Reverse Engineering Venture Economics
Reverse Engineering Venture Economics
First, they receive a small percentage of their fund as an annual management fee to pay basic operating expenses. These fees range in size, but a typical one is 2% per year. So on the $100 million fund, the GPs will take $2 million per year to pay their salaries, staff, and office expenses.
Second, they receive a percentage of what’s called the carry, or the profits from their investments. Carry percentages have a range as well, but again a typical one is 20%. Here’s where the math starts to get interesting.
Let’s say the GPs invest $4 million in your company at a $12 million pre-money valuation, so they buy 1/4 of the company. You end up selling the company for $40 million a couple years later without taking in additional capital (good for you!), so their 1/4 stake in the company is now worth $10 million. They’ve made a 2.5x return on their invested capital, bringing back a profit of $6 million to their LPs, and they’re entitled to keep 20% of it, or $1.2 million, for themselves.
Fred Wilson talks about the rule of 1/3 in Valuation, where, from a VC’s perspective, 1/3 of deals go really well, 1/3 go sideways (he defines sideways as a 1x-2x return), and 1/3 go badly and they lose most or all of their money.
So based on this rule, let’s say a "good" VC will generate an average return of 2.5x on their LPs’ money over a 5-year period (an IRR of 20%). Now let’s say on average, the GPs make 22 investments of $4 million each to fill out their $100 million fund (less the $10-12 million spent on management fees over the life of the fund), and, again on average, each returns 2.5x (recognizing that many will return zero and a few will return 10x). The VCs will have returned $220 million to their LPs on $100 million invested, for a gain of $120 million (good for them!). The GPs get to keep 20% of that, or $24 million, to split among themselves. Not a bad bonus, on top of their salaries, for 5 years of work across a small number of partners and associates.
Let’s attempt now to compare those earnings to the earnings of an entrepreneur, assuming equal annual cash compensation. An average entrepreneur of a venture-funded company probably owns somewhere between 5-10% of the company by the time the company is sold. In this same average case above, the company is sold for $40 million, so the entrepreneur’s equity will be worth between $2 and $4 million for the same 5 years of work. In this simple case, the GPs in the venture firm have earned a collective $1.2 million, much less on a per-person basis than the entrepreneur. However, in the 5 year period of time where the entrepreneur is working solely on one business, the GPs are working on 25 businesses, earning a collective $30 million. A senior partner in a small firm will end up with $10-12 million. A junior partner maybe more like $2-4 million, comparable to the entrepreneur. However, and this is an important point, most entrepreneurs probably operate at the "seinor partner" level.
So on average, I think the economics probably work out in favor of VCs over entrepreneurs in the long run, mostly because VCs operate a diversified portfolio of companies and entrepreneurs are putting all their eggs in one basket. But on any given deal, I’d rather be the entrepreneur any day of the week – you have more control over value creation, and more of a personal win if things go well. And in the 1/3 of deals that are home runs for the VC, it’s better to be the entrepreneur, since you’re much further along the risk/reward curve and have that chance of seeing your equity turn into $20 million or more in that one shot.
Patience vs. Impatience
Patience and Impatience are both critical tools in the founder toolbelt. That sounds kind of funny since they’re at odds with each other. Let me explain.
Patience is hard, but there are some things that require it. As they say metaphorically about Product, nine women can’t make a baby in a month. Products needs to be built, tested in the wild, marinate with clients. GTM motions take time to figure out. Brands take time to build unless you have billions to throw at the problem. Bread takes time to rise. Patience is a really useful tool when people on your team or board get itchy for success and you need to calm them down and keep them focused.
Impatience, on the other hand, is easy, and you have to moderate it. Once we have a vision…don’t we want it to become reality yesterday? Why is that roadmap item taking so damn long? Where’s the blog post? We already agreed to terms on the financing, why do the lawyers need to take 60 days and $50,000 to paper it?
How do you know when to use which tool?
Be patient with the seemingly impossible – changing the world, changing people’s habits, changing thoughts and perceptions all take time. But be impatient with those eminently possible and important items – the things someone on the team or you need to knock off a to do list to advance the business.
Most of all, be impatient for success and tangible signs of progress. Turning your vision into a viable business requires that kind of fire within you.
