Mental Maps

I recently went grocery shopping at a store I’d never been to before, Stew Leonard’s, and, no offense to Stew, I am unlikely to be a repeat customer.  While there were some things about the store that were better than most grocery stores, the experience drove me nuts.  Here’s why.

The store is laid out completely differently from standard grocery stores.  Most stores, even unusual ones like Whole Foods or Trader Joe’s, have a nearly identical layout.  One side is produce, frozen foods in the middle, meats in the back, dairy around the other side, standard aisles have bread, baking stuff, cans, cereals, drinks and snacks, etc.  Go shopping enough, and you can generally find your way around any store in your sleep.

Stew Leonard’s decided to break the model.  The store has no aisles and is linear – you just keep walking in one direction/flow and hit every single section of the store before you reach the end of the maze at the cashiers.  One bonus is that they merchandise some things well and put logical items next to each other (burgers next to buns).  But you can’t really go back if you missed something, you have no idea what’s coming up next, you can’t tell if you’ve seen all of a given class of item yet since different elements of every category keep popping up.

Sometimes that kind of a risk can pay off in a breakthrough new product design.  Maybe people buy more items at Stew’s because things are set up differently.  But the experience was very disorienting, the shop took twice as long as usual, and I couldn’t find a bunch of things so I still had to go to A&P afterwards – basically, the costs outweighed the benefits.

The obvious comparison here to our professional world is UI design.  Breakthrough redesigns are always risky.  They can produce better user experiences, but they can also confuse new visitors or less sophisticated users, and they risk an immediate reaction of “I can’t figure this site out, goodbye.”

UPDATE:  Comments aren’t working today on the new blog, but my friend Pete Warden just emailed me a great comment about this post:

Your post reminded me of an incident at Apple that I wanted to share…One of the engineers was advocating for a UI change to an existing product. It clearly made the interface more elegant and logical, but our designer was pushing back hard. Finally the designer said “If you put that change in, I’m going to sneak into your house tonight and move all your furniture to different positions”. That analogy stuck with me; familiarity is what enables us to use a tool without having to stop and think, and so you need a really strong reason to change the structure of an interface.

Playing Offense vs. Playing Defense

I hate playing defense in business.  It doesn’t happen all the time.  But being behind a competitor in terms of feature development, scrambling to do custom work for a large client, or doing an acquisition because you’re getting blocked out of an emerging space – whatever it is, it just feels rotten when it comes up.  It’s someone else dictating your strategy, tactics, and resource allocation; their agenda, not yours.  It’s a scramble.  And when the work is done, it’s hard to feel great about it, even if it’s required and well done.  That said, sometimes you don’t have a choice and have to play defense.

Playing offense, of course, is what it’s all about.  Your terms, your timetable, your innovation or opportunity creation, your smile knowing you’re leading the industry and making others course correct or play catch-up.

This topic of playing defense has come up a few times lately, both at Return Path and at other companies I advise, and my conclusion (other than that “sometimes you just have to bite the bullet”) is that the best thing you can do when you’re behind is to turn a situation from defense into a combination of defense and offense and change the game a little bit.  Here are a few examples:

• You’re about to lose a big customer unless you develop a bunch of custom features ASAP –> use that work as prototype to a broader deployment of the new features across your product set.  Example:  Rumor has it that Groupware was started as a series of custom projects Lotus was doing for one of its big installations of Notes
• Your competitor introduces new sub-features that are of the “arms race” nature (more, more, more!) –> instead of working to get to parity, add new functionality that changes the value proposition of the whole feature set.  Example:  Google Docs doesn’t need to match Microsoft Office feature for feature, as its value proposition is about the cloud
• Your accounting software blows up.  Ugh.  What a pain to have to redo internal system like that – a total time sink.  Use the opportunity to shift from a new version of the same old school installed package you used to run, with dedicated hardware, database, and support costs to a new, sleek, lightweight on-demand package that saves you time and money in the long run

I guess the old adage is true:  The best defense IS, in fact, a good offense.

The Acquisition (a parody of a parody)

I just spent a great 4th of July with my brother Michael, one of the finer and funnier people I know.  Among other things, we treated ourselves to about the 18th viewing of Mel Brooks’ History of the World, Part I on DVD.

One of our favorite moments in the movie is the Broadway musical version of “The Inquisition” (lyrics, download MP3).  Since both of us work in the online marketing industry (Michael is a marketing manager at search agency Did-It), Michael came up with the brilliant idea of a parody of a parody…so here goes, all in good fun.

