New People Electrify the Organization

We had a good year in 2009, but it was tough.  Whose wasn’t?  Sales were harder to come by, more existing customers left or asked for price relief than usual, and bills were hard to collect.  Worse than that, internally a lot of people were in a funk all year.  Someone on our team started calling it “corporate ennui.”  Even though our business was strong overall and we didn’t do any layoffs or salary cuts, I think people had a hard time looking around them, seeing friends and relatives losing their jobs en masse, and feeling happy and secure.  And as a company, we were doing well and growing the top line, but we froze a lot of new projects and were in a bit of a defensive posture all year.

What a difference a year makes.  This year, still not perfect, is going much better for us.  Business conditions are loosening up, and many of our clients have turned the corner.  Financially, we’re stronger than ever.  And most important, the mood in the company is great.  I think there are a bunch of reasons for that – we’re investing more, we’re doing a ton of new innovation, people have travel budgets again, and people see our clients and their own friends in better financial positions.

But by far, I think the most impactful change to the organizational mood we’re seeing is a direct result of one thing:  hiring.  We are adding a lot of new people this year – probably 60 over the course of the year on top of the 150 we had at the beginning of the year.  And my observation, no matter which office of ours I visit, is that the new people are electrifying the organization.  Part of that is that new people come in fresh and excited (perhaps particularly excited to have a new job in this environment).  Part of it is that new people are often pleasantly surprised by our culture and working environment.  Part of it is that new people come in and add capacity to the team, which enables everyone to work on more new things.  And part of it is that every new person that comes in needs mentoring by the old timers, which gives the existing staff reminders and extra reason to be psyched about what they’re doing, and what the company’s all about.

Whether it’s one of these things or all of them, I’m not sure I care.  I’m just happy the last 18 months are over.  The world is a brighter place, and so is Return Path.  And to all of our new people (recent and future), welcome…thanks for reinvigorating the organization!

A Perfect Ten

Return Path turns 10 years old today.  We are in the midst of a fun week of internal celebrations, combined with our holiday parties in each office as well as year-end all-hands meetings.  I thought I would share some of my reflections on being 10 in the blog as I’ve shared them with our team. What being 10 means to me – and what’s enabled us to make it this long:

• It means we’ve beaten the odds.  Two major global economic meltdowns.  The fact that 90% of new small businesses fail before they get to this point.  Probably a higher percentage of venture backed startups fail before they get to 10 as well
• We’ve gotten here because we’ve been nimble and flexible.  Over our 10 years, we’ve seen lots of companies come and go, clinging to a model that doesn’t work.  We may have taken a while and a few iterations to get to this point, but as one of my Board members says, “we’re an overnight success, ten years in the making!”
• We’ve also made it this long because we have had an amazing track record with our three core constituencies – employees, clients, and investors – including navigating the sometimes difficult boundaries or conflicts between the three

What I’m most proud of from our first decade:

• We’ve built a great culture.  Yes, it’s still a job.  But for most of our team members most of the time, they like work, they like their colleagues, and they have a fun and engaging time at work.  That’s worth its weight in gold to me
• We’ve built a great brand and have been hawkish about protecting our reputation in the marketplace.  That’s also the kind of thing that can’t be bought
• We haven’t sacrificed our core principles.  We’ve always, going back to our founding and the ECOA business, had a consumer-first philosophy that runs deep.  This core principle continues to serve us well in deliverability (a non-consumer-facing business) and is clearly the right thing to do in the email ecosystem

What I most regret or would do differently if given the chance:

• We have not raised capital as efficiently as possible – mostly because our company has shifted business models a couple of times.  Investors who participated in multiple rounds of financing will do very well with their investments.  First or second round angel investors who didn’t or couldn’t invest in later rounds will lose money in the end
• I wish we were in one location, not five.  We are embracing our geographic diversity and using it to our advantage in the marketplace, but we pay a penalty for that in terms of travel and communication overhead
• We have at times spread ourselves a little too thin in pursuit of a fairly complex agenda out of a relatively small company.  I think we’re doing a good job of reigning that in now (or growing into it), but our eyes have historically been bigger than our stomachs

Thanks to all our investors and Board members, especially Greg Sands from Sutter Hill Ventures, Fred Wilson from Flatiron Partners and Union Square Ventures, Brad Feld from Mobius Venture Capital, and Scott Weiss for their unwavering support and for constantly challenging us to do better all these years.  Thanks to our many customers and partners for making our business work and for driving us to innovate and solve their problems.  Thanks to our many alumni for their past efforts, often with nothing more to show for it than a line item on their resume.  And most of all, thanks to our hardworking and loyal team of nearly 200 for a great 2009 and many more exciting years ahead!  

