Protecting the Inbox

We only have one out of our 13 core values at Return Path that’s closely related to the content of our business. But as with the other values, it says a lot about who we are and how we approach the work that we do. That value is:

We believe inboxes should only contain messages that are relevant, trusted, and safe

We occupy a pretty unique space in the email universe – we serve senders and receiving networks, but aren’t directly in the mail stream and therefore don’t directly touch end users.  So much of our business, from our Certification or whitelisting business, to our new Domain Assurance anti-spoofing/anti-phishing business, revolves around building trust in our company that this core value is critical to our survival. If we ran afoul of this core value — and it comes up all the time — we’d be dead in the water.

Here’s how it comes up:  because our Certification program is the closest thing on the Internet to guaranteed universal email delivery, every spammer and grey mailer in the world wants to be on it. We don’t just SELL access to our whitelist. Even once a prospect has been converted to an under-contract client, they have to APPLY for Certification.

It’s not easy to GET Certified. You have to be a really, really good mailer. Not just a real entity. Not just a big spender. You have to send mail that is safe and secure and wanted by end users. We have a variety of qualitative and quantitative methods we can use to determine this, and the requirements for Certified status and therefore Inbox placement are carefully negotiated and regularly reviewed with our ISP partners. Once a client is Certified, it’s not easy to STAY Certified because we are monitoring all of those same standards in real time, 24×7. Clients who go out of bounds get immediately suspended from the program until they are back in bounds. Clients who go out of bounds enough, we just terminate from the program for good.

By the way, just because we won’t certify a particular client isn’t an indictment that they are a spammer. It just means that their email programs still need to be subject to all the state of the art filtering and security measures that our ISPs have in their arsenal.  And most of the time, it doesn’t mean that we won’t work with them to improve the quality of their mail programs so their messages are relevant, trusted, and safe.

But at the end of the day, we’d rather not take money from questionable clients than compromise the quality of our Certification program. That’s a hard decision to make sometimes.  I’ve had to call large clients who are poor mailers and fire them more than once, and I’ve had to take angry phone calls and threatened legal action from clients or prospects many times over the years.  But for us, respect for end users and inbox security are deeply baked into the culture.  It’s why we developed the Domain Assurance product and launched it earlier this year.  And that’s why it’s one of our core values.

Learning to Embrace Sizzle

One phrase I’ve heard a lot over the years is about “Selling the sizzle, not the steak.”  It suggests that in the world of marketing or product design, there is a divergence between elements of substance and what I call bright shiny objects, and that sometimes it’s the bright shiny objects that really move the needle on customer adoption.

At Return Path, we have always been about the steak and NOT the sizzle.  We’re incredibly fact-based and solution-oriented as a culture.  In fact, I can think of a lot of examples where we have turned our nose up at the sizzle over the years because it doesn’t contribute to core product functionality or might be a little off-point in terms of messaging.  How could we possibly spend money (or worse – our precious development resources) on something that doesn’t solve client problems?

Well, it turns out that if you’re trying to actually sell your product to customers of all shapes and sizes, sizzle counts for a lot in the grand scheme of things.  There are two different kinds of sizzle in my mind, product and marketing — and we are thinking about them differently.

Investing in product sizzle (e.g., functionality that doesn’t actually do much for clients but which sells well, or which they ask for in the sales process) is quite frustrating since (a) it by definition doesn’t create a lot of value for clients, and (b) it comes at the expense of building functionality that DOES create a lot of value.  The way we’re getting our heads around this seemingly irrational construct is to just think of these investments as marketing investments, even though they’re being made in the form of engineering time.  I suppose we could even budget them as such.

Marketing sizzle is in some ways easier to wrap our heads around, and in some ways tougher.  It’s easier because, well, it doesn’t cost much to message sizzle — it’s just using marketing as a way of convincing customers to buy the whole solution, knowing the ROI may come from the steak even as the PO is coming from the sizzle.  But it’s tough for us as well not to position the ROI front and center.  As our Marketing Department gets bigger, better, and more seasoned, we are finding this easier to come by, and more rooted in rational thought or analysis.

In the last year or two, we have done a better job of learning to embrace sizzle, and I expect we’ll continue to do that as we get larger and place a greater emphasis on sales and marketing — part of my larger theme of how we’ve built the business backwards.  Don’t most companies start with ONLY sizzle (vaporware) and then add the steak?

