Apr 272005



I figure the title will entice someone new to read this (although he or she might be sorely disappointed with the actual content).  Fred’s posting today about VCs’ conflicts of interest, besides giving me fodder for my weekly counter-cliche posting, brings up another interesting point, one about entrepreneurs and their levels of confidentiality or secrecy about their business plans.

I heard a quote once from Vinod Khosla of Kleiner Perkins that has stayed with me for years:  that “to be successful in the new economy you must be open to the point of promiscuity.”  I think Khosla is right.  As Fred says, VCs are notorious for meeting lots of companies before making an investment, and as an entrepreneur on the other side of the table, it’s impossible to completely protect your ideas and thoughts if you want to attract outside capital.  You just have to trust that the VCs are going to be as honest as possible in how they use the information you share with them.  Same goes for potential partnerships and even M&A as well.  You simply can’t have productive conversations on those topics without opening the proverbial kimono at least a little bit.

But being promiscuous with the state secrets of your business carries certain risks as well.  If the partnership or M&A conversation goes awry, you could easily find yourself with a competitor that knows part of your game plan.  We’ve had this happen at least once at Return Path, and to this day, it still irritates the heck out of us.  But we still think we made the right decision at the time to share that information — and now at least we know that our new competitor isn’t creative enough to come up with his own ideas!

On a completely side note, anyone who’s not using desktop search like Google or the Lookout plugin for Outlook is missing out.  I couldn’t remember the exact quote from Vinod Khosla, but I remembered that it was emailed to me years ago by my colleague Mary Lynn McGrath.  It took Lookout 0.06 seconds to find the exact email from September of 2000 using keywords McGrath and Vinod.  Amazing (and thanks again, Mary Lynn!).

Apr 272005

Counter Cliche: No Conflict, No Interest

Counter Cliche:  No Conflict, No Interest

The entrepreneur’s take on Fred’s VC cliche of the week — "No conflict, No interest" is that it applies equally but differently to management teams. 

Our nation’s first president, George Washington, is often said to have brilliantly placed political enemies Thomas Jefferson and Alexander Hamilton on his first cabinet so he would have differing points of view from which to choose when deciding some of the complex and delicate issues that faced our nation in its infancy.  And many of those early decisions of the Washington administration — things like how to pay down the debt from the Revolution, or whether and how to put down the Whiskey Rebellion — were critical in forming our nation and deciding how much power to invest in our government.

The tension between one executive and another on a management team is, though perhaps less historically important, no different.  A management team that finds itself 100% in agreement, 100% of the time, is in trouble.  A management team that can have disagreements and use that tension productively to drive decisions is much better off.  Building such a team requires the CEO to seek out executives who view the world differently, who have the courage to speak their minds in the face of strong opposition, and who have the ability to see different points of view.

Apr 262005

Book Short: Are You Topgraded?

Book Short:  Are You Topgraded?

I read a decent volume of business books (some of my favorites and more recent ones are listed in the left hand column of the blog).  I have two main pet peeves with business books as a rule:  the first is is that most business books have one central idea and a few good case examples and take way too many pages to get where they’re going; the other is that far too many of them are geared towards middle and upper management of 5,000+ person companies and are either not applicable or need to be adapted for startups.

Anyway, I thought I’d occasionally post quick synopses of some good ones I’ve read recently.  Topgrading, by Brad Smart was so good that this post will be longer than most.  It’s a must read for anyone who’s doing a lot of hiring (fellow entrepreneur blogger Terry Gold is a fan, as well).

The book is all about how to build an organization of A players and only A players, and it presents a great interviewing methodology.  It’s very long for a business book, but also very valuable.  Buy a copy for anyone in your company who’s doing a lot of hiring, not just for yourself or for your HR person.  I think the book falls down a little bit on startup adaptation, but it’s still worth a read.

There’s been much talk lately about “the importance of B players” in Harvard Business Review and other places.  I share the Topgrading perspective, which is a little different (although more semantically different than philosophically different).

