Breaking New Ground on Transparency

I’ve written a lot over time about our Live 360 process for senior leaders in the business.  (This post is a good one, and it links to a couple earlier ones that are good, as well.)  We take a lot of pride in feedback and in transparency at Return Path, and after 15 years, even for an innovative business, it’s unusual that we do something big for the first time around people.  But we did today.

This image is of something never seen before at our company.  It’s my own handwritten notes about my own Live 360.

It’s never been seen before, because no one has ever been physically present for his or her own review before.  In previous reviews, my Board, my exec team, and a few skip-levels gather in a room for 90 minutes with a facilitator to discuss my performance and behaviors.  Then the facilitator would go away and write up notes, and discuss them with me, then I’d produce a development plan.

Today, we decided to experiment with having me sit in my own review to add to the transparency and directness of the feedback.  My only role was to listen, ask (non-judgmental) clarifying questions, and take notes.  I left the room at the end in case someone wanted to say something without me hearing it directly, but although the conversation about the business continued, it didn’t sound like there was anything material about me that surfaced.

It was a little awkward at first, and it was interesting that some people addressed me directly while others spoke of me in the third person.  But once we got past that, the experience was incredibly powerful for me.  The first part — the “what do you appreciate about Matt” part — was humbling and embarrassing and gratifying all at the same time.

The meat of the review, though — the “how can we coach Matt on areas where he needs development” — was amazing.  I got great insights into a couple of major areas of work that I need to do, and that we need to do as a business.  I’m guessing I would have gotten them out of reading a summary of the review conversation, but hearing the texture of the conversation was much, much richer than reading a sanitized version of it on paper.  As always with reviews, there was the odd comment or two that annoyed me, but I felt like I handled them well without any defensive body language or facial expressions.

I will, as I’ve always done, post my development plan to my blog after I formulate it over the course of the next few weeks.  But for now, I just want to thank my Board and team for their awesomely constructive feedback and for helping us usher in a new era of increased transparency here.

Startup CEO (OnlyOnce – the book!)

One of the things I’ve often thought over the years since starting Return Path in 1999 is that there’s no instruction manual anywhere for how to be a CEO.  While big company CEOs are usually groomed for the job for years, startup CEOs aren’t…and they’re often young and relatively inexperienced in business in general.  That became one of the driving forces behind the creation of my blog, OnlyOnce (because “you’re only a first time CEO once”) back in 2004.

Now, over 700 blog posts later, I’m excited to announce that I’m writing a book based on this blog called Startup CEO:  A Field Guide to Building and Running Your Company.  The book is going to be published by Wiley & Sons and is due out next summer.  The book won’t just be a compendium of blog posts, but it will build on a number of the themes and topics I’ve written about over the years and also fill in lots of other topics where I haven’t.

The catalyst for writing this book was Brad Feld.  Brad has been a friend, mentor, investor, and Board member for over a decade.  We’ve had many great times, meals, and conversations together over the years, not the least of which was staggering across the finish line together at the New York City Marathon in 2005.  Brad started writing books a few years ago, and I’ve been peripherally involved with them, first with Do More Faster:  TechStars Lessons to Accelerate Your Startup (I contributed one of the chapters) and then with Venture Deals:  Be Smarter Than Your Lawyer and Venture Capitalist (I wrote all the “Entrepreneur Perspective” sidebars).

Those are great books, and they’ve been incredibly well received by the global entrepreneurial community.  But then Brad got the bug, and now he’s in the middle of writing FOUR new books with Wiley that will all come out over the next year.  They are:

• Startup Communities:  Building an Entrepreneurial Ecosystem in Your City
• Startup Life:  Surviving and Thriving in a Relationship with an Entrepreneur
• Startup Metrics:  Making Sense of the Numbers in Your Startup
• Startup Boards:  Reinventing the Board of Directors to Better Support the Entrepreneur

These four books, plus the two earlier ones, plus Startup CEO, are all part of the Startup Revolution series.  While I’ll continue to do most of my blogging and posting here on OnlyOnce, I’d also encourage you to check out the Startup Revolution site and sign up to be a member of that community.  I’ll be doing some things on that site as well in connection with Startup CEO, and it’s a more concentrated place to post and comment on all things Startup.  In addition, we’ll be putting a bunch of add-ons to the book on that site closer to publication time.

I hope Startup CEO becomes a standard for all new CEOs.  I don’t think I have all the answers, but at least others can benefit by learning from my 13 years of successes and mistakes!  Now all I have to do is go write the darned thing.