Book short:  Myers-Briggs Redux

Instinct:  Tapping Your Entrepreneurial DNA to Achieve Your Business Goals, by Tom Harrison of Omnicom, is an ok book, although I wouldn’t rush out to buy it tomorrow.  The author talks about five broad aspects of our personalities that influence how we operate in a business setting:  Openness to Experience, Conscientiousness, Extroversion, Agreeableness, and Neuroticism.  These traits are remarkably similar to those in the popular Myers-Briggs Type Indicator that so many executives have taken over the years.

It’s not just that you want to be high, high, high, high, and low in the Big 5.  Harrison asserts that successful entrepreneurs need a balance of openness and conscientiousness in order to be receptive to new ideas, but be able finish what you start; a balance of extroversion and agreeableness so that you have enough energy but also have the ability to work with others; and not too much neuroticism, as you have to be able to take risks.

The book not only talks about how to spot these factors, but how to work around them if you don’t have them (that part is particularly useful, but he doesn’t do it for all five factors).  He also talks about the entrepreneurial addiction to success, and creating the all-important Servant CEO culture, which I certainly agree with and wrote about early on in this blog in my “Who’s The Boss?” posting.

Harrison does have a great section on how “Nice Guys” can and should be winners; how being nice and having guts aren’t mutually exclusive, and he gives a well-written Twelve Rules for expressing the Nice Guy gene:

– Don’t walk on other people, but don’t let them walk on you

– Respect the big idea in everyone

– Own everything

– Never let ’em see you sweat Keep it simple

– Never think in terms of “So what have you done for me today?”

– More is less

– Live your word consistently

– Don’t lie:  fix what’s causing you to think you need to lie

– Never forget to thank, congratulate, or acknowledge people for their efforts

– Keep your door and your heart open

– Never stand in the way of balance

The most annoying part of the book is that Harrison keeps making references to a handful of genetic studies about twins to prove on and off that traits are inherited and that inherited traits can be expressed in different ways.  These references are mildly interesting, but they detract from the substance of the book.

Overall, the book has some interesting points in it, but it’s too much like Jim Collins’ Good to Great and Built to Last, only without the depth of business research and case studies.  Plus, Harrison does the one thing I find most irritating in business books — he is clearly an expert in one thing (business), but he unnecessarily pretends to be an expert in another thing (genetics) in order to make his point.

Happy Leap Day!

One of the better books I’ve read in the last 6 months is James Clear’s Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones, which provides a great framework around habits. It’s worth a read, whether you’re talking about business habits/routines or personal ones. This isn’t a book review, but quickly while I have you – here’s a summary of his “laws”:

HOW TO CREATE A GOOD HABIT
The 1st Law: Make It Obvious
The 2nd Law:Make It Attractive
The 3rd Law: Make It Easy
The 4th Law: Make It Satisfying

HOW TO BREAK A BAD HABIT
Inversion of the 1st Law: Make It Invisible
Inversion of the 2nd Law: Make It Unattractive
Inversion of the 3rd Law: Make It Difficult
4th Law: Make It Unsatisfying

Add to that my other key takeaway, which is that you have to tie habits not just to outcomes but to identities, and…great book! Anyway, my story today is about decisions, and I’m going to quote James Clear’s email newsletter here, at the end of which he credits Tim Ferriss for sparking his thinking. So this is, what, third hand thinking. But it’s a great way to think about decisions, something I’ve written about a lot, including here.

I think about decisions in three ways: hats, haircuts, and tattoos.

Most decisions are like hats. Try one and if you don’t like it, put it back and try another. The cost of a mistake is low, so move quickly and try a bunch of hats.

Some decisions are like haircuts. You can fix a bad one, but it won’t be quick and you might feel foolish for awhile. That said, don’t be scared of a bad haircut. Trying something new is usually a risk worth taking. If it doesn’t work out, by this time next year you will have moved on and so will everyone else.

