Who Said VCs Don’t Add Value?

In case there’s anyone out there who reads my blog but not Brad Feld’s — if you’re a Firefox user, you have to read this posting about pipelining and take the two minutes to implement it.  It’s phenomenal.

Thanks, Brad!

Counter Cliche:  Who’s The Dog in this Scenario?

Fred’s VC cliche of the week is a good one — “If you lie down with dogs, you’ll come up with fleas.” His point is a good and simple one, that VCs shouldn’t take people risks in deals and shouldn’t try to back management teams they have serious concerns about (ethical or otherwise) in the hopes of trying to change the team or change management.

The obvious counter cliche is that entrepreneurs run that same risk in accepting capital from less-than-savory venture investors.  An ethically-challenged investor can wreak havoc on a young company, potentially tying the company up with peripheral legal problems or even damaging the company’s attempts at raising future rounds of capital.  So, VCs can be the dog in the scenario as well.

But I think there’s a broader counter cliche here, which is that one’s reputation in business is always tied, to some extent, to the company one keeps.  This applies to investors, and also to clients, vendors, and partners.  The appearance of a connection to an unsavory character, even if it’s just an appearance, and even if “unsavory” is in the grey area instead of black-and-white, is almost as problematic as a real connection.

Our business at Return Path is a good illustration of this principle, as is the case with many companies in email marketing, since email marketing has some very visible bad guys (spammers), good guys (think eBay and Expedia), and lots of companies that operate in shades of grey in between.  One of our lines of business, Delivery Assurance Solutions (email deliverability), is particularly critical in terms of us having a great reputation in the industry, since we work on behalf of email marketers to get their mail accepted (not blocked/filtered) at major ISPs.  No matter how you cut it, this business invariably involves making some judgment calls from time to time on who’s a “good guy” vs. a “bad guy” in the email marketing world.

We try to be as clear as possible with our prospects and clients about what kinds of behavior we wil or will not accept from clients, since our reputation in this business is everything to us.  We won’t, for example, help a client with ISP relations or monitoring tools if they don’t sign reps and warrantees in our contract about their email practices that go well beyond CAN-SPAM in terms of compliance with industry best practices.  We can’t accept clients into the Bonded Sender whitelist program unless they jump through all kinds of hoops with our third-party watchdog partner, TRUSTe.  And as painful as it is from a revenue perspective, we do fire clients periodically who we discover to be either not in compliance with their reps and warrantees to us, or who we discover to have a particularly poor reputation in the industry.  All of these things are designed to make sure we stay flea-free.

One area that’s particularly tricky for us is what to do with a “bad guy” who comes to us asking for help to become a “good guy.”  While it’s hard to be completely objective about this type of situation, we have an emerging policy around it.  We WILL work with clients who the world perceives as a “bad guy,” but only on a consulting basis to teach them email best practices and how to become a “good guy” (one of my Board members, Scott Weiss from IronPort Systems, calls this Return Path’s 12-step program).  If those clients take our advice and make meaningful and measurable changes to their email programs, we will continue to work with them and will slowly allow them to use our other services over time.  If those clients resist our advice or are too slow to change their ways, we will stop working with them immediately.

I guess the point of the counter cliche is that sometimes it’s hard to tell, as Sally told Harry in the movie, who is supposed to be the dog in a particular scenario.

The (Email) Elephant in the Room

Email marketing continues to be under attack by some members of the media who are looking to stir up melodrama and controversy and seem to be uninterested in or unwilling to look at real metrics from real companies who are enjoying unparalleled success with email.

I can’t say this any better than Bill McCloskey from Email Data Source, who writes in MediaPost:

The Elephant in the Room that no one is willing to talk about is that Spam is not the problem. The problem is the OVERREACTION to Spam. This overreaction is not something that is hurting e-mail marketing communications–it is hurting all communications.

Read the full column here.  It’s great.

