Apr 192018

There’s a word or two missing from the English language

In my personal life, I have acquaintances, I have friends, and I have good/close friends.

In my work life, I have colleagues – the professional equivalent of acquaintances.

But what comes after that professionally?  We spend over half our waking life at work.  Of course we are going to build important relationships.  Some of them will cross over to personal and become legitimate “friends” or “good friends.” I always feel some sense of honor when a colleague introduces me to someone as a true friend.

But for those that don’t cross that chasm – for those who are truly just professional relationships but ones with increasing closeness – what are we supposed to call them?

I guess in a pinch we could call the next level up “work friends,” although that sounds odd and a bit impersonal.  But what about the level after that?  What is a “work good friend” or even a “good work friend”?  Those sound even weirder.  And yet, “work good friends” abound!  I can probably think of 5 or 10 “work friends” or “work good friends” for every true friend or good friend in the workplace.

Has anyone found a good word or phrase for this yet?

 

Mar 082018

You Don’t Know How to Drive a Car Because You Know How to Read a Map

I was having breakfast with the CEO of another SaaS company the other day, as I often do to network.  He was telling me about his experience working with his company’s new Private Equity owner.

There are always a mix of pros and cons that come with any particular shareholder, Board member, or owners, of course.  In his case, my fellow CEO was bemoaning the 29-year old associate who acted like a know-it-all in every Board meeting.  Lots of CEOs have been there.  There’s a lot of value you can get from an associate or VP-level person at an investor who is the Master of the Spreadsheet and who has access to a lot of data about your company.  And there is certainly a lot of value to be gained from investors with large portfolios of similar companies who can identify learnings from experience you haven’t had as a CEO and help you apply that experience thoughtfully to your company in any given situation.  In The Value and Limitations of Pattern Matching, I quoted my father-in-law, who noted once that When you hear hoof beats, it’s probably horses. But you never know when it might be a zebra.  I am still a firm believer that it’s the “thoughtful application” that matters as much as recognizing the pattern.

But this breakfast conversation led me to another conclusion, which is less about pattern matching and more about the pattern matcher.  And that is:

You don’t know how to drive a car because you know how to read a map

Being a Master of the Spreadsheet is a great starting point to coming up with ideas and insights for a business.  Quantitative analysis can tell you a lot of things, including a lot of things that you wouldn’t be able to get on instinct or experience alone, like slow, subtle changes in customer behavior, customer-level profitability, the impact of pricing changes, or compound effects of salary or benefit changes on a cost structure over time.  Think of quantitative analysis a bit like a road map.  It can show you the shortest distance and combination of roads and turns to get from Point A to Point B.

But quantitative analysis stops there.  It is not the same as actually getting yourself from Point A to Point B.  Driving a car in and of itself is a skill that requires a lot of learning and practice.  And it certainly doesn’t forecast traffic or road hazards that require a last minute detour.  Being right about what roads to take is a lot less important than actually getting yourself to the destination safely and in a timely manner.  The value of having experienced executives operating a business is those things – the actual driving of the car.  The knowing of the customers or the employees.  The skill of managing change and emotions.

At the end of the day, there’s value in both ends of the spectrum – the reading of the map and the driving of the car.  As long as the two sides agree that there’s value to both tasks and that the two sides bring different expertise to the table, there’s a great partnership to be struck.  But too often these days I hear about investors who think that reading the map is all that needs to happen for a company to be successful.  Until someone comes up with the self-driving car of management, this metaphor should hold!

Feb 222018

No One Will Ever Thank You for Keeping Prices Low

I was in a Board meeting last week (not Return Path’s), when one of my fellow directors came out with this gem:  “No one will ever thank us for keeping our prices low.”

When I first heard this, as is the case with most great quotes, I was drawn to its wit and simplicity.

But then I started thinking – is it true?  My mind first went to retail.  Having a reputation as being a low-cost provider can be in and of itself effective marketing – if that reputation is strong enough and your selection is wide enough, at least in retail-oriented industries, customers may consistently buy from you even if you’re not ALWAYS the low-cost provider.  Wal-Mart and Amazon prove this one out every day.  That’s the economic equivalent of customers thanking you for keeping your prices low.  Or pick an even more extreme example – gas stations, where there’s even more limited brand loyalty and even more product commoditization.  There’s really no reason to buy gas from a station who charges more than a couple pennies more per gallon than its neighbor.  No, thank you.

But in a B2B environment with smaller numbers of customers and smaller numbers of SKUs, this comment makes a lot more sense.  IT or Marketing departments don’t exactly go to the grocery store twice a week to buy data or software solutions!  I’m a big believer in the diminishing differences between the B2C and B2B universes, but this area may be one where the difference is still sharp.