Last week, I wrote about surrounding yourself with the best and brightest.  Next in this series of posts  is all about Creating an environment of trust.  This is closely related to the blog post I wrote a while back in my series on Return Path’s Core Values on Transparency.  At the end of the day, transparency, authenticity, and caring create an environment of trust.

Some examples of that?

• Go over the real board slides after every board meeting – let everyone in the company know what was discussed (no matter how large you are, but of course within reason)
• Give bad news early and often internally.  People will be less freaked out, and the rumor mill won’t take over
• Manage like a hawk – get rid of poor performers or cultural misfits early, even if it’s painful – you can never fire someone too soon
• Follow the rules yourself – for example, fly coach if that’s the policy, park in the back lot and not in a “reserved for the big cheese” space if you’re not in Manhattan, have a relatively modest office, constantly demonstrate that no task or chore is beneath you like filling the coke machine, changing the water bottle, cleaning up after a group lunch, packing a box, carrying something heavy
• When a team has to work a weekend , be there too (in person or virtually) – even if it’s just to show your appreciation
• When something really goes wrong, you need to take all the blame
• When something really goes right, you need to give all the credit away

Perhaps a bit more than the other posts in this series, this one needs to apply to all your senior managers, not just you.  Your job?  Manage everyone to these standards.

This is another in a series of postings that relate to Fred’s and Brad’s various postings about venture capital funding. (Please note I have added an 11th item in response to a comment by Jack Sinclair, Return Path’s VP of Finance and my partner in crime on all transactions for the past five years.)

I think the most important part of the venture financing process is negotiating the term sheet. Although they’re only 2-3 pages long, term sheets contain summaries of all the critical aspects of a financing, and once they’re signed, the remainder of the financing process is significantly more “automatic.” Based on the financings I’ve seen and worked on – both as a VC and as an entrepreneur – my Top 10 (now 11) biggest takeaways for entrepreneurs are as follows (not in any particular order):

1. Get a good lawyer. I mean a really good one. Not just one who you are comfortable with and who is productive and doesn’t charge you too much (as Brad says, your wife’s brother’s friend’s neighbor), but one who knows venture financings like the back of his or her hand. They’re out there, many of them have worked on both sides of these transactions – for VCs and for entrepreneurs, and they can save your ass. No matter how many deals you’ve worked on, your lawyer has worked on more of them. Return Path’s lawyer, David Albin from Finn Dixon & Herling, is great if you need one.

2. Focus on terms that matter, otherwise known as Pick your battles. A typical VC term sheet will have at least 20 terms spelled out in it. There are only a few that really matter in the end, although you should at least make sure your lawyer is comfortable that the others are reasonable and somewhat standard. Spend time on valuation, the type of security, the option pool, Board composition, and your own compensation and rights.

2a (new). 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% of your company or 30% of your company is much less important than having a capital structure that’s easy for an outsider to understand and want to join (e.g., investment banker or later-stage VC).

3. 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 it extends to any negotiation, not just term sheets. If you have two or three VCs who are interested in funding you, I can guarantee you will end up with better terms from the highest quality investor in the group if you play the negotiation well. If you have one term sheet, you have zero leverage in your negotiation. Yes, you will spend 2-3x the amount of time on the process, but it’s well worth it.

4. Be prepared to pay up for high quality investors. 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). This is where having a BATNA really comes in handy.

5. Ask for references. Don’t be shy – prospective VCs are checking up on you…you have every right to do the same with them. Ask them for references of CEOs they’ve worked with. Ask them for a CEO they’ve had to fire as a reference. The good ones will give you the full roster of everyone they’ve ever funded and tell you to call anyone. The bad ones will give you two names and ask for time to prep them ahead of time.

6. Don’t let the VC get away with negotiating a point by saying “we always do it this way.” That’s just not true. VCs may have a preferred way of doing deals or handling a specific term, but every deal they’ve ever done is different, and they know it. If there’s a compelling reason for them to insist on a particular term, you have the right to hear it (if it’s important to you).

7. If you have multiple investors in the syndicate, insist on a single investor counsel and a lead investor. This is essential to (a) protect your sanity, and (b) prevent you from paying zillions of dollars in legal fees. You have to make the VCs stick to it, though – they can’t come back and re-trade the deal after it’s been negotiated. This is also helpful in getting a syndicate cooperating with each other and aligning the members’ interests, particularly if it has investors who have participated in different rounds of the company’s financing. Do expect to play moderator constantly throughout the process, however, to ensure that it goes smoothly.