UPDATE:  Apparently, the column is only available if you register for MediaPost (grrr…).  It’s good enough, and free, but don’t feel compelled.  Two other useful paragraphs to read are below:

And all this hysteria is wiped up without looking at the facts. Because if you look at the facts, you’d see a pattern emerge. For instance, according to the DMA, e-mail has the second-highest ROI of any direct marketing channel, even with reduced deliverability and open rates. The fact is that if you examine the clickstream data from companies such as Hitwise, you will see that the biggest traffic driver time and time again is e-mail. E-mail is not just an important interactive marketing channel, it is the most important marketing channel–but you’d never know it judging by today’s trade shows and industry publications.

In the name of keeping us free of viagra ads in our inbox, we have crippled the most efficient communications system ever developed. We have allowed the free flow of information to be hijacked by fanatics. And because no one speaks for the e-mail industry, this is going on under our noses with no cry of protest.

What a View

We’ve done 360-degree reviews for five years now at Return Path.  Rather than the traditional one-way, manager-written performance review, we instituted 360s to give us a “full view” of an employee’s performance.  Reviews are contributed by the person being reviewed (a self assessment), the person’s manager, any of the person’s subordinates, and a handful of peers or other people in the company who work with the person.  They’re done anonymously, and they’re used to craft employees’ development plans for the next 12 months.

The results of 360 are a wonderful management tool.  Mine in particular have always been far more enlightening than the one-way reviews of the past.  The commonality in the feedback from different people is a little bit of what one former manager of mine used to say — when three doctors tell you you’re sick, go lie down.

I know a lot of companies do 360s, but we had two great learnings this year that I thought were worth noting.  First, we automated the process (used to manual in Excel and Word) by using an ASP solution called e360 Reviews from Halogen Software.  It was GREAT.  The tool must have saved us 75% of the administrative time in managing the process, and it made the process of doing the reviews much easier and more convenient as well.  I strongly recommend it.

Second, we started a new tradition of doing Live 360s for the senior staff here.  All people who filled out a review for a senior staff member were invited into an hour-long meeting that was moderated by a great organizational development consultancy we work with, Marc Maltz and Nancy Penner from Triad Consulting.  The purpose of each meeting was to resolve any conflicting comments in the reviews and prioritize strengths as well as development objectives.  We also did a very quick session where the senior staff did “speed reviews” in person of the rest of the company’s leadership team that tried to accomplish similar objectives in a much more compressed time frame and format.

So far (we’re in the middle of them — actually, the team is doing my review as I write this), the results are wonderful.  We’re going to end up producing MUCH crisper and more actionable development plans for our senior staff this year than we ever have in the past.  And the tone of the meetings has been incredibly supportive and constructive.  Having an outside moderator made a huge difference.

And yes, just in case you’re wondering, it is a little bit unnerving to know that a room full of 15 people is discussing you.  Especially when you can hear them all laughing through the wall.  🙂

Shifting Gears

My Grandma Hazel has a Yiddish saying that she uses to describe me from time to time — "gor oder gornisht" — which means "all or nothing."  My Dad has a Greek saying that he uses to describe me from time to time — "meden agan" — which means "everything in moderation."  These two approaches to life seem diametrically opposed.  Which is right?

Being a successful entrepreneur requires BOTH approaches, each at different times, and more important, the ability to shift gears between the two and be clear about the shift to yourself and to others.

There are periods of time when you need to be in "all or nothing mode."  Push extremes.  Demand more from your team.  Drop lots of the items on your to-do list and grow a singular focus on The One Big Thing.  Don’t go for a light jog — train for a marathon.

Then there are periods of time when you’re in execution mode.  The path has been defined.  Things are working.  Put the "life" back in your "work-life" balance.  A marathon?  Are you nuts?  Just run 3 miles a day and stay in shape.

You — and your organization — need to be able to shift gears between the two modes.  An organization that never goes through extreme periods is in grave danger of stagnating.  No one in an exciting company ever has "business as usual" emblazoned on their to-do list 365 days a year.  Organizations tend to take their biggest leaps forward when there’s an extreme situation, an all-hands on deck, a crisis.