Book Shorts: Summer Reading
I read a ton of books. I usually blog about business books, at least the good ones. I almost never blog about fiction or non-business/non-fiction books, but I had a good “what did you read this summer” conversation the other night with my CEO Forum, so I thought I’d post super quick snippets about my summer reading list, none of which was business-related.
If you have kids, don’t read Sheryl Sandberg and Adam Grant’s Option B: Facing Adversity, Building Resilience, and Finding Joy unless you’re prepared to cry or at least be choked up. A lot. It is a tough story to read, even if you already know the story. But it does have a number of VERY good themes and thoughts about what creates resilience (spoiler alert – my favorite key to resilience is having hope) that are wonderful for personal as well as professional lives.
Underground Airlines, by Ben Winters, is a member of a genre I love – alternative historical fiction. This book is set in contemporary America – except that its version of America never had a Civil War and therefore still has four slave states. It’s a solid caper in its own right, but it’s a chillingly realistic portrayal of what slavery and slave states would be like today and what America would be like with them.
Hillbilly Elegy, by J.D. Vance, is the story of Appalachia and white working class Americans as told by someone who “escaped” from there and became a marine, then a Yale-educated lawyer. It explains a lot about the struggles of millions of Americans that are easy for so many of us to ignore or have a cartoonish view of. It explains, indirectly, a lot about the 2016 presidential election.
Everybody Lies: Big Data, New Data, and What the Internet Can Tell Us About Who We Really Are, written by Seth Stephens-Davidowitz, was like a cross between Nate Silver’s The Signal and The Noise and Levitt & Dubner’s Freakonomics. It’s full of interesting factoids derived from internet data. Probably the most interesting thing about it is how even the most basic data (common search terms) are proving to be great grist for the big data mill.
P.J. O’Rourke’s How the Hell Did This Happen? was a lot like the rest of P.J. O’Rourke’s books, but this time his crusty sarcasm is pointed at the last election in a compilation of articles written at various points during the campaign and after. It didn’t feel to me as funny as his older books. But that could also be because the subject was so depressing. The final chapter was much less funny and much more insightful, not that it provides us with a roadmap out of the mess we’re in.
Sapiens: A Brief History of Humankind, by Noah Harari, is a bit of a rambling history of our species. It was a good read and lots of interesting nuggets about biology, evolution, and history, though it had a tendency to meander a bit. It reminded me a bit of various Richard Dawkins books (I blogged a list of them and one related business topic here), so if you’re into that genre, this wouldn’t be bad to pick up…although it’s probably higher level and less scientific than Dawkins if that’s what you’re used to.
Finally, I finished up the fourth book in the massive Robert Caro quadrilogy biography of Lyndon Johnson (full series here). I have written a couple times over the years about my long-term reading project on American presidential biographies, probably now in its 12th or 13th year. I’m working my way forward from George Washington, and I usually read a couple on each president, as well as occasional other related books along the way. I’ve probably read well over 100 meaty tomes as part of this journey, but none as meaty as what must have been 3000+ pages on LBJ. The good news: What a fascinating read. LBJ was probably (with the possible exception of Jefferson) the most complex character to ever hold the office. Also, I’d say that both Volumes 3 and 4 stand alone as interesting books on their own – Volume 3 as a braoder history of the Senate and Civil Rights; Volume 4 as a slice of time around Kennedy’s assassination and Johnson’s assumption of power. The bad news: I got to the end of Vol 4 and realized that there’s a Vol 5 that isn’t even published yet.
That’s it for summer reading…now back to school!
The Best Laid Plans, Part III
The Best Laid Plans, Part III
Once you’ve finished the Input Phase and the Analysis Phase of producing your strategic plan, you’re ready for the final Output Phase, which goes something like this:
Vision articulation. Get it right for yourself first. You should be able to answer “where do we want to be in three years?” in 25 words or less.
Roadmap from today. Make sure to lay out clearly what things need to happen to get from where you are today to where you want to be. The sooner-in stuff needs to be much clearer than the further out stuff.
Resource Requirements. Identify the things you will need to get there, and the timing of those needs – More people? More marketing money? A new partner?
Financials. Lay them out at a high level on an annual basis, on a more detailed level for the upcoming year.
Packaging. Create a compelling presentation (Powerpoint, Word, or in your case, maybe something more creative) that is crisp and inspiring.
Pre-selling. Run through it – or a couple of the central elements of it – with one or two key people first to get their buy-in.