The acquisition, what a show
The acquisition, here we go
We’re on a mission, have you heard the news?

The acquisition, serve those ads
The acquisition, we’re so glad
We’ll make an offer, that they can’t refuse

Google, don’t be boring
WPP, don’t feel set
Yahoo seems to be ignoring:
It’s better to lose your market cap than your market!

Hey, Steven Ballmer, what do you say?
“I just got back from Avenue A”
“Avenue A?  What’s Avenue A?”
“It’s what I ought not have bought, but I bought anyway!”

The acquisition, what a show
The acquisition, here we go
We know you’re wishin’ that we’d go away.
But the acquisition’s here and it’s here to stay!

Happy 4th, everyone!

Google en Fuego

Google announced on Friday the acquisition of RSS publishing powerhouse FeedBurner (media coverage  here and here).  I was fortunate enough to be a member of FeedBurner’s Board of Directors for the past year and had a good window into the successes of the business as well as the deal with Google.  It was all very interesting and good learnings for me as an entrepreneur as well as a first time outside director.  My original post (the “fortunate enough” link above) contained all the things I love about FeedBurner in it, so I won’t rehash those here, but I will try to distill my top 3 learnings from my experience with the company:

1. Creating value through focus is key in the early stages of a company. The FeedBurner team had a relentless focus on publishers.  That’s what produced the value in the company that Google acquired in the end — massive publisher distribution and great brand and technology behind it all.  Had the company gone on to do a couple more years independently, the team would have had to split focus between publishers and advertisers.  I have no doubt that they would have been able to do the job, but a dual focus is more complex to execute well and harder to balance in terms of priorities.
2. Running a company is all about improv. As many people know, FeedBurner CEO Dick Costolo is a former, I’d argue current, stand-up comedian/improv actor (see his entertaining and informative interview on Wallstrip here).  Dick proved that those skills, while perhaps not as expensive to acquire as an MBA, are probably even more essential to running a company.  You have to be able to elegantly manage chaos with a smile…and you have to constantly be quick to think on your feet.
   
3. Being an outside Board member was fun but had new challenges. It’s hard to know how much to be involved with a company when you’re neither management nor investor.  I was constantly worrying that I wasn’t doing enough for the company, but I was also trying to be very conscious of the fact that it wasn’t my company to run, only to advise.  I think Dick and I got the formula pretty close to right, but it wasn’t obvious.

Congratulations to Dick, Steve, Eric, Matt, and the rest of the team at FeedBurner for a job well done!

• Building the Perfect Team :: AO
  Entrepreneur Bernard Moon does a great job of articulating “how to build the perfect team” for your new startup
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• Seth’s Blog: Going to meetings
  A great posting about Vendor Love from Seth Godin!
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• How to Hire Like a Start-Up
  Great blog posting from Rob Walling on hiring like crazy
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What a View, Part II

In Part I, I talked about how Return Path’s 360 reviews have become a central part of our company’s human capital strategy over the past five years.  While most staff members’ reviews have been done for weeks or months now, I just finished up the final portion of my own review, which I think is worth sharing.

I always include my Board in my own 360.  My process is as follows:

1. I send the Board all the raw (and summarized) data from the staff reviews of me, both quantitative and qualitative.

2. I send the Board a list of questions to think about in terms of their view of my performance (see below).

3. I have a third party moderator, in my case a great OD consultant/executive coach that I work with, Marc Maltz from Triad Consulting, meet with the Board (without me present) for 1-2 hours to moderate a discussion of these questions.

4. The moderator summarizes the conversation and helps me marry the feedback from the Board with the feedback from my team.

The questions I ask them to consider are different from the question my staff answers about me, because the relationship and perspective are different.  For each question, I also summarize what their collective response was the prior year to refresh their memory.

1. Staff management/leadership:  How effective am I at building and maintaining a strong, focused, cohesive team?  Do I have the right people in the right roles at the senior staff level?

2. Resource allocation:  Do I do a good enough job balancing among competing priorities internally?  Are costs adequately managed?

3. Strategy:  Did you feel like last year’s strategy session was thorough enough?  Do you think we’re on target with what we’re doing?  Am I doing a good enough job managing to it while being nimble enough to respond to the market?

4. Execution:  How do I and the team execute vs. plan?  What do you think I could be doing to make sure the organization executes better?

5. Board management/investor relations:  Do you think our board is effective and engaged?  Have I played enough of a role in leading the group?  Do you as a director feel like you’re contributing all you can contribute?  Do I strike the right balance between asking and telling?  Are communications clear enough and regular enough?

