I’ve written a lot over the years about Return Path’s Core Values (summary post with lots of links to other posts here).  And I’ve also written and believe strongly that there’s a big difference between values, which are pretty unchanging, and culture, which can evolve a lot over time.  But I had a couple conversations recently that led me to think more philosophically about a company’s values.

The first conversation was at a recent dinner for a group of us working on fundraising for my upcoming 25th reunion from Princeton.  Our guest speaker was a fellow alumnus who I’ve gotten to know and respect tremendously over the years as one of the school’s most senior and influential volunteer leaders.  He was speaking about the touchstones in his life and in all people’s lives — things like their families, their faith, the causes they’re passionate about, and the institutions they’ve been a part of.  I remember this speaker giving a similar set of remarks right after the financial crisis hit in early 2009.  And it got me thinking about the origins of Return Path’s values, which I didn’t create on my own, but which I obviously had a tremendous amount of influence over as founder.  Where did they come from?  Certainly, some came from my parents and grandparents.  Some came from my primary and secondary education and teachers.  Some came from other influences like coaches, mentors, and favorite books.  Although I’m not overly observant, some certainly came from Hebrew school and even more so from a deep reading of the Bible that I undertook about 15 years ago for fun (it was much more fun than I expected!).  Some came from other professional experiences before I started Return Path.  But many of them either came from, or were strongly reinforced by my experience at Princeton.  Of the 15 values we currently articulate, I can directly tie at least seven to Princeton:  helpful, thankful, data-driven, collaborative, results-oriented, people first, and equal in opportunity.  I can also tie some other principles that aren’t stated values at Return Path, but which are clearly part of our culture, such as intellectually curious, appreciative of other people’s points of view, and valuing an interdisciplinary approach to work.

As part of my professional Reboot project, this was a good reminder of some of the values I know I’ve gotten from my college experience as a student and as an alumni, which was helpful both to reinforce their importance in my mind but also to remember some of the specifics around their origins – when and why they became important to me.  I could make a similar list and trade and antecedents of all or at least most of our Company’s values back to one of those primary influences in my life.  Part of Reboot will be thinking through all of these and renewing and refreshing their importance to me.

The second conversation was with a former employee who has gone on to lead another organization.  It led me to the observation I’ve never really thought through before, that as a company, we ourselves have become one of those institutions that imprints its values into the minds of at least some of its employees…and that those values will continue to be perpetuated, incorporated, and improved upon over time in any organization that our employees go on to join, manage part of, or lead.

That’s a powerful construct to keep in mind if you’re a new CEO working on designing and articulating your company’s values for the first time.  You’re not just creating a framework to guide your own organization.  You’re creating the beginning of a legacy that could potentially influence hundreds or thousands of other organizations in the future.

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:

1. 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
2. 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
3. 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
4. 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

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.

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.

We were excited to close the sale of our Consumer Insights business last week to Edison, as I blogged about last week on the Return Path blog.  But it brought back to mind the great Yogi Berra quote that “it ain’t over ’til it’s over.”

We’ve done lots of deals over our 18 year existence.  Something like 12 or 13 acquisitions and 5 spin-offs or divestitures.  And a very large number of equity and debt financings.

We’ve also had four deals that didn’t get done.  One was an acquisition we were going to make that we pulled away from during due diligence because we found some things in due diligence that proved our acquisition thesis incorrect.  We pulled the plug on that one relatively early.  I’m sure it was painful for the target company, but the timing was mid-process, and that is what due diligence is for.  One was a financing that we had pretty much ready to go right around the time the markets melted down in late 2008.

But the other two were deals that fell apart when they were literally at the goal line – all legal work done, Boards either approved or lined up to approve, press releases written.  One was an acquisition we were planning to make, and the other was a divestiture.  Both were horrible experiences.  No one likes being left at the altar.  The feeling in the moment is terrible, but the clean-up afterwards is tough, too.  As one of my board members said at the time of one of these two incidents – “what do you do with all the guests and the food?”

What I learned from these two experiences, and they were very different from each other and also a while back now, is a few things:

• If you’re pulling out of a deal, give the bad news as early as possible, but absolutely give the news.  We actually had one of the “fall apart at the goal line” deals where the other party literally didn’t show up for the closing and never returned a phone call after that.  Amateur hour at its worst
• When you’re giving the bad news, do it as directly as possible – and offer as much constructive feedback as possible.  Life is long, and there’s no reason to completely burn a relationship if you don’t have to
• Use the due diligence and documentation period to regularly pull up and ask if things are still on track.  It’s easy in the heat and rapid pace of a deal to lose sight of the original thesis, economic justification, or some internal commitments.  The time to remember those is not at the finish line
• Sellers should consider asking for a breakup fee in some situations.  This is tough and of course cuts both ways – I wouldn’t want to agree to one as a buyer.  But if you get into a process that’s likely to cause damage to your company if it doesn’t go through by virtue of the process itself, it’s a reasonable ask

But mostly, my general rule now is to be skeptical right up until the very last minute.

Because deals are not done until they are done.

