June 15, 2005
Counter Cliche: Who’s The Dog in this Scenario?
Fred’s VC cliche of the week is a good one — “If you lie down with dogs, you’ll come up with fleas.” His point is a good and simple one, that VCs shouldn’t take people risks in deals and shouldn’t try to back management teams they have serious concerns about (ethical or otherwise) in the hopes of trying to change the team or change management.
The obvious counter cliche is that entrepreneurs run that same risk in accepting capital from less-than-savory venture investors. An ethically-challenged investor can wreak havoc on a young company, potentially tying the company up with peripheral legal problems or even damaging the company’s attempts at raising future rounds of capital. So, VCs can be the dog in the scenario as well.
But I think there’s a broader counter cliche here, which is that one’s reputation in business is always tied, to some extent, to the company one keeps. This applies to investors, and also to clients, vendors, and partners. The appearance of a connection to an unsavory character, even if it’s just an appearance, and even if “unsavory” is in the grey area instead of black-and-white, is almost as problematic as a real connection.
Our business at Return Path is a good illustration of this principle, as is the case with many companies in email marketing, since email marketing has some very visible bad guys (spammers), good guys (think eBay and Expedia), and lots of companies that operate in shades of grey in between. One of our lines of business, Delivery Assurance Solutions (email deliverability), is particularly critical in terms of us having a great reputation in the industry, since we work on behalf of email marketers to get their mail accepted (not blocked/filtered) at major ISPs. No matter how you cut it, this business invariably involves making some judgment calls from time to time on who’s a “good guy” vs. a “bad guy” in the email marketing world.
We try to be as clear as possible with our prospects and clients about what kinds of behavior we wil or will not accept from clients, since our reputation in this business is everything to us. We won’t, for example, help a client with ISP relations or monitoring tools if they don’t sign reps and warrantees in our contract about their email practices that go well beyond CAN-SPAM in terms of compliance with industry best practices. We can’t accept clients into the Bonded Sender whitelist program unless they jump through all kinds of hoops with our third-party watchdog partner, TRUSTe. And as painful as it is from a revenue perspective, we do fire clients periodically who we discover to be either not in compliance with their reps and warrantees to us, or who we discover to have a particularly poor reputation in the industry. All of these things are designed to make sure we stay flea-free.
One area that’s particularly tricky for us is what to do with a “bad guy” who comes to us asking for help to become a “good guy.” While it’s hard to be completely objective about this type of situation, we have an emerging policy around it. We WILL work with clients who the world perceives as a “bad guy,” but only on a consulting basis to teach them email best practices and how to become a “good guy” (one of my Board members, Scott Weiss from IronPort Systems, calls this Return Path’s 12-step program). If those clients take our advice and make meaningful and measurable changes to their email programs, we will continue to work with them and will slowly allow them to use our other services over time. If those clients resist our advice or are too slow to change their ways, we will stop working with them immediately.
I guess the point of the counter cliche is that sometimes it’s hard to tell, as Sally told Harry in the movie, who is supposed to be the dog in a particular scenario.