I wrote a little bit about the experience of being a multi-time founder in this post where I talked about the value of things like a hand-picked team, hand-picked cap table, experience that drives efficient execution, and starting with a clean slate. The second lap around the track (and third, and fourth) is really different from the first lap.

Based on what we do at Bolster, and my role currently, I spend a lot of time meeting with CEOs of all sizes and stages and sectors of company, as they’re all clients or prospects or people I’m coaching. Lately, I’ve noticed a distinct set of work and behaviors and desires among CEOs who are multi-time founders and operators that is different from those same things in first-time founders. Not every single multi-time founder has every single one of these traits, but they all have a majority of them and form a pretty common pattern. I’ve noticed this with non-profit founders as well as for-profit ones.

• They have an Easier Time Recruiting team members and investors. That may sound obvious, but there are significant benefits to it. They also tend to have Much Cleaner Cap Tables, because they lived the horrors of a messy cap table when they exited their last company without thinking about that topic ahead of time!
  
• They have a Big Vision. Once you’ve had an exit, whether successful or not or somewhere in between, you don’t want to focus on something niche. You want to go all-in on a big problem.
  
• They are interested in creating Portfolio Effect. A number of repeat founders want to start multiple business at the same time, are actually doing it, or are creating some kind of studio model that creates multiple businesses. Once you have a big team, a track record with investors, and a field of deep expertise, it’s interesting to think about creating multiple related paths (and hedges) to success.
  
• They are driving to be Efficient in Execution and Find Leverage wherever they can. One multi-time founder I talked to a few weeks ago was bragging to me about how few people he has in his finance team. At Bolster, our objective is to build a big business on a small team, looking for opportunities to use our own network of fractional and project-based team members wherever possible.
  
• They are Impatient for Progress. While being mindful that good software takes time to build no matter how many engineers you hire, repeat founders tend to have fleshed out their vision a couple layers deep and are always eager to be 6 months ahead of where they are in terms of execution, which leads me to the next point, that…
  
• They are equally Impatient for Success (or Failure). More than just wanting to be 6 months ahead of where they are in seeing their vision come to life, they want to get to “an answer” as soon as possible. No one likes wasting time, but when you’re on your second or third company, you value your time differently. As a friend of mine says in a sales context, “The best answer you can get from a prospect is ‘yes’ – the second best answer you can get is a fast ‘no’.” The same logic applies to success in your nth startup. Succeed or Fail – you want to find out fast.
  
• They are Calm and Comfortable in Their Own Skin. At this stage in the game, repeat founders are more relaxed. They know their strengths and weaknesses and have no problem bringing in people to shore those things up. They know that if things don’t work out with this one, there’s more to life.
  
• They are stronger at Self Management. They are more efficient. They exercise more. They sleep more. They spend more time with family and friends. They work fewer hours.

Anyone else ever notice these traits, or others, in repeat founders?

A couple weeks ago, I blogged about some innovations we’d made in People practices around basic benefits. But that post raised questions for me like “Why do you spend money on things like that when all people care about is their salary? When they get poached by another company, all they think of it the headline number of their base compensation, unless they’re in sales and think about their OTE.”

While that is hard to entirely argue against, one thing you can do as you layer in more and more benefits on top of base salary, you can, without too much trouble, produce annual “Total Rewards Statements” for everyone on your team. We did this at Return Path for several years when we got larger, and it was very effective.

The concept of the Total Rewards Statement is simple. At the beginning/end of the year, produce a single document for each employee – a spreadsheet, or a spreadsheet merged into a doc, that lists out all forms of cash compensation the employee received in the prior year and also has a summary of their equity holdings.

For cash compensation, start with base salary and any cash incentive comp plans. Add in all other classic benefits like the portion of the employee’s health insurance covered by the company, any transit benefits, gym memberships or wellness benefits, 401k match, etc. Add in any direct training and development expenses you tracked – specific stipends, training courses, conferences, education benefits, subscriptions, or professional memberships you sponsored the employee attending. All of that adds up to a much larger total than base salary.

If you have some other program like extensive universally available and universally consumed food in the office (or a chef, if you’re Google), you could even consider adding that to the mix, or perhaps having a separate section for things like that called “indirect benefits” so employees can see the expenses associated with perks and investment in their environment.