I’m fascinated with this topic and how it’s evolving in society. In Part I, a couple years ago now, I changed my long-held point of view from “CEOs should only wade into politics when there’s a direct impact on their business” (things like taxes and specific regulations, legal immigration) — to believing that CEOs can/should wade into politics when there’s an indirect impact on business. In that post, I defined my new line/scope as being one that includes the health and functioning of our democracy, which you can tie to business interests in so many ways, not the least of which this week is the Fitch downgrade of the US credit rating over governance concerns. Other CEOs will have other definitions of indirect, and obviously that’s ok. No judgment here!

I am a regular viewer of Meet the Press on Monday mornings in the gym on DVR. Have been for years. This weekend, Chuck Todd’s “Data Download” segment was all about this topic. The data he presented is really interesting:

58% of people think it’s inappropriate for companies to take stands on issues. The best that gets by party is that Democrats are slightly more inclined to think it’s appropriate for companies to take stands on issues (47/43), but for Republicans and Independents, it’s a losing issue by a wide margin.

To that end, consumers are likely to punish companies who DO take stands on issues, by an overall margin of 47/24 (not sure where everyone else is). The “more likely” applies to people of all political persuasions.

These last two tables of his are interesting. Lower income people feel like it’s inappropriate for companies to take stands on issues more than higher earners, but all income levels have an unfavorable view, and…

…older people are also more likely to have an unfavorable view of companies who wade into politics than younger people, but again, all ages have an unfavorable view

As I said in Part I of this series, “I still believe that on a number of issues in current events, CEOs face a lose-lose proposition by wading into politics,” risking alienation of customers, employees, and other stakeholders. The data from Meet the Press supports that, at least to some extent. That said, I also acknowledge that the more polarized and less functional the government is…the more of a leadership vacuum there is on issues facing us all.

Wait – A Closed Environment Isn’t the Be All End All?

Today’s announcement that AOL will be improving its web-based email access for members and opening a free version of the service for non-members in 2005 is a quiet cry of “uncle.”  What’s amazing isn’t the announcement so much as how long it took for AOL to get there.

What will this do to the email landscape?  Not much, in my view.  It’s too little, too late, to mean much of anything.

Book Short: There is No Blueprint to $1B

Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth, by David Thomson (book, Kindle) sounds more formulaic than it is. It’s not a bad book, but you have to dig a little bit for the non-obvious nuggets (yes, I get that growing your company to $1B in sales requires having a great value proposition in a high growth market!). The author looked for commonalities among the 387 American companies that have gone public since 1980 with less than $1B in revenues when they went public and had more than $1B in revenue (and were still in existence) at the time of the book’s writing in 2005.

Thompson classifies the blueprint into “7 Essentials,” which blueprint companies do well on across the board. The 7 Essentials are:

– Create and sustain a breakthrough value proposition

– Exploit a high growth market segment

– Marquee/lighthouse customers shape the revenue powerhouse

– Leverage big brother alliances for breaking into new markets

– Become the masters of exponential returns

– The management team: inside-outside leadership

– The Board: comprised of essentials experts

As I said above, there were some nuggets within this framework that made the entire read worthwhile. For example, crafting a Board that isn’t just management and investors but also includes industry experts like customers or alliance partners is critical. That matches our experience at Return Path over the years (not that we’re exactly closing in on $1B in revenues – yet) with having outside industry CEOs sit on our Board. Our Board has always been an extension of our management and strategy team, but we have specifically gotten some of our most valuable contributions and thought-provoking dialog from the non-management and non-investor directors.

Another critical item that I thought was interesting was this concept of not just marquee customers (yes, everyone wants big brand names as clients), but that they also need to be lighthouse customers. They need to help you attract other large customers to your solution – either actively by helping you evangelize your business, or at least passively by lending their name and case study to your cause.

The book is more of a retrospective analysis than a playbook, and some of its examples are a bit dated (marveling at Yahoo’s success seems a bit awkward today), and the author notes as well that many of the “blueprint” companies faltered after hitting the $1B mark. But it was a good read all-in. What I’d like to see next is a more microscopic view of the Milestones to $100 Million!

Response to a Deliverability Rant

Justin Foster from WhatCounts, an email service provider based in Seattle, wrote a very lengthy posting about email deliverability on the WhatCounts blog yesterday.  There’s some good stuff in it, but there are a couple of things I’d like to clarify from Return Path‘s perspective.

Justin’s main point is spot-on.  Listening to email service providers talk about deliverability is a little bit like eating fruit salad:  there are apples and oranges, and quite frankly pineapples and berries as well.  Everyone speaks in a different language.  We think the most relevant metric to use from a mailer’s perspective is inbox placement rate.  Let’s face it – nothing else matters.  Being in a junk mail folder is as good as being blocked or bounced.

Justin’s secondary point is also a good one.  An email service provider only has a limited amount of influence over a mailer’s inbox placement rate.  Service providers can and must set up an ironclad email sending infrastructure; they can and must support dedicated IP addresses for larger mailers; they can and must support all major authentication protocols — none of these things is in any way a trivial undertaking.  In addition, service providers should (but don’t have to) offer easy or integrated access to third-party deliverability tools and services that are on the market.  But at the end of the day, most of the major levers that impact deliverability (complaint rates, volume spikiness, content, registration/data sources/processes) are pulled by the mailer, not the service provider.  More on that in a minute.

