Holiday Card Anon
Holiday Card Anon
‘Tis the season of the business holiday card. This is a nice enough tradition, but I received two cards this week that baffled me because I couldn’t tell who sent them to me. Really, if you’re going to send out holiday cards, the only requirement is to make sure the recipients know that YOU sent them! And not just by putting your name or company on the envelope (although that’s a help), as sometimes cards get opened and separated from their envelopes. Include a business card inside the card, or make sure your name is printed on the card itself, or make sure your signature is legible, or at the very least make sure your company name is on the inside of the card. Otherwise, all credit for the holiday greeting will just go straight to the North Pole!
The Hiring Challenge
Fred had a great posting a couple weeks back called The Talent Economy. In it, he writes:
The CEOs who survived the downturn with their companies intact proved that they were tenacious, creative, hard nosed, and financially savvy. Now they are waking up to find out that the game has changed. They have to start focusing on the people side of the business a lot more. Hiring, managing, and retaining the talent is back at the top of the priority list.
Retaining good people has always been at the top of my list, even in the dark days. But hiring and managing in an environment that’s once-stagnant-now-growing presents some real challenges. Many of these aren’t unique to startups — it’s always tough to find A players — but there are three things I’ve observed that are uniquely tough about hiring in an entrepreneurial environment:
2. Finding the time to do it right. Most managers in small companies are at least a little overworked (sometimes a lot!). And most cash-sensitive small companies don’t want to hire new people until it’s absolutely necessary, or more specifically, until it was absolutely necessary about a month ago. This mismatch means that by the time the organization has decided to add someone, the hiring manager is even more overworked than usual — and can’t find the time to go through the whole process of job definition, recruiting, interviewing, and training. This is one of the biggest traps I’ve seen startups fall prey to, and the only way to break the cycle is for hiring managers to make the new hire process their #1 priority, recognizing short term pain in the form of less output (prepare your colleagues for this with good communication) in exchange for longer term gains of leverage and increased responsibility.
3. Remembering that the hiring process doesn’t end on the employee’s first day. I always think about the employee’s first day as the mid-point of the hiring process. The things that come after the first day — orientation (where’s the bathroom?), context-setting (here’s our mission, here’s how your job furthers it), specific skill training, goal setting (what’s your 90-day plan?), and a formal check-in 90 days later — are all make-or-break in terms of integrating a new employee into the organization, making sure they’re a good hire, and of course making them as productive as possible.
UPDATE: Joe Kraus has a great post on this topic as well.
Being the Client
My friend and colleague Sophie Miller, a long-time sales executive in the direct marketing industry, once said, "In my next life, I want to come back as a client." She didn’t mean it this way (I think she meant it as "I want to be in the driver’s seat next time ’round"), but this is great advice for any member of an entrepreneurial team in a software or services business that serves other businesses. The good news is, it doesn’t require the afterlife to achieve it!
Mariquita and I have done some work in our spare time the past two years for two different organizations to help them out with their technology. One is our golf course, and the other is our cousins’ wine store upstate. Both experiences have had us defining business requirements, working with vendors from selection through contract, and then working with the vendor and the organization on deployment and process change. Both have been directly useful for me to take lessons back and apply them to our processes and work with clients at Return Path.
Now Selling Wit, Charm…Even Your Own Opinions
Now Selling Wit, Charm…Even Your Own Opinions
Full credit to Jonathan Schwartz from Sun for spotting this gem of an offer on eBay. Come on, people. Please.
The Rumors of Email's Demise Have Been Greatly Exaggerated, Part II
The Rumors of Email’s Demise Have Been Greatly Exaggerated, Part II
Fred beat me to it. There was an interesting article floating around yesterday about how Korea, which is one of the cutting edge nations in terms of technology usage, is finding that younger people prefer electronic communications like SMS text messaging and IM to email. Fred says he sees that trend here in his teenage kids as well.
It will be interesting to see how this develops. It may be over the long haul that more personal communication happens over SMS and IM, but I’m still a believer in email for more formal business communications, any longer form note, and distribution of content or marketing that is best served on a larger screen and in a less intrusive way.
Why Entrepreneurship is Like Windows
Why Entrepreneurship is Like Windows
My family and I had a great and very relaxing Thanksgiving holiday, and I hope you did as well. I always enjoy the four-day weekend — it’s one of the few times during the year where no one (outside of retail) is working, so I always get to relax and take some mental time away from work.
It’s often said that no matter how many hours a day an entrepreneur is in the office, he or she is always working mentally. It occurred to me this past weekend that being an entrepreneur is a lot like Windows in this way:
Usually, at night, you’re in Screen Saver mode. One little jiggle of the mouse, and you’re right back in the game.