Finally, put together a summary of each employee’s equity. How many options are vested? Unvested and on what schedule? What’s the strike price? What’s the value of the equity as of the most recent financing? What’s the value of the equity at 3 other reasonable exit values? Paint the picture of what the equity is actually likely to be worth some day.

Yes, you could do these things and still lose an employee to Google or whoever offers them $50k more in base salary. It happens. But if you’re doing a great job with your culture and your business and people’s roles and engagement in general, having a Total Rewards Statement at least makes it easy for you to remind employees how much they *really* earn every year.

This post was inspired by Startup CXO and was originally published by Techstars on The Line.

If you’re new to the Chief Customer Officer role, we’d like to share some advice we wish we had learned earlier in our careers. There are a few common misconceptions about customers and the service organization. If you don’t realize these as misperceptions, you can spend a lot of time dealing with issues that are not real, but perceived. We have identified five of these common misperceptions, although we are sure there are more.

Misperception #1: The service organization fully controls churn (customer attrition)

In a lot of organizations you’ll see the service organization be measured solely on customer churn. If you really think about it, there are many elements that come into play that impact churn, including

• How the customer is sold
• The quality of the product
• How easy it is to onboard the customer
• How easy it is to use the product
• How easy it is for the customer to understand what kind of value they’re getting out of the product

Of course, the service functions do have a critical role, but they’re not the only functions in a company that impact churn. The responsibility for churn also lies with sales, engineering, marketing, and other teams. One reason why you need a C-level senior person in charge of all service operations is because you need someone who understands the customer experience broadly and that person has to work cross-functionally to ensure customer retention.

Misperception #2: The service organization is just a cost center

In many businesses, if a function isn’t generating new revenue, it’s seen as “second class.” From our perspective revenue retained is revenue gained and the service organization has a big impact on retaining revenue. In addition, the account management portion of a service organization is often in charge of up-sale and cross-sale opportunities which can be huge areas of growth. CCOs should work within their company to alter that misperception of service as a cost center because the service organization can have a huge impact on revenues.

Misperception #3: Service teams should focus on responding to defections

I’ve recently found a situation where the customer success team is built to focus on the clients who have raised their hand and said, “I want to leave.” This reactive approach drives low job satisfaction and isn’t the “best and highest use” of a service team’s time. By the time a customer is frustrated enough, or isn’t seeing the value enough, that they want to leave — you’ve missed a window of opportunity. The right focus should be proactively helping customers reach their desired business objectives. If you can do that, most customers will stay. That’s the theory behind the rise of the customer success team and that’s what great companies are doing today.

Misperception #4: Service’s job is to “paper over” gaps in the product

There is a widespread practice of covering for product issues by throwing service at the problem. That certainly can work, but it’s not optimal. The superior approach is to focus the service team on becoming a trusted advisor for customers, helping those customers achieve their desired outcomes. To do that, the CCO will have to work cross-functionally with the product team, the marketing team, and the sales team to drive a more friction-free customer experience.

Misperception #5: Service is boring and tactical

There is a wide-spread misperception that working in the service organization is boring. It’s mundane, it’s tactical, it doesn’t appeal to people who think strategy is grander than tactics. I don’t agree with that at all. A great service organization starts with a strategy. It starts with an understanding of customer segmentation. It includes thinking about the different customer personas and how to define an appropriate and valuable customer experience. That core strategy actually takes a while to develop. Once the strategy takes hold, it is core to driving retention over time. And, while a lot of people perceive that the service organization jobs are boring, or just answering trouble tickets or reacting to client problems, that’s not the whole role. It is a strategic role as well. 

The Chief Customer Officer has a big impact on the success of a company, especially startups and scaleups, and their function touches nearly every aspect of a company. To give your company the best chance of scaling, the Chief Customer Officer should understand, pinpoint, and manage misperceptions so that they can devote their time, energy, and resources to the real problems that help customers.

Last week, I blogged about Bolster’s Board Benchmark survey results, which really laid bare the lack of diversity on startup boards.  There are signs that this is starting to change slowly — one big one is that of all the board searches we are running at Bolster, about ⅔ of them are open to taking on first-time directors; and almost all are committed to increasing diversity on their boards.  

This is also something that I would expect to take some time to change.  Boards are small.  Independent seats aren’t necessarily easy to open up.  Seats don’t turn over often.  And they take a while to fill, as CEOs are thorough in their recruitment and selection process.