A few decisions are like tattoos. Once you make them, you have to live with them. Some mistakes are irreversible. Maybe you’ll move on for a moment, but then you’ll glance in the mirror and be reminded of that choice all over again. Even years later, the decision leaves a mark. When you’re dealing with an irreversible choice, move slowly and think carefully.

As someone who loves hats, has had (and seen) his fair share of bad haircuts, and has a tattoo, I can totally relate!

I just said this to a fellow little league coach, and it’s certainly true for baseball.  I’ve coached games with sloppy and/or blowout wins in the past.  You take the W and move on, but it’s hard to say “good game” at the end of it and feel like you played a good game.  And I’ve coached games where we played our hearts out and made amazing plays on offense and defense…and just came up short by a run.  You are sad about the L, but at least you left it all out on the field.

Is that statement true in business?

What’s an example of a “bad” win?  Let’s say you close a piece of business with a new client…but you did it by telling the client some things that aren’t true about your competition.  Your win might not be sustainable, and you’ve put your reputation at risk.  Or what about a case where you release a new feature, but you know you’ve taken some shortcuts to launch it on time that will cause downstream support problems?  Or you negotiate the highest possible valuation from a new lead investor, only to discover that new lead investor, now on your Board, expects you to triple it in four years and is way out of alignment with the rest of your cap table.

On the other side, what’s an example of a “good” loss?  We’ve lost accounts before where the loss was painful, but it taught us something absolutely critical that we needed to fix about our product or service model.  Or same goes for getting a “pass” from a desirable investor in a financing round but at least understanding why and getting a key to fixing something problematic about your business model or management team.

What it comes down to is that both examples – little league and business – have humans at the center.  And while most humans do value winning and success, they are also intrinsically motivated by other things like happiness, growth, and truth.  So yes, even in business, sometimes a good loss is better than a bad win.

Was anyone else as appalled as I am by the contents of Connie Loizos’s recent article, Coming out of COVID, investors lose their taste for board meetings? The stories and quotes in the article about VCs reducing their interest and participation in Board meetings, not showing up, sending the junior associate to cover, etc. are eye opening and alarming if widespread. 

The reasons cited in the article are logical—overextended VCs, Zoom fatigue, and newbie directors. Connie’s note that “privately, VCs admit they don’t add a lot of value to boards” is pretty funny to read as a CEO who has heard a ton of VCs talk about how much value they add to boards (although the good ones DO add a lot of value!).  

For the most part, everything about the substance of this article just made me angry.  

Disengaged or dysfunctional boards aren’t just bad for CEOs and LPs; they’re bad for everyone. If the world has truly become a place where the board meeting is nothing more than a distraction for CEOs, and investors think it’s a tax they can’t afford, then it’s time to hit the reset button on boards and board meetings. 

Here are four things that need to happen in this reset:

VCs need to do their job well or stop doing it. The argument that investors did too many deals in the pandemic so now they don’t have any time is a particularly silly one, since the pandemic reduced the amount of time VCs needed to spend on individual board meetings as well. I used to have four board meetings each year with directors who were traveling for the meetings, having dinners, spending time with the team and sitting in on committee meetings. 

Today, boards are lucky to have one in-person meeting a year (more on that later). And as everything else takes less time, and there’s little transit, any given VC should have doubled the time they spend on board meetings.

Serving on a board post-investment is a central part of the VC role. They have obligations to the founders they back and to the LPs they represent. The entire role is “find deals, execute deals, manage the portfolio.” 

If they no longer have time for the third job, they need to admit that to both founders and LPs before stepping down. If a VC can’t be bothered to focus on minding their investments and adding value, they should work with the company to find their replacement.  

CEOs need to take their job as leader of the board seriously. Would a good CEO just throw their hands up if they found management team meetings boring or a waste of time? No. They’d fix the structure of the team or meetings. If not, they shouldn’t be the CEO. 

It’s no different with boards. Whether or not the CEO is the board chair, they’re the leader of the organization. So, one of the few “must do” items in their job description is leading the board. The board is part of the CEO’s team, just like the management team. 