Selling. Do your roadshow – hit all key constituents with the message in one way or another (could be different forms, depending on who).
The best thing to keep in mind is that there is no perfect process, and there’s never a “right answer” to strategy — at least not without the benefit of hindsight!
People have asked me what the time allocation and elapsed time should or can be for this process. While again, there’s no right answer, I typically find that the process needs at least a full quarter to get right, sometimes longer depending on how many inputs you are tracking down and how hard they are to track down; how fanatical you are about the details of the end product; and whether this is a refresh of an existing strategy or something where you’re starting from a cleaner sheet of paper. In terms of time allocation, if you are leading the process and doing a lot of the work yourself, I would expect to dedicate at least 25% of your time to it, maybe more in peak weeks. It’s well worth the investment.
Startup CEO (OnlyOnce- the book!), Part III – Pre-Order Now
Startup CEO (OnlyOnce – the book!), Part III – Pre-Order Now
My book, Startup CEO: A Field Guide to Scaling Up Your Business, is now available for pre-order on Amazon in multiple formats (Print, Kindle), which is an exciting milestone in this project! The book is due out right after Labor Day, but Brad Feld tells me that the more pre-orders I have, the better. Please pardon the self-promotion, but click away if you’re interested!
Here are a few quick thoughts about the book, though I’ll post more about it and the process at some point:
- I’ll be using the hashtag #startupceo more now to encourage discussion of topics related to startup CEOs – please join me!
- The book has been described by a few CEOs who read it and commented early for me along the lines of “The Lean Startup movement is great, but this book starts where most of those books end and takes you through the ‘so you have a product that works in-market – now what?’ questions”
- The book is part of the Startup Revolution series that Brad has been working on for a couple years now, including Do More (Even) Faster, Venture Deals, Startup Communities, and Startup Life (with two more to come, Startup Boards and Startup Metrics)
- Writing a book is a LOT harder than I expected!
At this point, the best thing I can do to encourage you to read/buy is to share the full and final table of contents with you, sections/chapters/headings. When I get closer in, I may publish some excerpts of new content here on Only Once. Here’s the outline:
Part I: Storytelling
- Chapter 1: Dream the Possible Dream…Entrepreneurship and Creativity, “A Faster Horse,” Vetting Ideas
- Chapter 2: Defining and Testing the Story…Start Out By Admitting You’re Wrong, A Lean Business Plan Template, Problem, Solution, Key Metrics, Unique Value Proposition and Unfair Advantages, Channels, Customer Segments, Cost Structure and Revenue Streams
- Chapter 3: Telling the Story to Your Investors…The Business Plan is Dead. Long Live the Business Plan, The Investor Presentation, The Elevator Pitch, The Size of the Opportunity, Your Competitive Advantage, Current Status and Roadmap from Today, The Strength of Your Team, Summary Financials, Investor Presentations for Larger Startups
- Chapter 4: Telling the Story to Your Team…Defining Your Mission, Vision and Values, The Top-down Approach, The Bottom-Up Approach, The Hybrid Approach, Design a Lofty Mission Statement
- Chapter 5: Revising the Story…Workshopping, Knowing When It’s Time to Make a Change, Corporate Pivots: Telling the Story Differently, Consolidating, Diversifying, Focusing, Business Pivots: Telling a Different Story
- Chapter 6: Bringing the Story to Life…Building Your Company Purposefully, The Critical Elements of Company-Building, Articulating Purpose: The Moral of the Story, You Can Be a Force for Helping Others—Even If Indirectly
Part II: Building the Company’s Human Capital
- Chapter 7: Fielding a Great Team…From Protozoa to Pancreas, The Best and the Brightest, What About HR?, What About Sales & Marketing?, Scaling Your Team Over Time
- Chapter 8: The CEO as Functional Supervisor…Rules for General Managers
- Chapter 9: Crafting Your Company’s Culture…, Introducing Fig Wasp #879, Six Legs and a Pair of Wings, Let People Be People, Build an Environment of Trust
- Chapter 10: The Hiring Challenge…Unique Challenges for Startups, Recruiting Outstanding Talent, Staying “In-Market”, Recruitment Tools, The Interview: Filtering Potential Candidates, Two Ears One Mouth, Who Should You Interview?, Onboarding: The First 90 Days
- Chapter 11: Every Day in Every Way, We Get a Little Better…The Feedback Matrix, 1:1 Check-ins, “Hallway” Feedback, Performance Reviews, The 360, Soliciting Feedback on Your Own Performance, Crafting and Meeting Development Plans
- Chapter 12: Compensation…General Guidelines for Determining Compensation, The Three Elements of Startup Compensation, Base Pay, Incentive Pay, Equity
- Chapter 13: Promoting …Recruiting from Within, Applying the “Peter Principle” to Management, Scaling Horizontally, Promoting Responsibilities Rather than Swapping Titles
- Chapter 14: Rewarding: “It’s the Little Things” That Matter…It Never Goes Without Saying, Building a Culture of Appreciation
- Chapter 15: Managing Remote Offices and Employees…Brick and Mortar Values in a Virtual World, Best Practices for Managing Remote Employees
- Chapter 16: Firing: When It’s Not Working…No One Should Ever Be Surprised to Be Fired, Termination and the Limits of Transparency, Layoffs
Part III: Execution
- Chapter 17: Creating a Company Operating System…Creating Company Rhythms, A Marathon? Or a Sprint?