My new mantra for Startup Boards is simple:  1-1-1.  

1 member of the management team.

Then 1 independent for every 1 investor.

Simply put, this means you should grow from having 1, to 2, to 3 independent directors as your board grows from 3, to 5, to 7 members.

Here are four tough conversations you may have to have along the way, with some suggestions on how to navigate them.  All of these conversations need to come with a point of view of why independence and diversity matters to your company, a lot of empathy, and appreciation for the value the person brings to the table. 

The conversation with your co-founder about only one founder/executive on the board.  This one will be the most personally difficult, since you likely have a strong personal bond.  Expect to hear things like “Aren’t we partners in this business?” and “How come my vote doesn’t count?”  Just let your co-founder know that while of course they’re a key partner, the company has a limited number of board seats to fill — each one is a golden opportunity to get an outside perspective on your business and get really good mindshare of an industry expert and create a new brand ambassador.  You already have 100% of the mindshare and ambassadorship your co-founder has to offer.  You can make that person a board observer, you can make sure they’re in all the key board conversations, and you can even give the person some special voting right in your charter or by-laws if you need to.  But do not put them on the board.  It’s obviously easier to do this from the beginning as opposed to removing them from the board down the road, but at least try to have the conversation up front that someday, it’s going to happen (note this could be a different dynamic if the person is a founder but no longer active in the business).

The conversation with an existing VC about leaving the board to make room for new investors or an independent.  This one will be less personally difficult but will require you to be very artful since the VC is likely contractually given a board seat – meaning you’ll have to get them to give it up voluntarily.  You may also want to align with another VC on your board to help the conversation or process along.  Depending on the circumstances at hand, your key points of logic could be one of the following:  (1) you don’t own as high a percentage of the company as you once did, and I’d like to make room for the new lead investor to join the board without compromising our independents or making the board too big; or (2) I’d like to replace you with an independent director who brings operator perspective and comes from an underrepresented group – it’s important to me that we build a diverse board, and it’s not great that we have don’t have gender or race/ethnic diversity on our board in this day and age.  As with a co-founder, you could change this person’s designation to a board observer so they’re still present for key conversations, you’re not changing their Information Rights, which are likely contractually given in your charter, and if required, you can give the person or firm some sort of special voting rights if there’s something they can no longer block (but which they have a contractual right to block) by losing their board vote.

The conversation with a new potential investor about not taking a board seat.  If you have a big new lead investor writing a $40mm check into a growth round, you may not have a leg to stand on.  But new investors who write smaller checks as you get larger, who might only be buying a 5-10% stake in the business…there, you might have some wiggle room to negotiate.  Your best bet is to do it early in the process before you have a term sheet, and do it as an exploratory conversation.  Otherwise, your talking points are the same as talking to an existing investor above. Investors are starting to realize the power of a diverse board, and may be open to this conversation. Some are making this a proactive practice, notably two of my long-time investors and directors Fred Wilson and Brad Feld (and some of their partners at Union Square Ventures and Foundry Group) — and those investors have also been willing to mentor the new, first time board members once they join.

The conversation with an existing independent director about leaving the board when their term is up.  Perhaps you have an existing independent director who is not adding to the diversity of the board, but you already have a full board.  Or perhaps your existing independent director isn’t doing a great job or has grown stale in the role.  Once a director is fully vested, you have an easy opportunity to thank them graciously and publicly for their service, extend their option exercise period multiple years, and affirm that they’ll still take your call if you need help on something.  You should set this expectation up front when you give the director their initial grant.  If they ask why you’re not renewing them, you can simply say something like “We’d like to add some fresh outside perspective to the team.”  One thing to think about, particularly for early stage companies, is only giving new directors a 1 or 2-year vest on their first option grant, so you can make sure they’re a high value director…and so you can have the option of an easy exit (or re-up) in a shorter period of time than a traditional 4-year vest.

The net of it is that as CEO of a venture-backed company, you wield an enormous amount of (mostly soft) power around the composition of your board – probably a lot more than you think.  You just have to wield that power gently and focus on the importance of building a diverse board in terms of both experience and demographics.

(Written by both my Bolster co-founder Cathy Hawley and me)

I’ve attended two remote conferences, which Cathy dubbed “Zoomsites” — one here at Bolster and the Foundry Group CEO Summit.  Both hold interesting lessons for how these kinds of events can work well.