Low prices might lure prospects to your doorstep, but they’re not going to keep buying your product if it’s not of sufficiently high quality.  Buyers measure quality in different ways, but here are three frameworks to think about as you contemplate the quality of your solutions relative to their prices:

  • Is the quality of your product “above the bar”? Meaning, does it work well enough to get the job done that customers are hiring you to do?  If not, you do not have a sustainable business.  If so, see the next two questions
  • Is the value of your product strong enough relative to the price you charge? Value-based pricing is increasingly difficult in an era of hyper competition, but if you can offer tailored enough solutions by vertical or of course by client, you can really optimize your pricing model
  • Is your price/value equation strong enough relative to the price/value equation of a competing solution? Sometimes a “just barely good enough” solution can beat out a superior solution as long as it’s a LOT cheaper and the job the client needs done isn’t mission critical

The final thought vector in this equation is friction.  Go back to the consumer examples above – your switching cost to buy gas at Station A one week and Station B the next week is zero.  But in a B2B environment, there’s always at least some friction around switching products.  Friction could be implementation cost, time, execution risk.  It could be employee or customer training.  It could be integration with other systems or workflows.  It could even be desire to maintain a halo effect from doing business with you.  The more friction you have with your product, the easier it is to maintain higher pricing.

So my conclusion is that high prices are rarely going to chase someone away in a B2B, low client count/low SKU/moderate friction environment.  And that means my fellow director was spot-on:  no one will ever thank you for keeping your prices low.  All in, this comment was a great reminder for any B2B organization about how to think strategically about pricing.

Nov 162017

Deals are not done until they are done

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.

Nov 022017

How Venture Capital Firms Work, for Entrepreneurs and Startups

A couple of months ago, I was doing an internal lunch & learn for senior managers, and the topic came up as to “how do our VC firms work?”  In the spirit of deeply understanding our customers’ businesses in order to better serve them, I thought the same would be true of our investors and Board members – that educating our team on the inner workings and economics of our investors would lead to greater empathy of one of our other key stakeholders.

So with no small amount of help from my long-time investor and director Brad Feld and his colleague Jason Mendelson, whose book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist I contributed to in a very small way by writing a series of sidebars called “The Entrepreneur’s Perspective” (that process led to my writing Startup CEO), I pulled together this presentation available on Slideshare entitled How Venture Capital Firms Work and Why You Should Care.


I redacted our cap table and pictures of our VCs, but otherwise, feel free to use it with your own management team, or even your whole company.

Oct 052017

When in Doubt, Apply a Framework (but be sure to keep them fresh!)

I’ve always been a big believer in the consistent application frameworks for business thinking and decision-making.  Frameworks are just a great starting point to spark conversation and organize thinking, especially when you’re faced with a new situation.  Last year, I read Tom Friedman’s new book, Thank You for Being Late: An Optimist’s Guide to Thriving in the Age of Accelerations, and he had this great line that reminded me of the power of frameworks and that it extends far beyond business decision-making:

When you put your value set together with your analysis of how the Machine works and your understanding of how it is affecting people and culture in different contexts, you have a worldview that you can then apply to all kinds of situations to produce your opinions. Just as a data scientist needs an algorithm to cut through all the unstructured data and all the noise to see the relevant patterns, an opinion writer needs a worldview to create heat and light. 

In Startup CEO, I wrote about a bunch of different frameworks we have used over the years at Return Path, from vetting new business ideas to selecting a type of capital and investor for a capital raise.  I blogged about a new one that I learned from my dad a few months ago on delegation.  One of my favorite business authors, Geoffrey Moore, has developed more frameworks than I can count and remember about product and product-market fit.

But all frameworks can go stale over time, and they can also get bogged down and confused with pattern recognition, which has limitations.  To that end, Friedman also addressed this point:

But to keep that worldview fresh and relevant…you have to be constantly reporting and learning—more so today than ever. Anyone who falls back on tried-and-true formulae or dogmatisms in a world changing this fast is asking for trouble. Indeed, as the world becomes more interdependent and complex, it becomes more vital than ever to widen your aperture and to synthesize more perspectives.

Again, although Friedman talks about this in relation to journalism, the same can be applied to business.  Take even the most basic framework, the infamous BCG “Growth/Share Matrix” that compares Market Growth and Market Share and divides your businesses into Dogs, Cash Cows, Question Marks, and Stars.  Digital Marketing has disrupted some of the core economics of firms, so there are a number of businesses that you might previously have said were in the Dog quadrant but due to improved economics of customer acquisition can either be moved into Cash Cow or at least Question Mark.  Or maybe the 2×2 isn’t absolute any more, and it now needs to be a 2×3.

