’t publicly take credit for the success of their investments, even if they were major drivers of that success
6. Great investors show up for meetings on time and don’t spend the meeting using their smartphone
7. Great investors treat their portfolio companies’ money as if it were their own money when spending it on things like lawyers or travel
8. Great investors look for connections to make between their portfolio companies or relevant people but have a strong relevance filter and don’t send junk
9. Great investors never have a ready-made list of the ways they add value to companies — and they specifically never talk about the help they give in recruiting executives or making sales/bus dev introductions
10. Great investors recognize when they have a conflict around a portfolio company and are clear to represent their separate points of view separately

I’m not sure I’ll be invited to present this anywhere, but there it is for discussion.

Book Short:  Go Where They Ain’t

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant, by W. Chan Kim and Renée Mauborgne isn’t bad, but it could literally be summed up by the title of this post.  I think it’s probably a better book for people who aren’t already entrepreneurs.

That said, there are two chapters that I found pretty valuable.  One is called “Reconstruct Market Boundaries,” which is a great way of thinking about either starting a new business or innovating an existing one.  It’s a strategy that we’ve employed a few times over the years at both Return Path and Authentic Response.  It’s hard to do, but it expands the available territory you have to cover.  The classic Jack Welch/GE “we don’t just sell jet engines, we sell AND SERVICE jet engines” which expanded their addressable market 9x.

The other useful chapter was “Get the Strategic Sequence Right.”  The sequence of questions to answer, according to the authors, is:

• Will buyers get enough utility out of it?
• What’s the right price?
• Can you cost it low enough to make good margin?
• Are you dealing with adoption hurdles?

The reason I found this sequence so interesting is that I think many entrepreneurs mix the order up once they get past the first one.  It’s easy to start with market need and then quickly jump to adoption hurdles, cost things out, and go with a cost-plus pricing strategy.  The book documents nicely why this order is more productive.  In particular, pricing first, then costing second, is both more market-focused (what will people pay?) and more innovative (how can I think creatively to work within the constraint of that price point?).

The common theme that’s most interesting out of the book is that new frameworks for thought produce killer innovation.  That’s clearly something most entrepreneurs and innovators can hang their hat on.

What if There’s No Reason to Eat the Dog Food?

There’s an expression in software about producing a product and market testing it — “seeing if the dogs will eat the dog food.”  I’ve heard it mangled many times around the employees of a software company using the software their own company produces as “seeing if the dogs will eat their own dog food.”  This is always true in consumer software and service companies. 

Employees are often the best users, the power users, and the source of the best feedback to the organization about the product and competition.  We certainly saw this phenomenon in spades at MovieFone, where I used to work before starting Return Path.  There was no more of a power user to be found than Andrew, the CEO, and there was a frenzy every Thursday and Friday as employees called into 777-FILM to buy their own tickets for the upcoming weekend.

But what if there’s no reason to eat your own dog food?  What if your software company develops a specific business application that only one or two people inside your company even care about?  Our services are a great example.  One or two people in Marketing, maybe one or two people in Technology, are users.  When I think about some of the web applications we as a company use, the same must be true of their companies as well.

If this is the case with your company, how do you make sure you get that same level of raw feedback from passionate users inside the four walls of your office, and not just from user groups, which are ok but have some inherent problems in terms of their objectivity and representation. 

I’m not sure I have a good answer to this – it’s more of a question to my readers than a prescription.  I’ll happily reblog the best responses!

Good Meeting Behavior

I've been in meetings with large groups of people at big companies where they're all on laptops the whole meeting, no one makes any eye contact with the speaker/facilitator, and it's hard to get a pulse out of the group as a result.

I almost entirely stopped bringing laptops and smartphones into business meetings a few years back.  There's nothing I find more irritating than when other people are using them when it's my meeting.  Even if they're taking notes, I never know if they're really taking notes or sneaking a peek at email.  And in my experience, people who are on laptops and phones in meetings, whatever they're doing on those devices and however good they are at multi-tasking, aren't paying as close attention to the meeting as the other people in the room. 

What I do instead is take notes on paper and spend 2 minutes after the meeting handling whatever data entry I need to handle on my computer.

I was very excited to see Brad's post about how he is now going to take paper notes in Board meetings rather than use his smartphone and be tempted to check email (and otherwise be distracted).  Everyone should do this for every meeting.  Board meetings are important examples, but they're not alone.  It's just good meeting behavior.  If you have other things to do, step out of the meeting and do them.

Stuck In Legal, Responses

Well, I certainly struck a nerve with my Stuck In Legal rant/post last week.  As of now, there are 32 comments on the blog — my typical post generates 0-1 — and I've picked up between 50 and 75 new followers on Twitter, probably mostly because Fred tweeted about the post. 

Most of the comments on the blog were cheering me on; a couple were from lawyers, one well reasoned and another just a counter rant against stupid business people that had one or two good points buried in it.  You can certainly click through the link above if you want to read them.