If you’re lucky over a weekend, you’ll get to Log Off or even Standby, so going back to work actually requires a few conscious keystrokes. But the Operating System is still ready and waiting in the background.
A good vacation allows you to Hibernate. The hard drive stops spinning, the fan quiets down, and you can close the screen.
While a great vacation (a 2+ weeker) can allow you to actually Shut Down, that’s rare and difficult. I achieved it in Antarctica a couple of years ago, but only because there was no electricity and no reminders of civilization, let alone email marketing. More often, a full Shut Down happens on an exit.
Usually, it’s not until after the exit that you get to Restart and try it all over again, although you might get lucky and do that midstream with a good management team offsite or working with a great executive coach.
And I won’t even get into the Ctrl-Alt-Del shutdown. That’s not pretty.
Everyone’s a Marketer, Part II
Everyone’s a Marketer, Part II
In Part I of this posting, I talked about how everyone’s job function is increasingly touching customers and therefore, in our networked world, everyone needs to think like a marketer. This posting has the same theme but a different spin. From the perspective of the individual person (in a company, and in life), marketing is central to success, although the definition of your target market needs to change with the circumstances.
Interviewing for a job? How good a job have you done building the brand of you (your list of accomplishments)? How good is your collateral (resume)?
Want to get an increase in your department’s budget or buy a new piece of hardware? Have you adequately defined the return on the incremental investment you’re proposing?
Need to get that project done? What’s your universal selling proposition to get others to help you out (“here’s why it’s good for you to cooperate”)? Are there any incentives involved (“I’ll buy dinner if you stay late and help with this”)?
Working hard to get a promotion? Identify a new customer segment, or a new problem to solve for your customers, or a solution to that problem, and your marketing skills will get you there.
Want to go somewhere off the beaten path on vacation? Better come up with some great selling points that resonate with specific members of your family (it’s beautiful, it’s inexpensive, the food is great, no one else has ever been there) to convince them all to go along with you!
I suppose this posting (and maybe the other one as well) could be entitled “Everyone’s in Sales,” and that would also be fitting. Anyone who’s not in marketing or sales but who’s interested in learning a few of the basics should consider some outside reading. I’d recommend Positioning: The Battle for Your Mind, SPIN Selling, and Getting To Yes, but there are many, many other great books that would also do the job.
Complex Collaborations
Complex Collaborations
I just read a new book entitled Business Without Boundaries: An Action Framework for Collaborating Across Time, Distance, Organization, and Culture. I happen to know one of the authors, Don Mankin, who was on our trip to Antarctica last year. The book is a good, quick read for anyone running an organization that requires any degree of complex collaboration, whether in the form of multiple offices with a single company, close relationships with suppliers or customers or channel partners, or even a joint venture.
Mankin and his co-author Susan Cohen present three case studies: John Deere, Radica, and Solectron. They then tie their learnings together into a solid framework that’s almost a how-to checklist for organization leaders to follow. While the writers take an academic approach, the learnings and framework steps presented are anything but academic — they place a huge premium, for example, on relationship building and communication patterns. These are all things we’ve worked through over the years at Return Path, whether managing employees across multiple offices or in working with some of our reseller partners or clients.
All in, it’s a good read — and not just because I hung out with this guy in an igloo for two weeks!
Reverse Engineering Venture Economics
Reverse Engineering Venture Economics
First, they receive a small percentage of their fund as an annual management fee to pay basic operating expenses. These fees range in size, but a typical one is 2% per year. So on the $100 million fund, the GPs will take $2 million per year to pay their salaries, staff, and office expenses.
Second, they receive a percentage of what’s called the carry, or the profits from their investments. Carry percentages have a range as well, but again a typical one is 20%. Here’s where the math starts to get interesting.
Let’s say the GPs invest $4 million in your company at a $12 million pre-money valuation, so they buy 1/4 of the company. You end up selling the company for $40 million a couple years later without taking in additional capital (good for you!), so their 1/4 stake in the company is now worth $10 million. They’ve made a 2.5x return on their invested capital, bringing back a profit of $6 million to their LPs, and they’re entitled to keep 20% of it, or $1.2 million, for themselves.
Fred Wilson talks about the rule of 1/3 in Valuation, where, from a VC’s perspective, 1/3 of deals go really well, 1/3 go sideways (he defines sideways as a 1x-2x return), and 1/3 go badly and they lose most or all of their money.