We founded Bolster two months into the COVID-19 pandemic, and our founding team had not met in person after 6 months of working together. Now, luckily, we’ve all worked together for many years, so we have a lot of trust built up, and have a very strong operating system which includes full team daily standups. Still, nothing beats face-to-face interaction. If you’ve ever founded a startup, you know how impactful it can be to work side by side, bounce ideas off each other, and collaborate as you learn more about opportunities and challenges in your market. 

We also have a strong belief in the power of the team, and the need to work together to ensure that we are aligned on all aspects of the business. And, we had a successful launch, with more interest in our marketplace than we had anticipated, so we knew we needed to step back to have a planning and strategy session.

We’ve done many executive offsites, and couldn’t imagine having an impactful offsite remotely, and we all agreed that we would be comfortable meeting up in person. So we started planning a 2-day offsite together in New York. Unfortunately, it turned out visitors to NY from Colorado and Indiana, the two states we were traveling from, needed to quarantine for 10 days when they got to NY. While technically we could get around this because we weren’t staying for 10 days, we decided to follow the spirit of the rules, and cancel our travel.

Since we really needed to have the planning and strategy session, and we’d blocked the two full days on our calendars, we decided to test out a ‘zoomsite’ – an all-remote video call. We modified the agenda a little – some things good in person fall flat on video. We knew we wanted to have really engaging conversations, and keep the agenda moving along, so that all eight of us could fully participate and complete the necessary work. I’m happy to say that we came out of the offsite with a revised strategic plan, new six-month goals set, and owners for each of the different workstreams. And, we had fun. Success!

The Foundry Group CEO Summit has been a different animal — it’s wrapping up today, but there’s been enough of it so far this week to comment on.  Foundry took a regular annual event with a large group (50-75) and moved it online.  They did a great job of adapting to the medium, spreading the event out with a few hours a day over multiple days to avoid Zoom fatigue and optimize attendance; scheduling content in shorter bursts than usual; making good use of breakout room technology; and encouraging heavy use of Zoom’s chat feature during sessions to make it as interactive as possible.  Like the Bolster event, there were some elements missing — all the great “hallway conversations” you have at in-person conferences where people are staying in the same hotel and seeing each other at meals, in the gym, between sessions, etc.  But it has also been a big success with enough community elements to make it worthwhile. 

Want to have a Zoomsite? Here are some tips:

• Make sure you have the tools needed for each activity. When you are brainstorming in person, you may use sticky notes or flip charts to write on. Remotely, you can use Google Docs or Sheets or tools like Note.ly or Miro
• Prep the sheets or docs ahead of time, so that people can engage in the activities easily. At our Zoomsite, we modified our blue-sky brainstorm session so that we each answered a few questions in a Google Sheet. We had a separate section for each person, and the exercise was easy to understand and engage in, and people got straight to work.
• Schedule in more breaks, shorter sessions, or less than full-day meetings. We had a couple of hour-long breaks during the day, which helped people to focus.  Foundry did a great job of getting everyone’s attention for a few hours every day, for more days than a normal in-person conference
• Plan your technology. At the Bolster meeting, we learned this the hard way. We tested out the idea of doing a “walk and talk” session where we’d each walk in our neighborhoods, and have a couple of strategic conversations just on the phone. Unfortunately, the technology didn’t work for everyone, as they hadn’t all used Zoom on their phones before, it was windy in some locations, and cell service dropped people from time to time.  Probably not the best idea we had!
• Include a social component. We were a little skeptical about this at the Bolster Zoomsite, but we’d always incorporated social time into offsites, and we really value connecting as people, not just as professionals, so we gave it a try. On the second day of our Zoomsite, we took a 2 hour break at the end of the day, and came back for drinks and dinner together. We had personal conversations, including sharing our favorite tv shows. Eight people on video eating together might sound odd, and we weren’t sure if it would work, but we all agreed that it was fun, and we’d do it again.  I missed the Foundry “Virtual Fun” session, but they did a virtual game show run by our sister portfolio company, Two-Bit Circus (and also had investigated Jack Box Games as another option for virtual games via Zoom screen share plus real-time voting and other engagement via phone).  I heard that session was great and engaging from people who attended

We all hope life returns to some kind of normal in 2021, though it’s unclear when that will be.  And there’s definitely value to doing meetings like this in person, but at least we now know that we can have a successful remote offsite or larger conference event.  As with everything, it will be interesting to see how the world is changed by COVID.  Maybe events like this will figure out how to mix remote and in-person participation, or alternate between event formats to keep travel costs down.