8. Try do deal in advance with follow-on financings. When an investor doesn’t participate in a follow-on financing, it creates a total nightmare for you. Other investors will want to punish their wayward colleague and can create massive collateral damage in the process to common shareholders and management. Just as VCs will insist on something called “pre-emptive rights” (the right to invest in future financings if they want), you and your lawyer should insist on some protection in the event that one of your investors abandons you when you are raising more capital.

9. Handle the term sheet negotiation carefully. Whether it’s an initial round or a follow-on round, how you handle yourself in this negotiation sets the tone for the next stage of your relationship with the VC. 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.

10. Finally don’t forget to say thank you at the end of the process. Whether you send a formal email, a handwritten note, or a token gift, be sure to thank your VCs after a financing. They’re putting their butt on the line for your company, they’re investing in YOU, and they’re making it possible for you to pursue your dream. That deserves a thoughtful thanks in my book.

Sorry for the long posting. The next one or ones in this series will be on valuation, preferences, and “Venture Capital deal algebra.”

Comment on Political versus Corporate Leadership, Part II: Admitting Mistakes

My colleague Mike Mayor writes:

So you’e only asking for politicians to be honest Matt? Is that all? 🙂

Couldn’t agree more on the CEO side. A CEO who cannot admit to failure is doomed to be surrounded by “yes men” and, therefore, must go it alone, whereas the CEO who admits to having the odd bad idea every now and then is more likely to get truthful and accuruate information from those around him/her. Which scenario would you prefer to base your next decision on?

However, I look more to Hollywood for fostering the faux CEO/Board Room stereotypes, not politics. Look no further than the highest ranked show among 18 to 46 year olds: The Apprentice. Trump is just one contemporary example of successfully perpetuating the “kill or be killed” mentality of the ideal CEO. In his book, “How to Get Rich” one of his lessons is to “never take the blame for anything” (meanwhile Trump gets rich by being a caricature of a CEO).

The ideal CEO needs to set the example for the behavior of his employees, and creates opportunities by building relationships not “squashing the competition.” And like it or not, the ideal Board Room is actually a Think Tank of great minds working toward a common goal rather than a place to play mind games and mental poker.

Unfortunately, both of these things make for a horrible TV show but do contribute to building truly great companies! On the other hand, watch too many TV shows (or follow the politician’s lead) and you’ll likely become a CEO whose success is comparable to the CEOs of Enron and Tyco.

My 360 on Your 360

Last year, I wrote about the 360 review process we do at Return Path, which is a great annual check-in on staff development and leadership/management.  In Part I of What a View, I described the overall process.  In Part II, I talked specifically about how my review as CEO worked, which is a little different.

This year, we changed the format of our reviews in two ways. First, for senior staff, we continued to do the live, moderated discussions, but we dropped having people also fill out the online review form.  It was duplicative, and the process already consumes enough time that we decided to cut that part out, which I think worked well. 

Second, for my review, instead of having the Board review me separately from the senior staff, I combined efforts and had all of them participate in my live moderated discussion together.  I also think this worked well, although we did receive some feedback about how to modify the format slightly for next year.  It was great for the Board to get a window into how the team feels about me, and vice versa, and it produced a single, unified development plan for me, which is much more helpful than two sets of feedback about different questions and issues.

The one theme that came out of this year’s live reviews, which is definitely worth thinking about, is the impact of the Heisenberg Uncertainty Principle, that once something is observed, the act of observing it can actually change it.  Because the live discussions are face to face (anonymous to the person being reviewed, but not anonymous among the reviewers), some people mentioned that they were conscious of what they were saying in the presence of others in the company.  Others didn’t particularly care about that but did say things that could be construed as negative about some of their fellow reviewers.  Someone came up to me after one session and said "I wonder what the rest of the group thought of my comments — I need a 360 on your 360!"

The reality is that transparency is a good thing.  There shouldn’t be any state secrets about someone’s performance, especially when the person is in a senior management position.  All people always have things they can improve upon, and the open discussion around what they are and why they happen produce MUCH better results for the people being reviewed, uncomfortable as it may be at times.

The sessions are confidential, so participants should feel comfortable that their thoughts won’t be shared outside the room.  Plus, we provide a mechanism to give feedback that really is hard to provide in public for whatever reason via email or one-on-one conversations with the moderator.

Good Meeting Behavior

I've been in meetings with large groups of people at big companies where they're all on laptops the whole meeting, no one makes any eye contact with the speaker/facilitator, and it's hard to get a pulse out of the group as a result.

