This is the third post in the series. The first one When to hire your first CPO is here and What does Great Look Like in a CPO is here)

If you’ve been following my previous blog posts on the Chief People Officer you have figured out when to hire one and what to look for in getting a great one but even so, you can’t just assume that your Chief People Officer is going to be able to scale with your company. I have found that Chief People Officers who aren’t scaling well past the startup stage are the ones who typically operate in the following ways.

First, a CPO might not be able to scale if they are overly focused on the transactional aspects of the job.  Don’t get me wrong, there are many transactional elements to HR – payroll, benefits, systems, process, etc. – and they all have to go well or employees freak out.  But the Chief People Officer who spends all their time on these issues isn’t delegating well, isn’t building a machine, isn’t building scalable people and processes to flawlessly and efficiently handle the details. This inability to delegate may be a lack of self-confidence or a lack of trust that others can step up, but either way it’s a telltale red flag if a CPO is mostly focused on the transactional aspects of the role and not the strategic aspects.

Another sign is if the CPO won’t speak up in executive team meetings.  Chief People Officers have every right and entitlement to hold opinions about the company’s strategy, products, operations, and financials.  The good ones do – and they’re not shy about speaking up publicly about them.  The weaker ones, or the ones who are in a bit over their heads, don’t speak up, don’t challenge others, because they either haven’t taken the time to learn and formulate those opinions, or because they don’t have enough confidence among their peers to voice them. The CPO needs to be a leader among leaders and any hesitancy to fully participate with their peers is a sign to me that maybe they’re not scaling, not developing their own personal and executive skills.

Another sign I’ve seen that the CPO isn’t scaling is if they have trouble managing/leading their own team.  Since a good Chief People Officer is one who spends time coaching all the other leaders in your business on how to be effective leaders, it’s particularly worrisome when they themselves are not an effective leader, especially with what is usually a relatively small function.  This is a classic case of the cobbler’s children walking around barefoot, and it’s a sign of trouble for your HR leader.

None of these signs by themselves is particularly worrisome to me, but if you have a Chief People Officer who is transactional, doesn’t speak up, and has morale or turnover issues in their own team, you’ve got big problems. The CPO is critical to the entire organization so if you find that your CPO is exhibiting several of these traits you’ll need to address it quickly—either through coaching, by bringing on a fractional executive to mentor, or by replacing the CPO. Often, coaching and fractional approaches are more cost-effective, less disruptive to the company, and lead to great results. Ignoring it is the worst approach for this important position.

(You can find this post on the Bolster Blog here)

(Post 3 of 4 in the series of Scaling CRO’s- the other posts are When to Hire your First Chief Revenue Officer and What does Great Look like in a Chief Revenue Officer).

If you’ve hired a “great” CRO (see previous post) you might think that you’re set for a long time and that the great CROs are also able to scale. Not always, and you’ll have to check to make sure that your CRO is scaling and growing as much as your company. I’ve found that there are several telltale signs that your CRO isn’t scaling and fortunately, they are easy to spot and easy to correct.

First, if your CRO gravitates to being an individual contributor sales rep and focuses on closing big deals instead of mentoring sales managers and sales reps to do that work on their own, that could be a sign that your CRO lacks the confidence to be a true executive.  The risk in being an executive is not that you can’t do the work, it’s that you don’t trust your team to do the work. To be clear, sometimes the role of a sales leader (or a CEO) is to swoop in and help close a big deal–sometimes.  But CROs who can’t shake their addiction to closing deals almost never build enough of that muscle into their organization and end up creating unhealthy dependency on themselves. Worse, they do not create a career path for others in the sales organization to learn and take risks. 

Second, I’ve found that a CRO who gets the sales commission plans out in March or April instead of January or early February is maybe someone who can’t scale.  While it’s true that, in a lot of businesses, it’s very difficult to get sales commission plans out until after the year starts, getting them out after late February is a sign that your CRO doesn’t have enough of a grip on numbers, isn’t partnering effectively with finance, doesn’t care enough about their people, or isn’t good at prioritizing the important over the urgent when needed. Obviously, if this happens once it’s not a big deal, but if you find that the CRO is the last person on your team to get their plans together year after year, that’s a telltale sign that maybe they’re in over their heads. You might hear them say, “They’ll all be fine, they know I’ll take care of them, the plan is a lot like last year’s.” That might be okay for the majority of the sales team but it won’t be good enough for the best reps who are constantly doing Sales Math in their heads.  It’s a lot easier to mentor or CRO, or find a new one, than to build a new team of dedicated sales reps.