But an organization that ONLY knows how to exist in crisis mode can be miserable.  Trust me, I’ve worked in one before.  There’s a shiny new object every week that everyone has to drop everything to pursue.  Everything gets started, but nothing gets finished.  People are frustrated.  They burn out. 

Companies and people (most mortals, anywway) have to go through periods of time where they thrive on the routine and celebrate their everyday achievements.

The trick to getting this duality right is to make sure you are clear to yourself, and when necessary to others, about when you’re shifting gears.  For yourself:  when you go into "gor oder gornisht" mode, clear that calendar and set aside the time to do the job right.  For others:  don’t make them guess where you’re coming from.  If you’re hitting an extreme patch, let them know by meeting or email/memo.  And make sure you’re fair to them as well.  If you’re forcing people in the organization to focus on The One Big Thing, make sure you recognize the changes that forces in their goals, their deliverables, and their external commitments and give them the flexibility they need to succeed.  Going back into "meden agan" mode is easier, but still requires a note of closure to your team, celebrating the success of the big push.

Fortunately, I can tell both Dad or Grandma that they’re right (how would I ever pick?).  I just hope the ancient Greek philosophers and bubbies everywhere aren’t spinning in their graves over the mixing of metaphors.

Just Say No

A recent study by AOL (published here in CNET) says that on average, people in America check email five times per day and can’t go without it for more than three days at a time.  And six out of ten respondents said they check email on vacation.

While I’m as guilty as anyone of perpetuating these statistics, I am a big fan of taking regular time off from email.  Whether it’s a day each week, or a whole weekend here or there, or at least one week vacation per year, it’s important to Just Say No every once in a while.  Even Fred took an email holiday recently, to great success, I believe.  The great thing about email is that they’ll all be there waiting for you when you log back in.

Decoration Day

Today, Memorial Day, is the day my Grandma Hazel always calls Decoration Day.  That’s obviously a name that pre-dates me, so I thought I’d look it up today and figure out what it originally stood for and when the switch happened.

According to Wikipedia, the holiday originally called Decoration Day was first observed in 1868 to honor fallen Union solidiers of the Civil War.  As you can imagine, southern states didn’t really recognize the holiday until at least 50 years later, and many continue even today to have a separate Confederate Decoration Day (now Confederate Memorial Day or somewhat disturbingly Confederate Heroes Day in Texas) for years.  After World War I, the day came to honor all American soldiers who died in war.

The name Memorial Day was first used in 1882 but didn’t really take hold until after World War II, finally becoming the official federal name for the day in 1967.  The holiday became an official national holiday in 1971.

Excited by this?  Just wait for this fall’s Veteran’s Day, also Remembrance Day or Armistice Day.

Fred’s VC Cliche of the Week this week is called "the pass," which is the euphemism that VCs have adopted when they decide not to invest in a particular company or entrepreneur.  Fred’s VC wisdom comes down to this:

1 – Say no quickly to the things you know you aren’t going to do

2 – Don’t take an opportunity into diligence unless you are willing to spend enough time to truly  undersand it, and if you don’t invest, make sure you are willing to spend time explaining why.

It won’t make it any easier on the entrepreneur who is trying to find someone to invest in his business that you are passing, but they might learn something from the discussion, and in the end you will gain their respect.

And in this age where VCs and their money are a dime a dozen and great entrepreneurs are rare, respect from entrepreneurs is critical to success in the VC business.

The counter cliche is that the same advice applies to entrepreneurs who "pass" on a particular VC.  There are many times where startups (especially good ones) have offers on the table or are pursuing them from multiple VCs.  That strategy is a must and one that I’ve blogged about before. 

VCs may be a dime a dozen, but great ones are hard to find.  If you find yourself in the position of having to "pass" on one of them — follow Fred’s advice and do it quickly, politely, and without wasting any more of their time.

Email Articles This Week

I know, not a real inspired headline.  There are two interesting articles floating around about email marketing this week.  I have a few thoughts on both.