So based on this rule, let’s say a "good" VC will generate an average return of 2.5x on their LPs’ money over a 5-year period (an IRR of 20%). Now let’s say on average, the GPs make 22 investments of $4 million each to fill out their $100 million fund (less the $10-12 million spent on management fees over the life of the fund), and, again on average, each returns 2.5x (recognizing that many will return zero and a few will return 10x). The VCs will have returned $220 million to their LPs on $100 million invested, for a gain of $120 million (good for them!). The GPs get to keep 20% of that, or $24 million, to split among themselves. Not a bad bonus, on top of their salaries, for 5 years of work across a small number of partners and associates.
Let’s attempt now to compare those earnings to the earnings of an entrepreneur, assuming equal annual cash compensation. An average entrepreneur of a venture-funded company probably owns somewhere between 5-10% of the company by the time the company is sold. In this same average case above, the company is sold for $40 million, so the entrepreneur’s equity will be worth between $2 and $4 million for the same 5 years of work. In this simple case, the GPs in the venture firm have earned a collective $1.2 million, much less on a per-person basis than the entrepreneur. However, in the 5 year period of time where the entrepreneur is working solely on one business, the GPs are working on 25 businesses, earning a collective $30 million. A senior partner in a small firm will end up with $10-12 million. A junior partner maybe more like $2-4 million, comparable to the entrepreneur. However, and this is an important point, most entrepreneurs probably operate at the "seinor partner" level.
So on average, I think the economics probably work out in favor of VCs over entrepreneurs in the long run, mostly because VCs operate a diversified portfolio of companies and entrepreneurs are putting all their eggs in one basket. But on any given deal, I’d rather be the entrepreneur any day of the week – you have more control over value creation, and more of a personal win if things go well. And in the 1/3 of deals that are home runs for the VC, it’s better to be the entrepreneur, since you’re much further along the risk/reward curve and have that chance of seeing your equity turn into $20 million or more in that one shot.
For Whom the Bell Tolls, Part II
For Whom the Bell Tolls, Part II
Great news for fans of Vonage and other Voice over Internet Protocol (VOIP) services. Today, the The Wall Street Journal (that link may only work for a week or so) reported that FCC Chairman Michael Powell just drove a successful vote to declare VOIP an interstate service, exempt from state regulation and really paving the way for much smoother and broader adoption.
I’ve received a number of comments on my earlier posting which sang the praises of Vonage and VOIP, and apparently not everyone has had the same positive experience as we’ve had with the service. But it’s still going strong for us!
Gmail – I Don’t Get It, Part II
Gmail – I Don’t Get It, Part II
Back in June, I blogged about Google’s new Gmail service, how I didn’t understand the fuss, and how its features would ultimately be replicated and true usership stalled at a couple million. I stand by those assertions (just look at what Yahoo, Hotmail, and Lookout have done to the landscape since then), but my company Return Path published some data today that’s interesting on this topic.
We run the largest Email Forwarding and Email Change of Address service around, so our data on email switching is pretty solid — we’ve had about 16 million consumers register a change of email with us in total, and about 25,000 new ones come in every single day to report a new ISP. So our numbers are probably pretty good relative to each other (ISP to ISP or month to month at the same ISP), but they’re certainly not meant to be correct on an absolute basis.
– In July, we saw 375 people join Gmail, in August, 802, and in September, 2,396. To put these numbers in context, we see 50,000-100,000 new users every month at Hotmail and Yahoo, and even 5,000-15,000 new users every month at smaller ISPs like AOL, Earthlink, Comcast, and Roadrunner. These numbers are obviously on the rise, but they’re still pretty small. In all fairness, though, G-mail is still invitation-only, at least in theory.
– Gmail is mainly stealing share from Hotmail and Yahoo, twice as rapidly from Hotmail as from Yahoo — and twice as rapidly from Yahoo as from AOL.
Read the full article in eMarketer here.
After I saw the article this morning, I asked my colleagues Jack Sinclair and Jennifer Wilson to tell me how many people we saw leaving Gmail every month, an interesting metric to offset the one most people are interested in covering. The answer at this point is also revealing. While we recorded 2,396 new Gmail users in September, we also recorded 741 people leaving Gmail in the same month. That’s a sign to me that a lot of people are trying it out to see what the buzz is all about, but many are quickly switching back after a little experimentation.
And yes, we also took a look at how many people are leaving Yahoo, Hotmail, and AOL every month relative to the number of people joining those services. Hotmail and Yahoo do a lot of treading water (lots of people leaving, lots of people joining), but let’s just say I wouldn’t want to be the guy in charge of AOL subscriptions these days.