Finally, a sign that your CRO isn’t scaling is if they regularly deliver surprises at the end of the quarter – both good and bad surprises.  A “surprise” every once in awhile is not a big deal, but regular surprises are a big deal and that tells you something important about the CRO: They might be incapable of scaling and the surprises are coiming because your CRO doesn’t have a good grip on the pipeline and in particular on larger deals. Either they don’t have a grip on the pipeline or they are bad at managing expectations; or both!

( You can find this post on the Bolster Blog here)

Sometimes the work we do as CEOs, leaders, management teams is glamorous, and sometimes it’s not. But it all matters. One thing we tried to do at Bolster this past year is to really amp up employee benefits. The war for talent is real. The Great Resignation is real. Sometimes startups like ours have natural advantages in terms of attracting and retaining talent such as being made up of letting people in on the ground floor of something, having small teams so individual impact is easy to see, being mission-driven and full of creativity and purpose, and having equity to give that could be very valuable over time. But sometimes startups like ours have natural disadvantages around recruiting like having less certain futures, being relatively unknown to potential employees, being unable to pay huge salaries in the face of the Googles and Facebooks of the world, and having limited career path options since the teams are so small.

My co-founders and I have always been big believers in innovating People Practices. We did an enormous amount of work around this at our prior company, Return Path, which has been pretty well documented and we feel was very successful. Things like our People First philosophy of investing in our team, an extraordinary amount of transparency in the way we ran the company, a sabbatical policy, an open vacation policy, a peer recognition system, 360 reviews (I’ve written about this a lot, but I don’t have a great single post on it – this one is good enough and has some links to others), and an open expense policy.

Most of those things, when we started doing them 20 years ago, were revolutionary. We had our own version of the then-infamous Netflix deck even before we saw the Netflix deck. But today, many of those people practices are more common, not quite table stakes, but not exactly unique either. So this year when we set out to do our annual retrospective and planning process, we decided to try to innovate on a fairly standard topic for people, employee benefits. Although there’s not a lot of room for innovation on this topic, we are doing a few things that new and existing employees alike have told us are noteworthy, so I thought I would share them here.

We started by getting the basics right. We have a good solid health plan, dental plan, vision, transit benefits, etc. And we are paying 100% of the basic plan and allowing employees to pay more for a premium plan. That’s not the innovative part.

Next, we decided to max out the HSA contribution. HSAs and FSAs are some of those things that people don’t really think about, or they think “oh that’s great, employees can set aside health care expenses pre-tax.” But employer contribution to them matters, especially because the plans are portable. So we are giving people whatever the legal limit is towards their HSA, something in the neighborhood of $7k/year for a family plan or $3k for an individual plan. This is real money in people’s pockets, and it takes away from fears and concerns about health and wellness.

Next, we decided to begin addressing two things we felt were always weird quirks or inequities in benefit plans. One is the fact that employees who DO take advantage of your benefits program essentially get a huge additional amount of compensation than employees who DON’T because they are on their spouse’s plan. So we decided to give all employees who DON’T use our benefits program a monthly stipend. The amount doesn’t quite equal what we would be paying for their health insurance (which varies widely for employees based on single vs. family plans), but it’s a material number. So those people who aren’t on our plan still receive a healthcare proxy benefit from us.

Another (and the final thing I’ll talk about today) was instituting a 401k match, but doing so with a dollar cap instead of a percentage cap. Percentage caps FEEL fair, but they’re not fair since the company ends up paying more money towards the retirement plan of the people who earn the most money and who presumably need that benefit the least. The IRS tries to help do this leveling with their nondiscrimination testing, but that doesn’t come close to achieving the same outcome because it’s about employee contributions, not employer matches. By instituting a dollar cap, we are making the statement that we value all employees’ retirements equally. Incidentally, this simple change is proving to be very difficult to implement since our systems and benefits providers aren’t set up to do it, but we will persevere and find workarounds and get it right.

Investing in our people is critical to who we are as a business, and if you take your business seriously, it should be in your playbook as well. Benefits sound like a dumb area in which to innovate since they’re very common across all companies other than the percentage of the premium covered…but there’s still room for creativity even in that field.