CEOs get to call the meetings, run the meetings, and insist on attendance. The CEO’s obligation is to make it easy and meaningful for everyone so the board isn’t a tax but rather a secret weapon for the company’s success. As my long-time independent director Scott Weiss used to tell me, boards consume whatever you put in front of them. Garbage in, garbage out. That means paying careful attention to the board materials, to meeting etiquette, and everything in between.

If the CEO doesn’t know how to do that, they should find a CEO mentor who can teach them, observe some well run boards in action through their network, or read Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors, a book I just published along with co-authors and VCs Brad Feld and Mahendra Ramsinghani.

Here’s one tip on making Board prep more efficient: work your Operating System and your Board Book formats so you do one set of reporting for the company and management team that is 95% reusable without any changes for your board.

The format for Board meetings needs to evolve. Board meetings need to evolve in our world of hybrid work just as office work needs to evolve. The format that works for in-person can’t just “lift and shift” to Zoom as is, indefinitely.

Here’s how I’m steering my board:

• I insist on one or two “old school” meetings per year, meaning in-person attendance required, half a day long, and including a meal and even an activity. If I’m only going to see my directors together infrequently, I make it mandatory, but I also make it worthwhile and fun.
  
• Remote meetings that happen between the in-person meetings are becoming shorter and tighter. I still send out a lot reading material beforehand, but I make sure to keep the focus on a fixed number of major topics to keep the discussion engaging.
  
• We need a new set of expectations around Zoom meeting etiquette for long meetings. It’s okay to ask people to close their email, browser, and Slack before the meeting starts. If a meeting is more than two hours long, a 15 minute break in the middle is important. Use breakout rooms to mix up topic discussions and working sessions.
  
• I am trying a new meeting format to maximize director conversation and team development. I start every meeting with a director-only session for half an hour that’s not exactly an Executive Session but is more fun and social—usually including a nonwork discussion topic, as if we were sitting around the dinner table having a cocktail. That gets the conversational juices flowing. Then when my team and observers join the meeting, I ask those people to turn their video off, and I ask directors to adjust their Zoom setting to “hide participants not on video” to keep the number of Zoom squares down to the bare minimum. Any time a team member or observer wants to engage in a particular topic, they turn their video on. Then we follow the meeting with Executive Session and Closed Session and a single-director debrief with me. That is a lot of moving pieces to manage, I find that but doing so keeps the meeting fresh and well paced.
  
• Finally, I’m following Fred Wilson’s advice and running a very short survey post-meeting to ask directors basic questions so they can summarize their thinking for me and the team: What are we doing well? What do we need more work on? And did the meeting meet your expectations?

Companies need to Follow the Rule of 1s

The secret to engaged and diverse boards is to mix up their membership more than most companies do. Our Board Benchmark study at Bolster indicates that the vast majority of private company boards have no independent directors at all—only founders and investors—and every year, the vast majority of the “open independent seats” specified in those companies’ charters go unfilled. 

It’s hard work hiring a new independent board member, and it rarely rises to the top of the CEO’s priority list. But the more independent the board is, and the more diverse the board is in every way (in terms of demographics as well as experience and background), the more robust the conversations around the table become, and the more valuable the board is to the CEO.

My Rule of 1s for building highly effective boards is simple:

• Add independent directors to your board on Day 1
• Try to limit your Board to 1 founder/team member
• Then, for every 1 investor on your board,
• Add 1 independent director

A great board is one of a company’s greatest assets. A weak board can kill a company. A mediocre board is just a waste of time. There’s no question that running an effective board, or serving as an effective director, takes serious time and energy and diligence. But that’s not a reason not to try.

(This post first ran on TechCrunch+ and is also running on the Bolster blog)

Call Me

A fine song by Blondie from 1980 and from the soundtrack of the movie American Gigolo.  And also something that reminded me about the importance of not relying too much on email this past month. 

 I had surgery on my left wrist in early March to hopefully fix a nagging tendonitis problem.  And while I could still write and type post-op, I got sore pretty quickly every day, so I tried to keep those activities to a minimum.  As you might imaging, I do an awful lot of email and IM in my line of work.  So what was my short response to a huge number of emails and IMs for a few weeks?  “Call me.”