Stamina

A couple years ago I had breakfast with Nick Mehta, my friend who runs the incredibly exciting Gainsight.  I think at the time I had been running Return Path for 15 years, and he was probably 5 years into his journey.  He said he wanted to run his company forever, and he asked me how I had developed the stamina to keep running Return Path as long as I had.  My off the cuff answer had three points, although writing them down afterwards yielded a couple more.  For entrepreneurs who love what they do, love running and building companies for the long haul, this is an important topic.  CEOs have to change their thinking as their businesses scale, or they will self implode!  What are five things you need to get comfortable with as your business scales in order to be in it for the long haul?

Get more comfortable with not every employee being a rock star.  When you have 5, 10, or even 100 employees, you need everyone to be firing on all cylinders at all times.  More than that, you want to hire “rock stars,” people you can see growing rapidly with their jobs.  As organizations get larger, though, not only is it impossible to staff them that way, it’s not desirable either.  One of the most influential books I’ve read on hiring over the years, Topgrading (review, buy), talks about only hiring A players, but hiring three kinds of A players:  people who are excellent at the job you’re hiring them for and may never grow into a new role; people who are excellent at the job you’re hiring them for and who are likely promotable over time; and people who are excellent at the job you’re hiring them for and are executive material.  Startup CEOs tend to focus on the third kind of hire for everyone.  Scaling CEOs recognize that you need a balance of all three once you stop growing 100% year over year, or even 50%.

Get more comfortable with people quitting.  This has been a tough one for me over the years, although I developed it out of necessity first (there’s only so much you can take personally!), with a philosophy to follow.  I used to take every single employee departure personally.  You are leaving MY company?  What’s wrong with you?  What’s wrong with me or the company?  Can I make a diving catch to save you from leaving?  The reality here about why people leave companies may be 10% about how competitive the war for talent has gotten in technology.  But it’s also 40% from each of two other factors.  First, it’s 40% that, as your organization grows and scales, it may not be the right environment for any given employee any more. Our first employee resigned because we had “gotten too big” when we had about 25 employees.  That happens a bit more these days!  But different people find a sweet spot in different sizes of company.  Second, it’s 40% that sometimes the right next step for someone to take in their career isn’t on offer at your company.  You may not have the right job for the person’s career trajectory if it’s already filled, with the incumbent unlikely to leave.  You may not have the right job for the person’s career trajectory at all if it’s highly specialized.  Or for employees earlier in their careers, it may just be valuable for them to work at another company so they can see the differences between two different types of workplace.

Get more comfortable with a whole bunch of entry level, younger employees who may be great people but won’t necessarily be your friends.  I started Return Path in my late 20s, and I was right at our average age.  It felt like everyone in the company was a peer in that sense, and that I could be friends with all of them.  Now I’m in my (still) mid-40s and am well beyond our average age, despite my high level of energy and of course my youthful appearance.  There was a time several years ago where I’d say things to myself or to someone on my team like “how come no one wants to hang out with me after work any more,” or “wow do I feel out of place at this happy hour – it’s really loud here.”  That’s all ok and normal.  Participate in office social events whenever you want to and as much as you can, but don’t expect to be the last man or woman standing at the end of the evening, and don’t expect that everyone in the room will want to have a drink with you.  No matter how approachable and informal you are, you’re still the CEO, and that office and title are bound to intimidate some people.

Get more comfortable with shifts in culture and differentiate them in your mind from shifts in values.  I wrote a lot about this a couple years ago in The Difference Between Culture and Values . To paraphrase from that post, an organization’s values shouldn’t change over time, but its culture – the expression of those values – necessarily changes with the passage of time and the growth of the company.  The most clear example I can come up with is about the value of transparency and the use case of firing someone.  When you have 10 employees, you can probably just explain to everyone why you fired Joe.  When you have 100 employees, it’s not a great idea to tell everyone why you fired Joe, although you might be ok if everyone finds out.  When you have 1,000 employees, telling everyone why you fired Joe invites a lawsuit from Joe and an expensive settlement on your part, although it’s probably ok and important if Joe’s team or key stakeholders comes to understand what happened.  Does that evolution mean you aren’t being true to your value of transparency?  No.  It just means that WHERE and HOW you are transparent needs to evolve as the company evolves.