(Post 1 of 4 in the series of Scaling CCOs)

Very few startups start life with a Chief Customer Officer, even though customers are the lifeblood of every startup; instead, you’ll likely start your customer service organization with a “jack of all trades” account manager position. You’ll have one person who handles all customer issues from basic support all the way through to true customer success. Sometimes these functions will be handled by the product team but most often they are handled by a customer service team.  Specialized roles and multiple teams (e.g, support vs. professional services) with their own managers can emerge quickly in the life of a startup and these roles will usually come before a full-time CCO, unless one of the company’s founders happens to be playing that role.

But you won’t be able to scale effectively (or quickly) with a hodge-podge of customer support roles and there are some telltale signs that will let you know you need to bring in a CCO. For example, you’ll know it’s time to hire a CCO when you realize you’ve never measured customer satisfaction. You don’t have any metrics at all — no Net Promoter Score, no basic customer satisfaction measures, no product engagement levels…nothing. You’re just hoping for the best, and hope is not a strategy. Another sign that you need to hire a CCO is if you are spending too much of your own time putting out customer fires rather than thinking about how to make customers more successful by using your product.

A second telltale sign will come from your board, if you have one. If your board asks you which of your customer segments has the highest margin, or has the most opportunity, and you don’t have a great answer and aren’t sure how to get to one then it’s time to consider hiring your first CCO. Of course, you don’t have to wait for a board member to ask that question and if you want to be proactive you can create a list of questions that a board member might ask and see whether or not you can answer them. If you can’t, or if it takes a ton of time to track down the answers, you’re probably ready for a CCO.

The search for a CCO can be long and time-consuming and in a future post I’ll talk about what “great” looks like for a CCO, but if you’re at the point where you need a CCO but don’t have the money or time to bring in an executive, a fractional CCO is a great option. A fractional CCO can work well if you have a relatively contained or small customer success/account management organization, but it is already very diverse in its sub-functions (support, account management, success, professional services) and none of the team leaders of those teams have the range of experience to orchestrate the handoffs and synergies across the sub-functions. A CCO touches nearly every part of the organization, from sales, to product, to marketing and this person needs to be a collaborator, a champion for customers, and a strategic thinker that understands consumer trends and demographics. A fractional executive CCO can bring a lot of skills to a startup and help to grow both the customer organization and the individuals in it, including mentoring those in the Customer organization who can become eventual leaders, or helping to reorganize the Customer organization for greater efficiency, or even help interview, vet, and find their replacement.

If you’re a startup and you have potential to scale but seem to be spending a lot of time and energy working on customer issues—without being able to actually move forward—a Chief Customer Officer should be a role you’d want to fill as soon as possible. Almost nothing takes down more companies than poor customer support. 

You can find this post on the Bolster Blog here

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.

The Difference Between Culture and Values

This topic has been bugging me for a while, so I am going to use the writing of this post as a means of working through it. We have a great set of core values here at Return Path. And we also have a great corporate culture, as evidenced by our winning multiple employer of choice awards, including being Fortune Magazine’s #2 best medium-sized workplace in America.

But the two things are different, and they’re often confused. I hear statements all the time, both here and at other companies, like “you can’t do that — it’s not part of our culture,” “I like working there, because the culture is so great,” and “I hope our culture never changes.”  And those statements reveal the disconnect.

Here’s my stab at a definition.  Values guide decision-making and a sense of what’s important and what’s right.  Culture is the collection of business practices, processes, and interactions that make up the work environment.

A company’s values should never really change. They are the bedrock underneath the surface that will be there 10 or 100 years from now.  They are the uncompromising core principles that the company is willing to live and die by, the rules of the game. To pick one value, if you believe in Transparency one day, there’s no way the next day you decide that being Transparent is unimportant. Can a value be changed?  I guess, either a very little bit at a time, slowly like tectonic plates move, or in a sharp blow as if you deliberately took a jackhammer to stone and destroyed something permanently.  One example that comes to mind is that we added a value a couple years back called Think Global, Act Local, when we opened our first couple of international offices.  Or a startup that quickly becomes a huge company might need to modify a value around Scrappiness to make it about Efficiency.  Value changes are few and far between.