- Chapter 18: Creating Your Operating Plan and Setting Goals…Turning Strategic Plans into Operating Plans, Financial Planning, Bringing Your Team into Alignment with Your Plans, Guidelines for Setting Goals
- Chapter 19: Making Sure There’s Enough Money in the Bank…Scaling Your Financial Instincts, Boiling the Frog, To Grow or to Profit? That Is the Question, First Perfect the Model, Choosing Growth, Choosing Profits, The Third Way
- Chapter 20: The Good, the Bad, and the Ugly of Financing…Equity Investors, Venture Capitalists, Angel Investors, Strategic Investors, Debt, Convertible Debt, Venture Debt, Bank Loans, Personal Debt, Bootstrapping, Customer Financing, Your Own Cash Flow
- Chapter 21: When and How to Raise Money…When to Start Looking for VC Money, The Top 11 Takeaways for Financing Negotiations
- Chapter 22: Forecasting and Budgeting…Rigorous Financial Modeling, Of Course You’re Wrong—But Wrong How?, Budgeting in a Context of Uncertainty, Forecast, Early and Often
- Chapter 23: Collecting Data…External Data, Learning from Customers, Learning from (Un)Employees, Internal Data, Skip-Level Meetings, Subbing, Productive Eavesdropping
- Chapter 24: Managing in Tough Times…Managing in an Economic Downturn, Hope Is Not a Strategy—But It’s Not a Bad Tactic, Look for Nickels and Dimes under the Sofa, Never Waste a Good Crisis, Managing in a Difficult Business Situation
- Chapter 25: Meeting Routines…Lencioni’s Meeting Framework, Skip-Level Meetings, Running a Productive Offsite
- Chapter 26: Driving Alignment…Five Keys to Startup Alignment, Aligning Individual Incentives with Global Goals
- Chapter 27: Have You Learned Your Lesson?…The Value (and Limitations) of Benchmarking, The Art of the Post-Mortem
- Chapter 28: Going Global…Should Your Business Go Global?, How to Establish a Global Presence, Overcoming the Challenges of Going Global, Best Practices for Managing International Offices and Employees
- Chapter 29: The Role of M&A…Using Acquisitions as a Tool in Your Strategic Arsenal, The Mechanics of Financing and Closing Acquisitions, Stock, Cash, Earn Out, The Flipside of M&A: Divestiture, Odds and Ends, Integration (and Separation)
- Chapter 30: Competition…Playing Hardball, Playing Offense vs. Playing Defense, Good and Bad Competitors
- Chapter 31: Failure…Failure and the Startup Model, Failure Is Not an Orphan
Part IV: Building and Leading a Board of Directors
- Chapter 32: The Value of a Good Board…Why Have a Board?, Everybody Needs a Boss, The Board as Forcing Function, Pattern Matching, Forests, Trees, Honest Discussion and Debate
- Chapter 33: Building Your Board…What Makes a Great Board Member?, Recruiting a Board Member, Compensating Your Board, Boards as Teams, Structuring Your Board, Board Size, Board Committees, Chairing the Board, Running a Board Feedback Process, Building an Advisory Board
- Chapter 34: Board Meeting Materials…“The Board Book”, Sample Return Path Board Book, The Value of Preparing for Board Meetings
- Chapter 35: Running Effective Board Meetings…Scheduling Board Meetings, Building a Forward-Looking Agenda, In-Meeting Materials, Protocol, Attendance and Seating, Device-Free Meetings, Executive and Closed Sessions
- Chapter 36: Non-Board Meeting Time…Ad Hoc Meetings, Pre-Meetings, Social Outings
- Chapter 37: Decision-Making and the Board…The Buck Stops—Where?, Making Difficult Decisions in Concert, Managing Conflict with Your Board
- Chapter 38: Working with the Board on Your Compensation and Review…The CEO’s Performance Review, Your Compensation, Incentive Pay, Equity, Expenses
- Chapter 39: Serving on Other Boards…The Basics of Serving on Other Boards, Substance, or Style?