The Topgrading perspective is that you should always hire A players — the definition of which is “one of the top 10% of the available people in the talent pool, for the job you have defined today, at the comp range you have specified.”  I absolutely buy into this.  Don’t like what you’re seeing while screening candidates?  Change one of the three variables (job definition, comp, or geography) and you’ll get there.

The corrolary to the A-player-only theory is that there are three types of A players — the author calls them A1, A2, and A3.  A1’s are capable of and interested in rapidly rising to be leaders of the organization.  A2s are promotable over time.  A3s are not capable of or interested in promotion.

I think what the HBR article on B players is talking about is really what Topgrading calls A3 players.  A3 players are absolutely essential to an organization, especially as it grows over time and develops more operational jobs that leverage the powerhouse A1s and A2s that make up such a big percentage of successful startups.  You just have to recognize (perhaps with them) that A3 players may not be interested in career growth and promotion and not try to push them into more advanced roles that they may not be interested in or capable of doing well.

I’m a huge believer in having a healthy balance of A1s, A2s, and A3s, but I will always want to hire A players per the above definition.  Why would you ever settle for less?

Apr 212005

Gmail, I Don’t Get It, Part III

Gmail, I Don’t Get It, Part III

This is the third in a somewhat drawn-out series of postings on Gmail featuring some interesting data from Return Path’s Email Change of Address service, which captures self-reported address change data from nearly 1 million consumers every month.

The first posting, back when Gmail launched nearly a year ago, was that I didn’t understand the fuss.  This is even more true now that Yahoo is in a “free storage” war with Google.

The second, in November, had some change of address stats reporting that the numbers of people joining Gmail was tiny relative to other ISPs…and also that Gmail was starting to have people switch away from it, but only at the rate of about 1 for every 3 people joining it.

So we have some new updated data now from the first quarter that are even more interesting.  First, the number of people joining Gmail seems to have flattened out over the last couple of months.  Our metric is about 14,000 in each of the last few months (remember, that’s not the whole number, just 14,000 out of our 1 million).  But the flattening is the highlight.  There’s still the same competitive set — lots of Hotmail churn, some Yahoo, very little from AOL and other providers.

Here’s the kicker, though.  At least within our data set, we actually saw more people LEAVE Gmail than join Gmail in February and March.  That surprised me quite a bit.  One side note, about 9% of the change volume for Gmail is people changing from one Gmail account to another.

Is Gmail in trouble?  I doubt it.  But I do continue to wonder if they’ll ever be able to achieve the market share in email that people predicted at the beginning of Gmail.

Filed under: Email

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Apr 142005

Go Ahead…Make My Day

Go Ahead…Make My Day

I’ve taken to smiling and giving a simple wave to fellow joggers out in Hudson River Park on Manhattan’s lower west side, especially at off times like early mornings and late nights.  Call it the fellowship of the urban exerciser, blame it on the endorphines, whatever.  I’ve also noticed that very few people respond, even when they clearly notice.  So I tried a little experiment this morning and kept a running count (yes, pun intended).

Of the roughly 30 people I passed this morning, I’d say 15 made no acknowledgment whatsoever of my friendliness, although they clearly noticed it.  Another 7 gave me a weird look like I was nuts (perhaps not wholly incorrect).  5 were "in the zone" and legitimately didn’t notice.  A mere 2 smiled or waved back.  But the best was the very last person I passed towards the end of my run, who I ended up standing next to for a minute while I was stretching/cooling down.

Her comment:  "It’s so nice to know that there are some people who are friendly to strangers here in New York.  Thanks for making my day."  Go ahead — be 10% more friendly or smiley today.  See what effect it has on people around you.  Make someone’s day!

Filed under: Leadership

Apr 112005

You Heard It Here First, Part II

You Heard It Here First, Part II

Tomorrow, Return Path is going to announce that we have acquired the Bonded Sender Program from IronPort Systems (the release is here).  As usual, I’m happy to pre-announce M&A activity on my blog in exchange for a moment of self-promotion.