If a company’s values are its bedrock, then a company’s culture is the shifting landscape on top of it. Culture is the current embodiment of the values as the needs of the business dictate. Landscapes change over time — sometimes temporarily due to a change in seasons, sometimes permanently due to a storm or a landslide, sometimes even due to human events like commercial development or at the hand of a good gardener.

So what does it mean that culture is the current embodiment of the values as the needs of the business dictate?  Let’s go back to the value of Transparency. When you are 10 people in a room, Transparency means you as CEO may feel compelled to share that you’re thinking about pivoting the product, collect everyone’s point of view on the subject, and make a decision together. When you are 100 people, you probably wouldn’t want to share that thinking with ALL until it’s more baked, you have more of a concrete direction in mind, and you’ve stress tested it with a smaller group, or you risk sending people off in a bunch of different directions without intending to do so. When you are 1,000 employees and public, you might not make that announcement to ALL until it’s orchestrated with your earnings call, but there may be hundreds of employees who know by then. A commitment to Transparency doesn’t mean always sharing everything in your head with everyone the minute it appears as a protean thought.  At 10 people, you can tell everyone why you had to fire Pat – they probably all know, anyway.  At 100 people, that’s unkind to Pat.  At 1,000, it invites a lawsuit.

Or here’s another example.  Take Collaboration as a value.  I think most people would agree that collaboration managed well means that the right people in the organization are involved in producing a piece of work or making a decision, but that collaboration managed poorly means you’re constantly trying to seek consensus.  The culture needs to shift over time in order to make sure the proper safeguards are in place to prevent collaboration from turning into a big pot of consensus goo – and the safeguards required change as organizations scale.  In a small, founder-driven company, it often doesn’t matter as much if the boss makes the decisions.  The value of collaboration can feel like consensus, as they get to air their views and feel like they’re shaping a decision, even though in reality they might not be.  In a larger organization with a wider range of functional specialists managing their own pieces of the organization, the boss doesn’t usually make every major decision, though guys like Ellison, Benioff, Jobs, etc. would disagree with that.  But in order for collaboration to be effective, decisions need to be delegated and appropriate working groups need to be established to be clear on WHO is best equipped to collaborate, and to what extent.  Making these pronouncements could come as feeling very counter-cultural to someone used to having input, when in fact they’re just a new expression of the same value.

I believe that a business whose culture never evolves slowly dies.  Many companies are very dynamic by virtue of growth or scaling, or by being in very dynamic markets even if the company itself is stable in people or product. Even a stable company — think the local hardware store or barber shop — will die if it doesn’t adapt its way of doing business to match the changing norms and consumption patterns in society.

This doesn’t mean that a company’s culture can’t evolve to a point where some employees won’t feel comfortable there any longer. We lost our first employee on the grounds that we had “become too corporate” when we reached the robust size of 25 employees. I think we were the same company in principles that day as we had been when we were 10 people (and today when we are approaching 500), but I understood what that person meant.

My advice to leaders: Don’t cling to every aspect of the way your business works as you scale up. Stick to your core values, but recognize that you need to lead (or at least be ok with) the evolution of your culture, just as you would lead (or be ok with) the evolution of your product. But be sure you’re sticking to your values, and not compromising them just because the organization scales and work patterns need to change.  A leader’s job is to embody the values.  That impacts/produces/guides culture.  But only the foolhardy leaders think they can control culture.

My advice to employees: Distinguish between values and culture if you don’t like something you see going on at work. If it’s a breach of values, you should feel very free to wave your arms and cry foul. But if it’s a shifting of the way work gets done within the company’s values system, give a second thought to how you complain about it before you do so, though note that people can always interpret the same value in different ways.  If you believe in your company’s values, that may be a harder fit to find and therefore more important than getting comfortable with the way those values show up.

Note:  I started writing this by talking about the foundation of a house vs. the house itself, or the house itself vs. the furniture inside it.  That may be a more useful analogy for you.  But hopefully you get the idea.

They’ve Destroyed Both Companies

Just when you thought Verizon was in fact the worst company in the world to do business with (see my post here if for some reason you’re not on that page), along comes FedEx/Kinkos.

I used to be a huge fan of both companies.  I was even a fan of the merger and felt like it particularly made sense in light of UPS purchasing Mailboxes Etc.  And I don’t know if our experiences are representative, but Mariquita and I have had nothing but bad experiences with both FedEx and Kinkos for the past couple of years.