Part V: Managing Yourself So You Can Manage Others
- Chapter 40: Creating a Personal Operating System…Managing Your Agenda, Managing Your Calendar, Managing Your Time, Feedback Loops
- Chapter 41: Working with an Executive Assistant…Finding an Executive Assistant, What an Executive Assistant Does
- Chapter 42: Working with a Coach…The Value of Executive Coaches, Areas Where an Executive Coach Can Help
- Chapter 43: The Importance of Peer Groups…The Gang of Six, Problem-Solving in Tandem
- Chapter 44: Staying Fresh…Managing the Highs and Lows, Staying Mentally Fresh, At Your Company, Out and About, Staying Healthy, Me Time
- Chapter 45: Your Family…Making Room for Home Life, Involving Family in Work, Bringing Work Principles Home
- Chapter 46: Traveling…Sealing the Deal with a Handshake, Making the Most of Travel Time, Staying Disciplined on the Road
- Chapter 47: Taking Stock of the Year…Celebrating “Yes”; Addressing “No”, Are You Having Fun?, Are You Learning and Growing as a Professional?, Is It Financially Rewarding?, Are You Making an Impact?
- Chapter 48: A Note on Exits…Five Rules of Thumb for Successfully Selling Your Company
If you’re still with me and interested, again here are the links to pre-order (Print, Kindle).
The Gift of Feedback, Part II
The Gift of Feedback, Part II
I’ve written a few times over the years about our 360 feedback process at Return Path. In Part I of this series in early 2008, I spelled out my development plan coming out of that year’s 360 live review process. I have my new plan now after this year’s process, and I thought I’d share it once again. This year I have four items to work on:
- Continue to develop the executive team. Manage the team more aggressively and intentionally. Upgrade existing people, push hard on next-level team development, and critically evaluate the organization every 3-6 months to see if the execs are scaling well enough or if they need to replaced or augmented
- Formalize junior staff interaction. Create more intentional feedback loops before/after meetings, including with the staff member if needed, and cultivate acceptance of transparency; get managers to do the same. Be extra skeptical about the feedback I’m getting, realizing that I may not get an accurate or complete picture
- Foster deeper engagement across the entire organization. Simplify/streamline company mission and balanced scorecard through a combination of deeper level maps/scorecards, maybe a higher level scorecard, and constant reinforcing communication. Drive multi-year planning process to be fun, touching the entire company, and culminating in a renewed enthusiasm
- Disrupt early and often, the right way. Introduce an element of productive disruption/creative destruction into the way I lead, noting item 2 around feedback loops
Thanks to everyone internally who contributed to this review. I appreciate your time and input. Onward!
It's Copyright Time
It’s Copyright Time
Brad must be off his game this year, so…time to update all those copyrights to say 2008. Or as Brad gently suggested last year, make that field variable so you never have to worry about it again! (Thanks to our CTO Andy Sautins for the reminder here.)
More Good Inc.
More Good Inc.
Last year I was pleased and proud to write about our debut on the Inc. 500 list of America’s fastest growing companies. At that time I wrote that “Now our challenge, of course, is STAYING on the list, and hopefully upping our ranking next year!” Well, I am again please and proud to announce that we, in fact, stayed on the list. (You can read all the Inc. coverage here and see our press release about the ranking here.)
Unfortunately, we didn’t make the second part of our goal to up our rank. But, we did up our growth – our three-year revenue growth rate was 18% higher than last year. This is a testament to the hard work of our team (now 150 strong!) and wouldn’t be possible without the support of our many great clients (now 1,500 strong!). Most importantly, we see no end in sight. In fact, 2008 promises to be an even bigger year for us as we poise for continued growth. By the way, would you like to be part of a team that has now ranked as one of America’s fastest growing companies two years in a row? Check out our Careers page and join the team that is advancing email marketing, one company at a time.