• Get more comfortable with process.  This doesn’t mean you have to turn your nimble startup into a bureaucracy.  But a certain amount of process (more over time as the company scales) is a critical enabler of larger groups of people not only getting things done but getting the right things done, and it’s a critical enabler of the company’s financial health.  At some point, you and your CFO can’t go into a room for a day and do the annual budget by yourselves any more.  But you also can’t let each executive set a budget and just add them together.  At some point, you can’t approve every hire yourself.  But you also can’t let people hire whoever they want, and you can’t let some other single person approve all new hires either, since no one really has the cross-company view that you and maybe a couple of other senior executives has.  At some point, the expense policy of “use your best judgment and spend the company’s money as if it was your own” has to fit inside department T&E budgets, or it’s possible that everyone’s individual best judgments won’t be globally optimal and will cause you to miss your numbers.  Allow process to develop organically.  Be appropriately skeptical of things that smell like bureaucracy and challenge them, but don’t disallow them categorically.  Hire people who understand more sophisticated business process, but don’t let them run amok and make sure they are thoughtful about how and where they introduce process to the organization.

I bet there are 50 things that should be on this list, not 5.  Any others out there to share?

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.

Book short:  Life Isn’t Just a Wiki

One of the best things I can say about Remote: Office Not Required,  by Jason Fried and David Heinemeier Hansson, is that it was short.  That sounds a little harsh – part of what I mean is that business books are usually WAY TOO LONG to make their point, and this one was blessedly short.  But the book was also a little bit of an angry rant against bad management wrapped inside some otherwise good points about remote management.

The book was a particularly interesting read juxtaposed against Simon Sinek’s Leaders Eat Last which I just finished recently and blogged about here, which stressed the importance of face-to-face and in-person contact in order for leaders to most effectively do their jobs and stay in touch with the needs of their organizations.

The authors of Remote, who run a relatively small (and really good) engineering-oriented company, have a bit of an extreme point of view that has worked really well for their company but which, at best, needs to be adapted for companies of other sizes, other employee types, and other cultures.  That said, the flip side of their views, which is the “everyone must be at their cubicle from 9 to 5 each day,” is even dumber for most businesses these days.  As usual with these things, the right answer is probably somewhere in between the extremes, and I was reminded of the African proverb, “If you want to go fast, go alone. If you want to go farm go together” when I read it.  Different target outcomes, different paths.

I totally agree with the authors around their comments about trusting employees and “the work is what matters.”  And we have a ton of flexibility in our work at Return Path.  With 400 people in the company, I personally spend six weeks over the summer working largely remote, and I value that time quite a bit.  But I couldn’t do it all the time.  We humans learn from each other better and treat each other better when we look at each other face to face.  That’s why, with the amount of remote work we do, we strongly encourage the use of any form of video conferencing at all times.  The importance of what the authors dismiss as “the last 1 or 2% of high fidelity” quality to the conversation is critical.  Being in person is not just about firing and hiring and occasional sync up, it’s about managing performance and building relationships.

Remote might have been better if the authors had stressed the value that they get out of their approach more than ranting against the approaches of others.  While there are serious benefits of remote work in terms of cost and individual productivity (particularly in maker roles), there are serious penalties to too much of it as well in terms of travel, communication burden, misunderstandings, and isolation.  It’s not for everyone.

Thanks to my colleague Hoon Park for recommending this to me.  When I asked Hoon what his main takeaway from the book was, he replied:

The importance of open communication that is archived (thus searchable), accessible (transparent and open to others) and asynchronous (doesn’t require people to be in the same place or even the same “timespace”).  I love the asynchronous communication that the teams in Austin have tried: chatrooms, email lists (that anyone can subscribe to or read the archives of), SaaS project management tools. Others I would love to try or take more advantage of include internal blogs (specifically the P2 and upcoming O2 WordPress themes; http://ma.tt/2009/05/how-p2-changed-automattic/), GitHub pull requests (even for non-code) and a simple wiki.

These are great points, and good examples of the kinds of systems and processes you need to have in place to facilitate high quality, high volume remote work.