Kinkos is the worst — most of the people are surly, unhelpful, not smart, have massive attitude, and ignore you when you’re standing in front of them.  They never have packing materials, and when they do, they charge you for them and make you pack your own box in their store.  Their systems have no idea who you are.  We now walk out of our way to the UPS store, where you walk in, hand them a pile of stuff, give them your phone number, and walk out in 2 minutes while they pack your box up and bill it to the credit card on file for your phone number.

And FedEx, which used to be great at its core business, has slipped tremendously as well.  Its drivers and delivery guys are spotty; sometimes ok, but sometimes they don’t even try.  Their definition of going the extra mile stops at the first foot.  And its 800# operators are awful — they clearly went to the Kinkos school of customer service.  At least their packages generally get there on time.  But at work, we’ve turned increasingly to use Mimeo to both produce and ship high-quality documents without having to print and deal with the FedEx stuff ourselves.  A MUCH better alternative.

Again, I just say, why can’t they all be as great as Zappos?  It’s just not that hard.  And Starbucks has proven that a quick service retail operation can be as great at customer service as an Internet company.

A Better Way to Fly (to London)

Eos Airlines is a new airline that has a single route, and but one flight per day (each direction) — London-New York.  And boy, did it do the trick.  I was able to get a complimentary ticket, but let me tell you, even at $3,250 (about their normal fare), it’s worth the price if you have the money for it.  And a spot check of BA and American’s sites shows that a first class or even business class ticket on those carriers can run as much as $5,000-$7,000 if you’re not using miles to purchase or upgrade.

It’s a new concept in airlines.  Their marketing materials call it “what Starbucks did for the coffee experience, we’re doing the airline experience” (or something like that).  But the reality is that it’s more properly expressed as “what a massage did for a sharp poke in the ribs, we did for the airline experience.”

All seats are SERIOUSLY first class.  48 passengers per plane in a plane that normally has 220 seats.  21 square feet per passenger (think about that one for a minute).  Private pods.  Full reclining beds everywhere.

The rest of the experience is MORE THAN first class.  People who whisk you through security and to the plane at the last minute, without that “please show up at Kennedy four hours before your flight” warning.  Great airport lounges.  Airplane personnel who aren’t airplane personnel but more like customer service representatives.  Fantastic food and drink.  Bose noise-cancellation headsets and comparable personal entertainment centers.  Regular power outlets at each seat.  Fancy pillows with good lumbar support.  Landing at Stansted in England instead of the beastly Heathrow is great — we were, no lie, 10 minutes from touchdown to car, including taxi, immigration, customs, baggage and walking time.

The one element of the experience that cuts both ways is Stansted.  Countering the benefits above — it’s further away from London than Heathrow or Gatwick.  I’d say at a busy time, take the Stansted Express train instead of fighting traffic with the admittedly great Brooklands limo service unless you have LOADS of time to spare.

I hope the folks at Eos open more routes (and of course, that they lower their prices for my next paid fare!).

Lucky 7, or the 7 Year Itch?

Today is the seventh anniversary of the founding of Return Path.  There are days when it feels like it’s been much longer, but most of the time, I feel like we’re still in the first quarter of the game here.  The business is completely different than what we started and what we ever thought it would be, but it’s healthy, growing, and we’re having more and more fun every day.

When I started the business, another more seasoned entrepreneur told me, "however long you think it’s going to take to build a great business — triple it."  I’m not sure how long I thought it was going to take for us to hit scale and really take off, but it certainly wasn’t this long.  It’s good to have enough stamina to stick with something that has promise, even if the early days are rough or uncertain.

I may be different from a lot of entrepreneurs, but I am not feeling the 7 Year Itch to move on, do something different, start something new.  The business is as exciting to me today as the day we started it, if not more so.  I feel like we just finished Lucky 7, and now we’re looking forward to Year 8.  As we’ve been chanting in the office today…Eight is Great!  Eight is Great!  (or as one of our European colleagues emailed me today:  fr: Huit, c’est super!  de: Acht ist wunderbar!  it: Forza otto!)

Congratulations to our team, and thanks to our team, customers, and investors for all their hard work and support these past 7 years.

Does size matter?