Return Path Core Values, Part II
Return Path Core Values, Part II
As I said at the beginning of this series, I was excited to share the values that have made us successful with the world and to also articulate more for the company some of the thinking behind the statements.
You can click on the tag for all the posts on the 13 Return Path’s core values, but the full list of the values is below, with links to each individual post, for reference:
- We believe that people come first
- We believe in doing the right thing
- We solve problems together and always present problems with potential solutions or paths to solutions
- We believe in keeping the commitments we make, and communicate obsessively when we can’t
- We don’t want you to be embarrassed if you make a mistake; communicate about it and learn from it
- We believe in being transparent and direct
- We challenge complacency, mediocrity, and decisions that don’t make sense
- We believe that results and effort are both critical components of execution
- We are serious and passionate about our job and positive and light-hearted about our day
- We are obsessively kind to and respectful of each other
- We realize that people work to live, not live to work
- We are all owners in the business and think of our employment at the company as a two-way street
- We believe inboxes should only contain messages that are relevant, trusted, and safe
As I noted in my initial post, every employee as of August 2008 was involved in the drafting of these statements. That’s a long post for another time, but it’s an important part of the equation here. These were not top-down statements written by me or other executives or by our People team. Some are more aspirational than others, but they are the aspirations of the company, not of management!
People First
People First
I do not think it’s telling that my fourth post in this series of posts on Return Path’s core values (kickoff post, tag cloud) is something called People First. Ok, it probably should have been the first post in the series. To be fair, it is the first value on our list, but for whatever reason, the value about Ownership was top of mind when I decided to create this series.
Anyway, at Return Path,
We believe that people come first
And we aren’t shy about saying it publicly, either. This came up in a lengthy interview I did with Inc. Magazine last year when we were profiled for winning an award as one of the top 20 small- and mid-sized businesses to work for in America. After re-reading that article, I went back and tried to find the slide from our investor presentations that I referred to. I have a few versions of this slide from different points in time, including one that’s simpler (it only has employees, clients, and shareholder on it) but here’s a sample of it:
That pretty much says it all. We believe that if we have the best and most engaged workforce, we will do the best job at solving our clients’ problems, and if we do that well, our shareholders will win, too.
How does this “people first” mentality influence my/our day-to-day activities? Here are a few examples:
- We treat all employees well, regardless of level or department. All employees are important to us achieving our mission – otherwise, they wouldn’t be here. So we don’t do a lot of things that other companies do like send our top performing sales reps on a boondogle together while the engineers and accountants slave away in the office as second-class citizens. That would be something you might see in a “sales first” or “customer first” culture
- We fiercely defend the human capital of our organization. There are two examples I can think of around this point. First, we do not tolerate abusive clients. Fortunately, they are rare, but more than once over the years either I or a member of my senior team has had to get on the phone with a client and reprimand them, or even terminate their contract with us, for treating one of our employees poorly and unprofessionally. And along the same lines, when all economic hell broke loose in the fall of 2008, we immediately told employees that while we’d be in for a rough ride, our three top priorities were to keep everyone’s job, keep everyone’s compensation, and keep everyone’s health benefits. Fortunately, our business withstood the financial challenges and we were able to get through the financial crisis with those three things intact.