Selecting Your Investors

Fred Wilson has been a venture investor and director in Return Path since 2000, first with Flatiron Partners and then with Union Square Ventures.  We’ve been through a lot of wars together.  In a couple of weeks, he and I are team-teaching a class in Entrepreneurship at Princeton, and the professor gave us the assignment of writing two pairs of blog posts to tee up discussion with the class.  This is the first one…and Fred’s post on the other side of the topic is here.  Next week, we’ll address the topic of building a successful CEO-VC partnership once it’s established.

If you’re fortunate enough to have built a really strong early stage company, you will find yourself in the position of being able to pick from a number of potential venture investors.  The better your business and the more exciting the space you’re trying to tackle…the more investors you’ll find circling around you.  Here are a few tips for ending up with the best long-term partner as an investor.

1. Look for VC portfolios that have a lot of “like” companies (B2B, B2C, media, tech, etc.).  One of the strongest points of value that venture investors bring to the table is pattern matching, and you can maximize that by making sure the investor you end up with has seen a multitude of companies like yours
2. Check references carefully.  Don’t be shy – prospective VCs are checking up on you, and you have every right to do the same with them.  When Fred first invested in Return Path, he gave me a list of every CEO he had ever worked with and said “Call anyone you want on the list.  Some of these guys I worked well with, a couple I fired.  But they’ll all tell you what I’m like to work with.”  First prize is the VC who volunteers this information.  Second prize is the VC who gives it to you when you ask.  A distant third price is the VC who gives you two names and ask for time to prep them ahead of time
3. Focus on the person first, the firm second.  Having a good venture firm is important.  But at the end of the day, you’re dealing with a person first and foremost.  That’s who will be on your board giving you advice and measuring your performance.  Better to have an A person at a B firm than a B person at an A firm (of course, even better to have an A person at an A firm).  This means two things – selecting a great person to be on your Board, and also making sure you end up with a person who has enough juice within his or her firm to get things done on your behalf with the partnership
4. Always have a BATNA (Best Alternative to a Negotiated Agreement – a fancy way of saying Plan B).  This is probably the most important piece of advice I can offer.  And this is true of any negotiation, not just a term sheet.  It’s often said that good choices come from good options. Sometimes, you have to walk away from a deal where you’ve invested a lot of time, energy, and emotion.  But as an entrepreneur, you can mitigate the number of times you have to walk away by developing good alternative options to a particular deal. That way, if one option doesn’t pan out as you’d hoped, another very good option is waiting in the wings.  If you negotiate with two or three VCs, you’ll have a great backstop and won’t let the emotional investment in the deal get the best of you.  Yes, you will spend twice to three times the amount of time on the process, but it’s well worth it
5. Don’t be swayed by promises of help.  I’ve heard VCs say it all.  They’ll help you fill out your management team.  They’ll get you customers.  They’ll help with your back office.  They’re loaded up with value-add.  If venture investor has staffed his or her firm with support personnel who are available free of charge to portfolio companies (this does happen once in a while), then assume your VC will be as helpful as possible, but no more or less helpful than another investor
6. Handle the negotiation yourself, in person as much as possible.  The best way to get to know someone’s character is to negotiate a deal with him.  This gives you lots of opportunities to look for reasonableness, and to see if he or she is able to focus on the big picture.  The biggest warning sign to look for is someone who says things like “you have to agree on this term, because this is how we always do deals.”  By the way, how you handle yourself in this negotiation is equally important.  The financing is the line of demarcation between you and the VC courting each other, and the VC joining your board and effectively becoming your boss
7. “Pay up” for quality and for a clean security.  There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become.  The quality of your VC isn’t more important than the quality of your product or your team, but it’s right up there.  But – and this is an important but – you should expect to “pay” for quality in the form of slightly weaker terms (whether valuation or type of security).  Similarly, I’d always sacrifice valuation for a clean security.  Everyone always thinks that price/valuation is the most important thing to maximize in a deal. However, the structure of the security can be much more important in the long run.  Whether the VCs buy 33 percent of your company or 30 percent of your company is much less important than having a capital structure that’s easy for an outsider to understand and want to join

As with all things, there are probably another dozen items that could be added to this list, but it’s a good starting point.  However, your more important role as CEO is to put your company in a position where you can select from a number of high quality investors, so start there!