I almost entirely stopped bringing laptops and smartphones into business meetings a few years back.  There's nothing I find more irritating than when other people are using them when it's my meeting.  Even if they're taking notes, I never know if they're really taking notes or sneaking a peek at email.  And in my experience, people who are on laptops and phones in meetings, whatever they're doing on those devices and however good they are at multi-tasking, aren't paying as close attention to the meeting as the other people in the room. 

What I do instead is take notes on paper and spend 2 minutes after the meeting handling whatever data entry I need to handle on my computer.

I was very excited to see Brad's post about how he is now going to take paper notes in Board meetings rather than use his smartphone and be tempted to check email (and otherwise be distracted).  Everyone should do this for every meeting.  Board meetings are important examples, but they're not alone.  It's just good meeting behavior.  If you have other things to do, step out of the meeting and do them.

This was a big week for Return Path.  First we announced a $35mm financing led by an exceptional private equity firm that I’d never heard of before the middle of the fundraising process a few months ago.  We are happy to have them join our very strong board and syndicate and even happier to have additional investment capital to accelerate our growth, especially in newer businesses for us like Email Fraud Protection and our overall data and analytic capabilities.

But in some ways even more important, or at least more sentimentally important news this week is that tomorrow, December 6, marks the 15th anniversary of Return Path’s founding.  A decade and a half with probably over 800 employees in total over time in a dozen locations and several thousand clients worldwide.  We’ve “served” over 30 million consumers, including some of our legacy businesses like ECOA, Postmaster Direct, and Authentic Response, as well as our current panel.  Preparing for our annual year-end all-hands meetings over the next couple weeks was a fun exercise this week in pulling up, diving into lessons learned from this past year (and more), and trying to crisply articulate our vision for the next few years.

The next leg of our journey is going to be interesting and quite different from the past in many ways, though of course some things, like our values and spirit, won’t change.  Lots of aspects of our jobs will.  But that’s a good thing.  I’m not sure I could have ever done the same job for 15 years, and even though my title and company haven’t changed since 1999, the substance of my job has changed every few years.  I have loved every minute of every day of this journey (even the not-so-good ones) and am privileged to work with such an amazingly talented executive team, staff, and board.  I won’t say “here’s to the next 15,” because I can’t count that high, but here’s to Return Path!

And to celebrate #15, my colleague Tom Sather assembled this fun infographic that has some fun stats and is a bit of walk through history.

In the Land of Too Many Conferences, This is a Good One

It’s rare that I’m sad to leave a conference — usually I can’t leave fast enough.  But such is my mood today leaving Mediapost’s third Email Insider Summit.

Our industry is way over-conferenced in general.  I’m guessing that our company’s full conference calendar has 40+ events on it over the course of a year.  It’s more than we can afford to exhibit at, participate in, speak at, attend.  We do our best, and what money we spend is much more carefully monitored and measured than it used to be, but usually it’s with that sick feeling in the pit of our collective marketing stomach that we’re throwing money away just because our competitors are there.

But the Email Insider Summit is different.  While there are some aspects of the show that I don’t love — four days is a long time, and three half days of golf and snorkeling is a little too heavy on the boondoggle side for my personal taste — the content and attendees are fantastic.  Mediapost’s formula of comping marketers and charging vendors very high prices to attend ensures an intimate, high level, and vendor-light crowd.  That’s a recipe for success in my book!

The two most interesting nuggets from today:

1. John Stichweh from Coca-Cola’s observation that brand marketing and direct marketing continue to rapidly converge, and that measurement of outcome (e.g., ROI) as opposed to measurement of process (e.g., GRPs or impressions) are gaining steam, never to look back.  I couldn’t agree more.  What can be counted will be counted.  And it can all be counted in the world of advertising, somehow.

2. Lisa Galli from CNET’s discussion of mobile marketing and what they’re doing to take advantage of the channel.  The best example I’ve heard in years of a marketer leveraging a medium is their new SMS Reviews product — just text message CNET1 the words Review xxx (insert name of product here), and you’ll get a text message back with a product review.  Now THAT ought to make shopping for electronics much more interesting.

I’m ready for more conferences like these, and fewer mammoth trade shows.

Book Short:  Vive La Difference

Brain Sex, by Anne Moir and David Jessell, was a fascinating read that I finished recently.  I will caveat this post up front that the book was published in 1989, so one thing I’m not sure of is whether there’s been more recent research that contradicts any of the book’s conclusions.  I will also caveat that this is a complex topic with many different schools of thought based on varying research, and this book short should serve as a starting point for a dialog, not an end point.