- We walk the walk with regard to employee feedback. Everyone does employee satisfaction surveys, but we are very rigorous about understanding what areas are making people relatively unhappy (for us, even our poor ratings are pretty good, but they’re poor relative to other ratings), and where in the employee population (office, department, level) those issues lie. We highlight them in an all-hands meeting or communication, we develop specific action plans around them, and we measure those same questions and responses the next time we do a survey to see how we’ve improved
- We invest in our people. We pay them fairly well, but that’s not what I’m talking about. We invest in their learning and growth, which is the lifeblood of knowledge workers. We do an enormous amount of internal training. We encourage, support, and pay for outside training and education. We are very generous with the things that allow our employees to be happy and healthy, from food to fitness to insurance to time off to a flexible environment to allowing them to work from another office, or even remotely, if their lives require them to move somewhere else
- I spend as little time as I possibly can managing my shareholders and as much time as I can with employees and prospective employees. That doesn’t mean I don’t interact with my Board members – I do that quite a bit. But it does mean that when I do interact with them, it’s more about what they can do for Return Path and less about reporting information to them. I do send them a lot of information, but the information flow works well for them and simultaneously minimizes my time commitment to the process: (1) reporting comes in a very consistent format so that investors know WHAT to expect and what they’re looking at, (2) reporting comes out with a consistently long lead time prior to a meeting so investors know WHEN to expect the information, (3) the format of the information is co-developed with investors so they are getting the material they WANT, and (4) we automate as much of the information production as possible and delegate it out across the organization as much as possible so there’s not a heavy burden on any one employee to produce it
- When we do spend time with customers (which is hopefully a lot as well), we try to spread that time out across a broad base of employees, not just salespeople and account managers, so that as many of our employees can develop a deep enough understanding of what our customers’ lives are like and how we impact them
There are plenty of companies out there who have a “shareholder first” or “customer first” philosophy. I’m not saying those are necessarily wrong – but at least in our industry, I’ll bet companies like that end up with significantly higher recruiting costs (we source almost half our new hires from existing employee referrals), higher employee churn, and therefore lower revenue and profit per employee metrics at a minimum. Those things must lead to less happy customers, especially in this day and age of transparency. And all of those things probably degrade shareholder value, at least over the long haul.
Email Intelligence and the new Return Path
Welcome to the new Return Path.
For a tech company to grow and thrive in the 21st century it must be in a state of constant adaptation. We have been the global market leaders in email deliverability since my co-founder George Bilbrey coined that term back in 2002. In fact, back in 2008 we announced a major corporate reorganization, divesting ourselves of some legacy businesses in order to focus on deliverability as our core business.
Since then Return Path has grown tremendously thanks to that focus, but we have grown to the point where it’s time for us to redefine ourselves once again. Now we’re launching a new chapter in the company’s history to meet evolving needs in our marketplace. We’re establishing ourselves as the global market leaders in email intelligence. Read on and I’ll explain what that means and why it’s important.
What Return Path Released Today
We launched three new products today to improve inbox placement rate (the new Inbox Monitor, now including subscriber-level data), identify phishing attacks (Email Brand Monitor), and make it easier to understand subscriber engagement and benchmark your program against your competition (Inbox Insight, a groundbreaking new solution). We’ve also released an important research study conducted by David Daniels at The Relevancy Group.
The report’s findings parallel what we’ve been hearing more and more recently. Email marketers are struggling with two core problems that complicate their decision making: They have access to so much data, they can’t possibly analyze it fast enough or thoroughly enough to benefit from it; and too often they don’t have access to the data they really need.
Meanwhile they face new challenges in addition to the ones email marketers have been battling for years. It’s still hard to get to the inbox, and even to monitor how much mail isn’t getting there. It’s still hard to protect brands and their customers from phishing and spoofing, and even to see when mail streams are under attack. And it’s still hard to see engagement measurements, even as they become more important to marketing performance.
Email Intelligence is the Answer
Our solution to these problems is Email Intelligence. Email intelligence is the combination of data from across the email ecosystem, analytics that make it accessible and manageable, and insight that makes it actionable. Marketers need all of these to understand their email performance beyond deliverability. They need it to benchmark themselves against competitors, to gain a complete understanding of their subscribers’ experience, and to accurately track and report the full impact of their email programs. In fact, we have redefined our company’s mission statement to align with our shift from being the global leader in Email Deliverability to being the global leader in Email Intelligence:
We analyze email data and build solutions that generate insights for senders, mailbox providers, and users to ensure that inboxes contain only messages that users want
The products we are launching today, in combination with the rest of our Email Intelligence Solution for Marketers that’s been serving clients for a decade, will help meet these market needs, but we continue to look ahead to find solutions to bigger problems. I see our evolution into an Email Intelligence company as an opportunity to change the entire ecosystem, to make email better, more welcome, more effective, and more secure.
David’s researchoffers a unique view of marketers’ place in the ecosystem, where they want to get to, how much progress they’ve made, and how big a lead the top competitors have opened up against the rest. (It can also give you a sense of where your efforts stack up vs. the rest of the industry.) There are definitely some surprises, but for me the biggest takeaway was no surprise at all: The factors that separate the leaders are essentially the core components of what we define as Email Intelligence.