Bonded Sender is the industry’s oldest, best known, and most effective whitelist/accreditation program.  In a nutshell, it’s a bitch for mailers to qualify for it — they have to demonstrate that they’re a super high quality mailer and get certified by our partner TrustE — but once they do, they have relatively guaranteed safe passage and default images into the inbox at Microsoft (Hotmail and MSN), Roadrunner, and a number of smaller ISPs plus over 35,000 corporate domains who use SpamAssassin or who have Ironport’s email appliances installed at their gateway.  BUT — and this is a big but — they have to keep clean in order to stay on the list, and if they receive more than a tiny number of spam complaints against them, they get fined (hence, the Bond) and ultimately kicked out of the program.

Why is this big news for us and for our customers?  We pioneered the delivery assurance business starting back in 2003.  That business is really hitting its stride now.  The things we already do for clients — monitor their deliverability, analyze and resolve their most pressing problems, and manage their reputations — are critical and raise companies’ deliverability rates from 78% to 95% on average, after six months.  Bonded Sender will automate much of this process for the best clients at the biggest ISPs, and raise that number to 100% in the process.  Look for other announcements in the coming weeks about the expansion of the program in terms of major ISPs who use it.

Why is the Bonded Sender program so great?  Well, ultimately, I think it’s a big part of the solution to spam.  Legislation will do its piece, as will authentication technologies.  But reputation/accreditation systems are a critical component to solving spam as well, and what we love about Bonded Sender is that it attacks one of spam’s biggest root causes, which is that sending an email is free.  The world can’t continue to operate on the principle of exclusion (e.g., I’ll filter out everyone I don’t like), because exclusion leads to too many errors when carried out at an extreme level.  Whitelists like Bonded Sender operate on an inclusion basis, meaning that mailers who are squeaky clean and who are willing to put their money where their mouth is are allowed in.  Those mailers SHOULD BE allowed in and don’t mind paying a modest fee to guarantee or virtually guarantee inclusion.  So the program does exactly what it’s supposed to do.

I blogged about Bonded Sender last May when they came out with their initial announcement that Microsoft had decided to use the Bonded Sender whitelist (well before our deal was in the works with IronPort).  That posting still holds today, although there’s a fourth misconception as well, which is that it’s too expensive for smaller or non-profit or educational institutions (not true – it’s actually free for non-profits and extremely affordable for small companies, relative to what they pay to send their email in the first place).

Anyway, we’re excited to partner with IronPort and to add Bonded Sender to our Delivery Assurance product portfolio…and a big welcome to Scott Weiss and his team from IronPort (especially Peter Macdonald and Josh Barrack, who will be joining us full-time) to the Return Path family.

Apr 112005

Counter Cliche: Good Choices Are Made From Good Options

Counter Cliche:  Good Choices Are Made From Good Options

The Counter Cliche to Fred’s VC Cliche of the Week this week, the Walk Away,  is that Good Choices Are Made From Good Options.  Fred’s right — sometimes you do 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.

There’s a very business school-sounding term called the BATNA, which stands for the Best Alternative to a Negotiated Agreement.  Quite frankly, it’s just a fancy way of saying Plan B.  I wrote about the importance of the BATNA once before in How To Negotiate a Term Sheet with a VC (item 3). 

Dying to get a deal with a good VC?  If you negotiate with one of them, you may or may not end up with a deal you like, and it could suddenly change on you at the 11th hour.  If you negotiate with two or three of them, you’ll have a great backstop and won’t let the emotional investment in the deal get the best of you.  Trying to sell a company?  You’d better have a couple of acquirers in mind to maximize price. 

Sometimes, developing a good BATNA, or Plan B, can take as much time as working on Plan A.  But it’s well worth it if it ensures that you will have multiple Good Options at the end of the process — which will invariably result in a Good Choice.

I think the lesson of the BATNA is more broadly true in life, not just in business, although it may be a little bit less universally applicable to VCs looking to put money to work unless there are multiple strong companies in a sector all looking for VC around the same time.

Filed under: Entrepreneurship

Apr 042005

But Hopefully More Fun Than Insurance

But Hopefully More Fun Than Insurance

Return Path’s Chief Privacy Officer, Tom Bartel, has a great posting about the importance of focusing on privacy and data security within your organization, however large or small.  The lessons of the past quarter — ChoicePoint, B of A, etc., certainly lend a lot of credence to his argument.

Filed under: Email