That said, the book was a very interesting read about how our brains develop (a lot happens in utero), and about how men’s and women’s brains are hard wired differently as a result.  Here are a few excerpts from the book that pretty much sum it up (more on the applied side than the theoretical):

• Men tend to be preoccupied with things, theories, and power…women tend to be more concerned with people, morality, and relationships
• Women continue to perceive the world in interpersonal terms and personalize the objective world in a way men do not.  Notwithstanding occupational achievements, they tend to esteem themselves only insofar as they are esteemed by those they love and respect.  By contrast, the bias of the adult male brain expresses itself in high motivation, competition, single-mindedness, risk-taking, aggression, preoccupation with dominance, hierarchy, and the politics of power, the constant measurement and competition of success itself, the paramountcy of winning
• Women will be more sensitive than men to sound, smell, taste, and touch.  Women pick up nuances of voice and music more readily, and girls acquire the skills of language, fluency, and memory earlier than boys.  Females are more sensitive to the social and personal context, are more adept at tuning to peripheral information contained in expression and gesture, and process sensory and verbal information faster.  They are less rule-bound than men
• Men are better at the kills that require spatial ability.  They are more aggressive, competitive, and self-assertive.  They need the hierarchy and the rules, for without them they would be unable to tell if they were top or not – and that is of vital importance to most men

As I said up front, this book, and by extension this post, runs the risk of overgeneralizing a complex question.  There are clearly many women who are more competitive than men and outpace them at jobs requiring spatial skills, and men who are language rock stars and quite perceptive.

But what I found most interesting as a conclusion from the book is the notion that there are elements of our brains are hard wired differently, usually along gender lines as a result of hormones developed and present when we are in utero.  The authors’ conclusion — and one that I share as it’s applied to life in general and the workplace in particular — is that people should “celebrate the difference” and learn how to harness its power rather than ignore or fight it.

Thanks to David Sieh, our VP Engineering, for giving me this book.

Book Short:  Multiplying Your Team’s Productivity

No matter how frustrated a kids’ soccer coach gets, he never, ever runs onto the field in the middle of a game to step in and play.  It’s not just against the rules, it isn’t his or her role.

Multipliers: How the Best Leaders Make Everyone Smarter by Liz Wiseman and Greg McKeown (book, Kindle) takes this concept and drives it home.  The book was a great read, one of the better business books I’ve read in a long time.  I read a preview of it via an article in a recent Harvard Business Review (walled garden alert – you can only get the first page of the article without buying it), then my colleague George Bilbrey got the book and suggested I read it.  George also has a good post up on his blog about it.

One of the things I love about the book is that unlike a lot of business books, it applies to big companies and small companies with equal relevance.  The book echoes a lot of other contemporary literature on leadership (Collins, Charan, Welch) but pulls it into a more accessible framework based on a more direct form of impact:  not long-term shareholder value, but staff productivity and intelligence.  The book’s thesis is that the best managers get more than 2x out of their people than the average – some of that comes from having people more motivated and stretching, but some comes from literally making people more intelligent by challenging them, investing in them, and leaving them room to grow and learn.

The thesis has similar roots to many successful sales philosophies – that asking value-based questions is more effective than presenting features and benefits (that’s probably a good subject for a whole other post sometime).  The method of selling we use at Return Path which I’ve written about before, SPIN Selling, based on the book by Neil Rackham, gets into that in good detail.  One colorful quote in the book around this came from someone who met two famous 19th century British Prime Ministers and noted that when he came back from a meeting with Gladstone, he was convinced that Gladstone was the smartest person in the world, but when he came back from a meeting with Disraeli, he was convinced that he (not Disraeli) was the smartest person in the world.

Anyway, the book creates archetypal good and bad leaders, called Multipliers and Diminishers, and discusses five traits of both:

• Talent Magnet vs. Empire Builder (find people’s native genius and amplify it)
• Liberator vs. Tyrant (create space, demand the best work, delineate your “hard opinions” from your “soft opinions”)
• Challenger vs. Know-It-All (lay down challenges, ask hard questions)
• Debate Maker vs. Decision Maker (ask for data, ask each person, limit your own participation in debates)
• Investor vs. Micromanager (delegate, teach and coach, practice public accountability)

This was a great read.  Any manager who is trying to get more done with less (and who isn’t these days) can benefit from figuring out how to multiply the performance of his or her team by more than 2x.