First, David Daniels from Jupiter writes in ClickZ about Assigning a Value to Email Addresses.  David’s numbers show that 71% of marketers don’t put a value on their email addresses.  I think that may be an understatement, but it’s a telling figure nonetheless.  David’s article is right on and gives marketers some good direction on how to think about valuing email addresses.  The one thing he doesn’t address explicitly, though, is how to think about the value of an email address in the context of a multi-channel customer relationship.  Customer Lifetime Value is all good and well, but the more sophisticated marketers take the next step and try to understand by customer (or segment) how valuable email is relative to other channels.

Second, David Baker writes in Mediapost’s Email Insider about Finding New Customers Via Email.  The column is a nice discussion of how important email is to retaining customers.  We at Return Path completely agree.  However, the question Baker posed at the beginning is not well addressed — “Should I use email to find new customers?”

My company works with hundreds of smart marketers every week who say, “Yes!  Because it’s effective, cost efficient and is the only way to combine the relevancy of search with the power of online advertising.”

I applaud Baker’s note of caution to marketers planning to acquire customers via email.  It’s always a good idea to plan the campaign with the same diligence you plan any marketing outreach — making sure the targeting, message, design and offer are all optimized for the prospect interest and the medium.

However, I take great issue with his conclusion that email acquisition marketing “does more harm than good.”  Our clients disprove this claim every day.  Email prospecting done well includes a synergy of organic, viral and paid techniques.  Consumers and business professionals still want to receive relevant and informative offers via email.  More than 50,000 of them sign up every DAY for email offers from Return Path alone.

Poeple who have failed list rental tests (and there are lots of them) need to ask some hard questions of their campaign strategy, their creative, their list rental partner, and their agency.  Did you try to send the same message and design to a list of prospects as you do to your house file?  No wonder no one got the message, they don’t even know you.  Was your list double opt-in?   Did you segment the list by interest category or demographics?  Perhaps your message was mis-targeted.  Did your landing page make it easy to take advantage of the offer?  Did you test on a small portion of the list before blasting the entire file?  Did you optimize your subject line to ensure higher open rates?  Did you try to do too much?  The golden rule of email list rental is “one email, one message.”

The success of many marketers using list rental today can not be ignored.  Done well, email acquisition is extremely powerful.  And, the addition of new lead generation, co-registration and offer aggregation opportunities create even more custom and targeted opportunities to connect with prospects.

It’s too easy to dismiss something that didn’t work two years ago by blaming the medium.  Instead, recognize that old experience for what it was.  A well-intentioned effort to test out a new medium, that didn’t work because many tried to apply practices from other media to it.  Times have changed, and email acquisition has proven its value.

Stick with Daniels’ article, figure out how valuable an email address can be for you, then go out and collect as many of them as you can from customers and prospects who will be all-too-willing to give them to you in exchange for content, offers, and other points of value.

Mental Math

One of the most important things a CEO can do when thinking about conversations with Board members or investors is to do mental math. That’s how directors operate. They remember key metrics from time to time and project them forward in their minds. Whatever your financial or operating results, you need to make sure they will mesh with your investors’ mental math.

Looking at your cash balance? Look back at the last financial statement’s cash number and mentally work your way to the current statement: operating profits or losses, big swings in AR or AP, CapEx, and other "below the line" items. Do they add up? Be ready to walk everyone through the mental math at your next meeting.

The same thing applies to operating metrics — the size of your database, your headcount, your sales commission rate. Directors only have so much time to be in the details of your business…make sure you know the metrics they zero in on, and work that mental math!

How Much Blogging is Too Much Blogging?

After being completely (and blissfully, I might add) offline for 11 days, I have returned to find 247 new postings in my Newsgator folder.  Only a short year ago, I would have come back from vacation to too many emails…now I get to sift through too many emails AND too many blog postings.

On the bright side, I have at least these two images of the Barolo wine country and the Amalfi coast solidly etched in my brain to ease re-entry to work. Anyone interested in a brief travelog of the Italian countryside, click here and follow the top link.