 My communications, especially with remote employees, not only didn’t suffer while I couldn’t type a lot – they were stronger than ever.  Even short, two-minute phone conversations – the remote equivalent of someone sticking their head in my office – are preferable to IM or email in many cases.  There’s nothing like the sound of someone’s voice to add real texture to a dialog and to avoid misunderstandings.

The Gift of Feedback

My colleague Anita Absey always says that “feedback is a gift.”  I’ve written in the past about our extensive 360 review process at Return Path, and also about how I handle my review and bring the Board in on it.  But this past week, I finished delivering all of our senior staff 360 reviews, and I received the write-up and analysis of my own review.  And once again, I have to say, the process is incredibly valuable. 

For the first time in a long time this year, I got a resounding “much improved” on all of my prior year’s development items from my team and from the Board.  This was great to hear.  As usual, this year’s development items are similarly thoughtful and build on the prior ones, in the context of where the business is going.  Since one of my prior year’s items was “be as transparent as possible,” I thought I’d share my development plan for the coming 12-18 months here on my blog.  If you’re reading this and you report to me, you’ll get a longer form debrief at our next offsite.

1. Continue making the organization more of a Hedgehog, lending more focus to our mission and removing distractions wherever possible.

2. Move the organization’s leadership team from “pacesetting” to “authoritative” management styles by focusing more on :

    a. standards of excellence around employee behavior and performance: develop a more clear performance management system, raise the bar on accountability around leadership and management issues, shift management training from tools to values-based coaching

    b. clear communication loops: balance open door policy with manager empowerment by getting the executive in charge to fix issues (instead of fixing them myself) and/or facilitating stronger manager-employee communication

    c. constant translation of vision into execution: foster clearer context and deeper employee engagement by not just communicating vision, but communicating HOW the vision becomes reality at every opportunity

3. Sharpen elbows further around leadership team: identify key attributes of success, weed out underperformers, re-scope other roles, and clarify “partner for success” opportunities as part of core responsibilities. Make each individual’s development needs public in the senior team (I guess this is the first step towards that!)

4. Make the organization more nimble, inspiring a bias for action through shifts in priorities and cross-functional swat teams where required

So there you go.  If you work at Return Path, please feel free to hold my feet to the fire in the coming months on these points!

Academic Inspiration

I just read in my alumni magazine that at Opening Exercises for incoming freshmen this year, Princeton President Shirley Tilghman closed her remarks with the following:

For the next four years, you will be encouraged – and indeed sometimes even exhorted – to develop the qualities of mind that allowed Katherine Newman, Simon Morrison, and Alan Krueger to change what we know about the world.  Those qualities are the willingness to ask an unorthodox question and pursue its solution relentlessly; to cultivate the suppleness of mind to see what lies between black and white; to reject knee-jerk reactions to ideas and ideologies; to recognize nuance and complexity in an argument; to differentiate between knowledge and belief; to be prepared to be surprised; and to appreciate that changing your mind is not a sign of weakness but of strength.  We ask you to be open to new ideas, however surprising; to shun the superficial trends of popular culture in favor of careful analysis; and to recognize propaganda, ignorance, and baseless revisionism when you see it.  That is the essence of a Princeton education.

While some of these comments are more appropriate for an academic setting, how many of us who run businesses want to encourage the same behavior and thoughtfulness of our employees?  Here are a few examples taken from the above.

To change what we know about the world — a hallmark of a successful startup is to invent new products and services, to change the way the world works in some small way.  In our case, to fix some of the most critical problems with email marketing.

The willingness to ask an unorthodox question and pursue its solution relentlessly — reinventing some part of the world only comes by challenging the status quo.  Return Path was started by asking an unorthodox question:  why isn’t there an easy way for people to change their email address online?

To cultivate the suppleness of mind to see what lies between black and white; to recognize nuance and complexity in an argument — the longer I run a company, the less black and white I see.  When I do seev it, I think of it as a gift.  The rest of the day is spent trying to figure out the zone in between.  Making 51/49 decisions all day long is difficult, but it’s easier when the rest of the organization is capable of doing the same thing.

To appreciate that changing your mind is not a sign of weakness but of strength; to be open to new ideas, however surprising — perseverance in business is critical; stubbornness is deadly.  How does the old saying go?  The definition of Insanity is doing the same thing over and over again but expecting different results.  If the only thing we were still doing at Return Path is ECOA, we’d be long gone by now, or at least MUCH smaller than we are today.