But two comments didn't get put on the blog, which I thought I'd post here.  Keep the good thoughts coming on this topic.  It's an important one.

First, Jonathan Ezor (a professor of law and technology) posted his response — not a rebuttal — on the Business Week blog here.  He makes some very good points about how both sides, businessperson and counsel, can work better together to eliminate a bunch of the hassles I noted in my original post.

Second, Joe Stanganelli, a lawyer, emailed me the following, which was too long for my Intense Debate comment software to handle:

In defense of my profession…

EXPLANATIONS:

•Why companies' legal departments or outside counsel aren't directed to be as efficient in doing their work as their other departments

How exactly do you mean?  I'm not sure this is true.  Given the average amount of hours our profession works as it is, we *have* to be efficient.

I can tell you, however, that a huge pet peeve of us lawyers is when our clients essentially say (typically when they’re being billed hourly), "Gee, I want an answer to this very complex legal question that will require a lot of research because no statutes or case laws are directly on point, but don't spend a lot of time on it."

 

This is a bit like saying, “Look, don’t spend a lot of time on this transplant…I’ve got a meeting in an hour, and I’m trying to save money besides."

Also bear in mind that lawyers are not widget-makers or assembly line workers.  We aren’t even (usually) executive decision-makers.  We are in the knowledge and information industry.  We read, we think, and we write.  If you can provide us with some tips as to how to read, think, or write more efficiently, we would be delighted to hear them.

 

•Why companies insist on using their standard form of agreement if they're going to staff a legal department to review contracts anyway (this clearly wouldn't work if everyone in the world behaved this way)

The standard form of agreement has already (presumably) been determined by the company’s legal department to be the best form for the company's interests as part of the legal department’s careful legal analysis (i.e., the job they are paid to do).  Often, however, other companies, clients, etc. don’t use the standard form, or send their own form, or modify the standard form, or any number of other idiosyncrasies can happen with the execution of a contract.  All of these things have legal ramifications and have been the subject of past litigation.

 

•Why lawyers insist on answering questions with "because that's how all our contracts are" instead of applying their brains and logic to situations

(I'll try not to take too much offense at that last part.)

 

This generally happens because the answer “because that’s how all our contracts are” is a lot easier to say than to give the CEO a crash course in contract law.  It’s not fair, but it’s true.

A good lawyer, however, should at least be able to explain to boil it down to a few bullet points without being arrogant about it.

 

•Why business people seem to have no leverage with their legal departments, especially in larger companies, therefore surrendering the negotiation of business terms and the timing of relationship launches, technology usage, etc. to lawyers

This criticism is, if you’ll forgive me for saying so, a bit mind-blowing.  It’s not a matter of “leverage" at all.

Companies have legal departments as a preventative measure because they recognize that the best time to hire a lawyer is before you actually need one.  Most of law practice, in fact, is this “preventative law” and compliance work.  It saves the client (in this case, the company) time and money down the road by staving off lawsuits and liability.

These lawyers are in the business of protecting their clients from themselves – which the clients willingly pay them for because the clients (usually) recognize that they did not go to law school, pass the Bar Exam, and gain years of experiencing practicing law.

So when a company wants to launch a potentially harmful product via a distribution agreement that allows the distributor to get more money than he should because of a technicality, the legal department has to step in and tell the company, “YOU WILL GET SUED IF YOU DO THIS AND LOSE X AMOUNT OF DOLLARS!!!” or they aren’t doing their jobs.

A lawyer is a counselor – an advisor.  Any leader who totally disregards his advisors is not a good leader.

Again, this is not a matter of not having leverage with legal departments; it is a matter of not being able to change the law.

Please don’t shoot the messenger.

 

•Why in-house lawyers make the same dumb changes to wording and formatting that lawyers who bill by the hour make

The law is the law is the law; how the lawyer gets paid does not impact what the law is.  Those “dumb changes” are tried and true terminology that mean certain things in the courts and (usually) all the lawyers and judges know what they mean.  If the lawyers left it alone, your document or contract would potentially (perhaps even likely) mean something totally different.

 

Overall, please recognize that lawyers – at least in the legal department / “preventative law” context that you discuss – are in the risk management and compliance business.  They don’t make the law (at least, not the ones who work for you); they’re simply the guides who are navigating you – the layperson – through the legal system (one that took us years to understand).

After all, if you were blind, and you had a seeing-eye dog, would you get mad at the seeing-eye dog for not letting you cross the street when it’s a green light and a Mack truck is coming down the road?  Would you think that seeing-eye dogs were conspiring against you to not let you cross the street?

 

I will say this, though: Joshua Baer makes a great point.  A good lawyer should be able to provide you with a list of options, and explain (at least in a rudimentary fashion) the dollars-and-cents consequences of each one.  As J.P. Morgan said, “Well, I don't know as I want a lawyer to tell me what I cannot do. I hire him to tell how to do what I want to do.”