6. Please comment on how I have handled some of the major issues in the past 12 months (with a listing of critical incidents).

The feedback I got is incredibly valuable, and once I marry it with the feedback I got from my staff, I will have my own killer development plan for the next 12-24 months.

Beyond CAN-SPAM:  The Nightmare Continues, Part II

A couple of months ago, I blogged about two well-intentioned but very unfortunate new laws on the books, one in Michigan and one in Utah, designed to protect children from advertising that’s harmful to minors, but in fact full of unintended consequences.

Today, the Detroit Free Press had a great article about how the law in Michigan is so poorly conceived and executed, that not only is it angering legitimate businesses, it’s actually angering the parents who were supposed to be its principle beneficiaries.  One parent’s quote in the article pretty much sums it up:

“What was the whole point in signing up if it’s not doing any good? Is this just the legislature and the governor trying to look good and tough, but in the end, just kicking up dust?”

Agreed, and well said!

Not-so-Counter Cliche:  Forecast Early and Often

There’s no "counter" in this week’s counter cliche, although this is a cross-post to two of Fred’s recent postings.  In his VC Cliche of the Week, he talks about the need for early-stage companies to forecast often, and he was nice enough to cite Return Path as his case study.  I thought I’d give some color on this from our perspective here.

Forecasting is a pain, so we adopted the model of as 12-month rolling forecast with quarterly reforecasts (and correspondingly quarterly incentive comp structures) out of necessity.  For early stage companies in emerging industries, there are simply too many moving parts in the business to provide enough visibility to produce an accurate 12-month budget.  There are really four factors at work here:

– Investment:  you make investment decisions every day in the business, and you can get pretty good over the years at predicting the return on the investment, but predicting the timing of the return can be very difficult.  Products "ship" late, customer seasonality can factor in, marketing campaigns can take longer to pay back than you expect.

– Competition:  you have by definition even less of an idea what competitors will do, or for that matter, when new competitors will arrive on the scene.  Any competitive activity can impact pricing and lengthen sales cycles in ways that are hard to predict.

– M&A:  any acquisition you make throws the entire budget into chaos both on the revenue side and the cost side.

– Recurring revenue:  for any business that has a recurring revenue model, missing your numbers in a given month or quarter makes it nearly impossible to get back on track for the rest of the year since next quarter’s number depend on making this quarter’s numbers.  This is what Fred calls the New York Jets syndrome – once you lose 7 games, you know you’re not getting into the playoffs.

So forecasting early and often is a great solution to this problem, and it’s a particularly effective tool to keep the team motivated.  And there’s no shame in doing this.  Even large public companies consistently set new guidance to Wall Street at the end of every quarter for the following quarter and remainder of the year.  But it is a little bit of a pain, so I’d recommend that CEOs and CFOs who want to adopt this model follow a few practices we’ve learned over the years:

– Make sure you have an incredibly flexible Excel model that supports the process.  You can’t reinvent the model four times per year.  It has to be able to handle multiple scenarios with easy-to-use toggles, and it has to be able to accept "actuals" as well as forecasts (see note on comparisons below).

– Manage expectations properly with the Board and with the team.  As long as everyone knows what the process is, you can avoid a lot of confusion.  The critical thing here is that neither constituency should feel like the system is being gamed or that numbers are being sandbagged.

– Compare to originals.  Our model produces "waterfall" comparison charts showing how a given quarter’s forecast changed over the quarters leading up to it, and then how the forecasts compared to actuals.  This is important mostly to produce learnings about how to forecast better in the future.

– Plan to work your way out of the process over time.  Do quarterly budgets for a year or two, then move to semi-annual budgets for a couple of years, then try moving to full-year budgets.

I think it was unintentional on his part, but Fred’s other posting today, about M&A in the Internet space, is also relevant to this topic.  It’s worth looking at the graphs in the original posting, but the basic point is that the preponderance of Internet companies either get acquired early on in their life (e.g., for less than $50mm) or once they have achieved escape velocity (e.g., for more than $500mm).  He says that the space in between, or "the valley" on his chart, is where a lot of solid VC-backed companies sit and where good solid returns are made.  I’d just add to it that "the valley" is exactly where it’s critical to forecast early and often, as that’s where businesses are working their hardest to grow from proof of concept to escape velocity, often with limited visibility 12 months out on their budget.

• This is going to be BIG! – I noticed that you are also not using LinkedIn
  Charlie O’Donnell from Union Square Ventures has a great post about LinkedIn, its limitations, and some things it could do to be MUCH cooler and more useful.
  (tags: VC Technology Media Social_Networking)