I don’t know too many entrepreneurs that don’t espouse most of the above principles.  The trick is to build an entire company of people that do.

There’s been much coverage in the news of Saturday’s passing of President Ronald Reagan, but I will add a new wrinkle by trying to distill down what I know and remember of The Great Communicator’s leadership style into a few simple lessons of note for CEOs.

Lesson 1: Sunny optimism motivates the people you lead, but only when it’s balanced with hard-headed realism. Reagan’s message that tomorrow can be a better day than today was powerful and timely for the American psyche, but he didn’t just assume that because he said it, it would be true. He backed up his message with (a) an understanding that the American economy itself was in the doldrums in the late ’70s, and (b) policies designed to fix the economy. Whether you agree with those policies or not, you have to respect the fact that Reagan as a leader wasn’t just talk — he combined the talk with reality-based action. That’s super important when communicating key messages to a company of any size.

Lesson 2: Simplicity of messaging beats out measured intellectualism in broad-based communications. Reagan’s view of the 40-year-old Cold War when he took office was “we will win, and they will lose.” Much easier to rally around than messages of detente and containment (this quote came from an editorial by former Reagan staffer Peter Robinson in today’s Wall St. Journal). Similarly, the bigger and more diverse the group you’re talking to inside your company or in a speech or in the press, the more important it is to boil your key message down to something people can easily take away with them and repeat at home later to their spouse or friends.

Lesson 3: Nobody’s perfect, and you don’t have to be perfect either. He may have been, electorally, the most popular president of our generation, but Reagan certainly had his many and sometimes glaring faults. History will acknowledge his faults but overall judge him on his performance. It was noted (also in today’s Journal, I think) that Reagan got a lot of little things wrong, but in the end, he will be remembered because he got a few big things very, very right. Perfection is something that most mortals can’t achieve, certainly not in a high profile position like President or CEO of anything, whether a 10-person startup or a nation.

Love him or hate him, the man was one of the most prominent leaders of our time. I’m sure there are more lessons from Reagan’s legacy than these three for CEOs, but this is a start, anyway.

Debunking the Myth of Hiring for Domain Expertise vs. Functional Expertise

As a CEO scaling your business, you’ll invariably want to hire in new senior people from the outside.  Even if you promote aggressively from within, if you’re growing quickly enough, you’ll just need more bodies.  And if you’re growing really fast, you will be missing experience from your employee base that you’ll need to augment.

For years, I’ve thought and heard that there’s a basic tradeoff in hiring senior people — you can hire someone with great domain expertise, or you can hire someone with great functional expertise, but it’s almost impossible to find both in the same person, so you need to figure out which is more important to you.  Would I rather hire someone who knows the X business, or someone who is a great Head of X?  Over the course of the last year, I’ve added four new senior executives to the team at Return Path, and to some extent, I’ve hired people with deep functional expertise but limited domain expertise.  Part of that has been driven by the fact that we are now one of the larger companies in the email space, so finding people who have “been there, done that” in email is challenging.

But the amount of senior hiring I’ve done recently has mostly shown me that the “domain vs. functional” framework, while probably accurate, is misleading if you think of it as the most important thing you have to consider when hiring in senior people from the outside.

What’s more important is finding people who have experience working at multiple growth stages in their prior jobs, ideally the scaling stage that you’re at as a business.  It makes sense if you stop and think about it.  If your challenge is SCALING YOUR BUSINESS, then find someone who has DONE THAT before, or at least find someone who has worked at both small companies and larger companies before.  I suppose that means you care more about functional expertise than domain expertise, but it’s an important distinction.

Looking for a new industrial-strength CFO for your suddenly large business?  Sure, you can hire someone from a Fortune 500 company.  But if that person has never worked in a startup or growth stage company, you may get someone fluent in Greek when you speak Latin.  He or she will show up on the first day expecting certain processes to be in place, certain spreadsheets to be perfect, certain roles to be filled.  And some of them won’t be.  The big company executive may freeze like a deer caught in the headlights, whereas the stage-versatile executive will invariably roll up his or her sleeves and fix the spreadsheet, rewrite the process, hire the new person.  That’s what scaling needs to feel like.