It is the age-old question — are you a more important person at your company if you have more people reporting into you?  Most people, unfortunately, say yes.

I’m going to assume the origins of this are political and military. The kingdom with more subjects takes over the smaller kingdom. The general has more stars on his lapel than the colonel. And it may be true for some of those same reasons in more traditional companies. If you have a large team or department, you have control over more of the business and potentially more of the opportunities. The CEO will want to hear from you, maybe even the Board.

In smaller organizations, and in more contemporary organization structures that are flatter (either structurally or culturally) or more dynamic/fluid, I’m not sure this rule holds any more. Yes, sure, a 50-person team is going to get some attention, and the ability to lead that team effectively is incredibly important and not easy to come by. But that doesn’t mean that in order to be important, or get recognized, or be well-compensated, you must lead that large team.

Consider the superstar enterprise sales rep or BD person. This person is likely an individual contributor. But this person might well be the most highly paid person in the company. And becoming a sales manager might be a mistake — the qualities that make for a great rep are quite different from those that make a great sales manager. We have lost a few great sales reps over the years for this very reason. They begged for the promotion to manager, we couldn’t say no (or we would lose them), then they bombed as sales managers and refused as a matter of pride to go back to being a sales rep.

Or consider a superstar engineer, also often an individual contributor. This person may be able to write code at 10x the rate and quality of the rest of the engineering organization and can create a massive amount of value that way. But everything I wrote above about sales reps moving into management holds for engineers as well.  The main difference we’ve seen over the years is that on average, successful engineers don’t want to move into management roles at the same rate as successful sales reps.

It’s certainly true that you can’t build a company consisting of only individual contributors. But that isn’t my point. My point is that you can add as much value to your organization, and have as much financial or psychic reward, by being a rock star individual contributor as you can by being the leader of a large team.

Big Apple, Little Company

Ed Daciuk, on of my blog subscribers, questions:  What is your view on the benefits of being in NYC as a startup?

Fred wrote a good posting several months ago and a related one this week on early stage investing in the NYC market from the perspective of a venture capitalist.  His main points:  (1) NYC is a great place to invest in early stage tech-related businesses as long as they’re not "core technology" businesses like semiconductor or hardware, because (2) core technology companies are more exciting to investors, and therefore the investors have clustered around those companies in places like Silicon Valley or Boston.  He also thinks this dynamic is changing as more and more successful companies are started as technology-enabled service businesses as opposed to pure tech companies.

As someone who’s been in tech-enabled services businesses in NYC for 10 years now, I couldn’t agree more with this last point.  But I thought I’d address Ed’s question from the entrepreneur’s perspective as well.

First, why is New York a great place for a startup?

1. Access to customers.  There is far greater concentration of major corporations and agencies headquartered in and around the NYC area, making it much easier to see and talk to prospects and customers in this market.

2. Lots of talent.  There are lots of people, meaning there are lots of people to hire.  Some disciplines are easier than others to find talent, but the labor pool is just huge.

3. Convenience.  This is always one of NYC’s main selling points, and it applies here as well.  It’s mainly a collection of little things like being able to see a customer or investor in minutes by foot or mass transit and late night food delivery, but all those extra minutes you save here and there add up!

4. Idea generation.  The density and complexity of the city’s business landscape make it a natural for stimulating great ideas, especially in the service and media sectors.

5. Work ethic.  New Yorkers are accustomed to working startup hours in many professions — banking, consulting, law, etc., so it’s much more natural to have a team pounding away at the office early and late than it is in other geographies.

But it’s not all that easy.  New York can also be a difficult place for a startup because:

1. It’s expensive.  Very expensive.  People cost more, benefits cost more, T&E costs more, rent costs more.

2. Space is limited.  There’s no such thing as starting out in someone’s garage, because there are no garages — only teeny tiny apartments.  And no one takes a lease with room to grow because that extra space comes at such a premium.

3. Good money is harder to find.  As Fred says, it’s getting better, but the environment still isn’t as rich with high quality VCs as places like Silicon Valley or Boston.

4. Even when you do find good money, valuations are tougher.  For whatever reason, I’ve always found that "west coast" valuations are more generous than "east coast" valuations.

On balance, I’d say it’s probably a wash — there are plusses and minuses of NYC as a place for startups.  But it’s definitely not, as conventional wisdom would have it, an inhospitable environment for startups.