Stuck in Legal

If I had a nickel for every time I heard from someone on our sales or business development team that a critical contract, to which both sides had agreed on the fundamental business terms, was "stuck in legal," I'd be rich.  Maybe not rich enough to pay all the world's legal bills, but that's a separate story.

I completely understand the need for contracts and lawyers to review them — and sometimes, they do have to be long and complex.  But here's what I don't understand:

• Why companies' legal departments or outside counsel aren't directed to be as efficient in doing their work as their other departments
• Why companies insist on using their standard form of agreement if they're going to staff a legal department to review contracts anyway (this clearly wouldn't work if everyone in the world behaved this way)
• Why lawyers insist on answering questions with "because that's how all our contracts are" instead of applying their brains and logic to situations
• Why business people seem to have no leverage with their legal departments, especially in larger companies, therefore surrendering the negotiation of business terms and the timing of relationship launches, technology usage, etc. to lawyers
• Why in-house lawyers make the same dumb changes to wording and formatting that lawyers who bill by the hour make

I'm not generally a conspiracy theorist, but much of our encounters with outside lawyers leads me to believe that there's some oath that lawyers take to keep their profession vibrant by creating work for each other.  Someday, I'll write a similar post about procurement departments at big companies.  But it might be as simple as a global find-and-replace on this one!

Techstars Roundup:  Why I Mentor Other Entrepreneurs

Yesterday was Demo/Investor day at Techstars in Boulder, Colorado.  A lot of people have written about it – Fred, Brad, and a great piece by Don Dodge on TechCrunch listing out all the companies.  My colleague George and I co-mentored two of the companies, SendGrid and Mailana, and we really enjoyed working with Isaac and Pete, the two entrepreneurs.

I posted twice earlier this summer on the TechStars experience.  My first post on this, Where do you Start?, was about whether to be methodical in business planning for a startup or dive right into the details.  My second post, One Pitfall to Avoid, was about making sure you don’t create a whizzy solution looking for a problem, but that you start with a problem that needs solving.

Rather than rehash what others have written about yesterday — yes, it was great and fun and energizing — I thought I’d focus on why I spend time mentoring new entrepreneurs.  I did it this year at TechStars, but I’ve done this informally for probably a dozen different entrepreneurs over the years in the community in general. 

Anyway, there are four main reasons I spend time mentoring other entrepreneurs (in no particular order):

It sharpens the saw.  This is Stephen Covey’s language from both The 7 Habits of Highly Effective People and The 8th Habit:  From Effectiveness to Greatness, and it simply refers to an activity that puls you out of the day to day and refreshes your brain because it’s different.  Running, playing guitar, mentoring sessions with entrepreneurs — they all clear the head and are just plain fun.

I get good specific ideas for my own business.  I think I came away from every single meeting I had with either entrepreneur this year with at least one new “to do” for myself and my team at Return Path.  There’s nothing quite like seeing how another company or entrepreneur operates to spur on good thinking, and in this case, both teams we worked with were working in the email space, so they were very relevant to our day-to-day.

I crystallize my own thoughts and ideas.  Much like writing this blog, problem/solution sessions with other entrepreneurs forces me to take a cloud of ideas down to a simple sentence or paragraph. 

I learn a lot about my colleagues.  This is a specific case for this year because I co-mentored these companies with George, although I guess bits and pieces of it have come up over the years as I’ve roped other colleauges into other situations.  George and I brought different ideas and frames of reference to our sessions with SendGrid and Mailana, and it was fun for me and a good learning experience as well to see how George approached the same problems I did.  Call it a “peek inside George’s brain.”

Hopefully I will get invited back to TechStars again next year as a mentor – it was great fun, and I’m incredibly proud of Pete and Isaac and their teams with how well they presented their companies yesterday!

Return Path Makes The List of “Best Places to Work” in Colorado

Long-time readers of this blog no doubt understand my central philosophy when it comes to management.   I believe that people come first.  When employees are happy they make our clients happy.  Happy clients happily pay for our services, which tends to make our investors happy.  When you start with the people, everyone wins.

At Return Path we invest a lot in our people.  And we invest a lot in Team People – what we call “Human Resources” – to support those people. 

So what a great honor to see all that hard work and investment pay off in the form of a “Best Places to Work” honor!  The Society for Human Resources Management named us one of its “Best Places to Work in Colorado” at an awards banquet last Friday.  You can read more about how we won this award on the Return Path blog.

Of course a CEO can set the agenda and make certain decisions to support a great work environment.  But it is the 150 people who come to Return Path every day who make it the amazing place that it is.  I could not be more thankful for each and every one of them – their passion, dedication, teamwork and kindness all come together to create a company that I would want to work for even if I wasn’t the CEO.