I’d like to clarify a couple of things Justin talks about when it comes to third-party deliverability services.

Ok, so he’s correct that seed lists only work off of a sample of email addresses and therefore can’t tell a mailer with 100% certainty which individual messages reach the inbox or get blocked or filtered.  However, when sampling is done correctly, it’s an incredibly powerful measurement tool.  Email deliverability sampling gives mailers significantly more data than any other source about the inbox placement rate of their campaigns.  Since this kind of data is by nature post-event reporting, the most interesting thing to glean from it is changes in inbox placement from one campaign to another.  As long as the sampling is done consistently, that tells a mailer the most critical need-to-know information about how the levers of deliverability are working.

For example, we released our semi-annual deliverability tracking study for the first half of 2005 yesterday, which (download the whitepaper with tracking study details here or view the press release here).  We don’t publicly release mailer-specific data, but the data that went into this study about specific clients is very telling.  Clients who start working with us and have, say a 75% inbox placement rate — then work hard on the levers of deliverability and raise it to 95% on a sampled basis, can see the improvements as their sales and other key email metrics jump by 20%.  Just because there’s a small margin of error on the sample doesn’t render the process useless.

Second, Justin issues a big buyer beware about Bonded Sender and other “reputation” services (quotes deliberate – more on that in a minute as well).  Back in June, we released a study about Bonded Sender clients which showed that mailers who qualified for Bonded Sender saw an average of a 21% improvement in inbox delivery rates (range of 15%-24%) at ISPs who use Bonded Sender such as MSN, Hotmail, and Roadrunner.  We were pretty careful about the data used to analyze this.  We only looked at mailers who were clients both before and after joining the Bonded Sender program for enough time to be relevant, and we looked at a huge number (100,000+) of campaigns.  Yes, it’s still “early days” for accreditation programs, but we think we’re off to a good start with them given this data, and the program isn’t all that expensive relative to what mailers pay for just about everything else in their email deployment arsenal.

Finally, let me come back to the two “more on that in a minute” points from above.  I’ll start with the second one — Bonded Sender is an accreditation program, or a whitelist, NOT a reputation service.  Accreditation and Reputation services are both critical components in the fight to improve inbox placement of legitimate, permissioned, marketing emails, but they’re very different kinds of programs (a little background on why they’re important and how they fit with authentication here).

Accreditation services like Bonded Sender work because, for the very best mailers, third parties like TRUSTe essentially vouch that a mailer is super high quality — enough so that an ISP can feel comfortable putting mail from that mailer in the inbox without subjecting it to the same level of scrutiny as random inbound mail.

There are no real, time-tested reputation services for mailers in the market today.  We’re in the process of launching one now called Sender Score.  Sender Score (and no doubt the other reputation services which will follow it) is designed to help mailers measure the most critical levers of deliverability so they can work at solving the underlying root cause problems that lead to low inbox placement.  This is really powerful stuff, and it will ultimately prove our (and Justin’s) theory that mailers have much more control over their inbox placement rate/deliverability than service providers.

Where does all this lead?  Two simple messages:  (1) if you outsource your email deployment to an email service provider, pick your provider carefully and make sure they do a good job at the infrastructure-related levers of email deliverability that they do control.  (2) whether you handle email deployment in-house or outsource it to a service provider, your inbox placement rate is largely in your control. Make sure you do everything you can to measure it and look closely at the levers, whether you work with a third-party deliverability service or not.

Apologies for the lengthy posting.

Less is More

I have a challenge for the email marketing community in 2009. Let’s make this the Year of “Less is More.”

Marketers are turning to email more and more in this down economy. There’s no question about that. My great fear is that just means they’re sending more and more and more emails out without being smart about their programs. That will have positive short term effects and drive revenues, but long term it will have a negative long term impact on inboxes everywhere. And these same marketers will find their short term positive results turning into poor deliverability faster than you can say “complaint rate spike.”

I heard a wonderful case study this week from Chip House at ExactTarget at the EEC Conference. One of his clients, a non-profit, took the bold and yet painful step of permissioning an opt-out list. Yikes. That word sends shivers down the spine of marketers everywhere. What are you saying? You want me to reduce the size of my prime asset? The results of a campaign done before and after the permission pass are very telling and should be a lesson to all of us. The list shrank from 34,000 to 4,500. Bounce rate decreased from 9% to under 1%. Spam complaints went from 27 to 0 (ZERO). Open rate spiked from 25% to 53%. Click-through from 7% to 22%. And clicks? 509 before the permissioning, 510 after. This client generated the same results, with better metrics along the way, by sending out 87% LESS EMAIL. Why? Because they only sent it to people who cared to receive it.

This is a great time for email. But marketers will kill the channel by just dumping more and more and more volume into it. Let’s all make Less Is More our mantra for the year together. Is everyone in? Repeat after me…Less Is More! Less Is More!

A Perfect Ten

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

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

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

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

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

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

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