The business world is dynamic, and frameworks, ever important, need to keep pace as well.

Aug 102017

The Value and Limitations of Pattern Recognition

My father-in-law, who is a doctor by training but now a health care executive, was recently talking about an unusual medical condition that someone in the family was fighting.  He had a wonderful expression he said docs use from time to time:

When you hear hoof beats, it’s probably horses. But you never know when it might be a zebra.

With experience (and presumably some mental wiring) comes the ability to recognize patterns.  It’s one of those things that doesn’t happen, no matter how smart you are, without the passage of time and seeing different scenarios play out in the wild.  It’s one of the big things that I’ve found that VC investors as Board members, and independent directors, bring to the Board room.  Good CEOs and senior executives will bring it to their jobs.  Good lawyers, doctors, and accountants will bring it to their professions.  If X, Y, and Z, then I am fairly certain of P, D, and Q.  Good pattern recognition allows you to make better decisions, short circuit lengthy processes, avoid mistakes, and much better understand risks.  The value of it is literally priceless.  Good pattern recognition in our business has accelerated all kinds of operational things and sparked game changing strategic thinking; it has also saved us over the years from making bad hires, making bad acquisitions, and executing poorly on everything from system implementations to process design.  Lack of pattern recognition has also cost us on a few things as well, where something seemed like a good idea but turned out not to be – but it was something no one around the Board table had any specific experience with.

But there’s a limitation, and even a downside to good pattern recognition as well.  And that is simple – pattern recognition of things in the past is not a guarantee that those same things will be true in the future.  Just because a big client’s legal or procurement team is negotiating something just like they did last time around doesn’t mean they want the same outcome this time around.  Just because you acquired a company in a new location and couldn’t manage the team remotely doesn’t mean you won’t be able to be successful doing that with another company.

The area where I worry the most about pattern recognition producing flawed results is in the area of hiring.  Unconscious bias is hard to fight, and stripping out markers that trigger unconscious bias is something everyone should try to do when interviewing/hiring – our People team is very focused on this and does a great job steering all of us around it.  But if you’re good at pattern recognition, it can cause a level of confidence that can trigger unconscious biases.  “The last person I hired out of XYZ company was terrible, so I’m inclined not to hire the next person who worked there.”  “Every time we promote someone from front-line sales into sales management, it doesn’t work out.”  You get the idea.

Because when you hear hoof beats, it’s probably horses.  But you never know when it might be a zebra!

Jun 122017

Why You Won’t See Us Trash Talk Our Competition

We’ve been in business at Return Path for almost 18 years now.  We’ve seen a number of competitors come and go across a bunch of different related businesses that we’ve been in.  One of the things I’ve noticed and never quite understood is that many of our competitors expend a lot of time and energy publicly trash talking us in the market.  Sometimes this takes the form of calling us or our products out by name in a presentation at a conference; other times it takes the form of a blog post; other times it’s just in sales calls.  It’s weird.  You don’t see that all that often in other industries, even when people take aim at market leaders.

During the normal course of business, one of sales reps might engage in selling against specific competitors — often times, they have to when asked specific questions by specific prospects — but one thing you’ll never see us do is publicly trash talk a single competitor by name as a company.  I’m sure there are a couple people at Return Path who would like us to have “sharper elbows” when it comes to this, but it’s just not who we are.  Our culture is definitely one that values kindness and a softer approach.  But good business sense also tells me that it’s just not smart for four reasons:

  • We’re very focused and disciplined in our outbound communications — and there’s only so much air time you get as a company in your industry, even among your customers — on thought leadership, on showcasing the value of our data and our solutions, and on doing anything we can do to make our customers more successful.  Pieces like my colleague Dennis Dayman’s recent blog post on the evolution of the data-driven economy, or my colleague Guy Hanson’s amazingly accurate prediction of the UK’s “unpredictable” election results both represent the kind of writing that we think is productive to promote our company
  • We’re fiercely protective of our brand (both our employer brand and our market-facing brand), and we’ve built a brand based on trust, reputation, longevity, and being helpful, in a business that depends on reputation and trust as its lifeblood — as I think about all the data we handle for clients and strategic partners, and all the trust mailbox providers place in us around our Certification program.  Clients and partners will only place trust in — and will ultimately only associate themselves with — good people.  To quote my long time friend and Board member Fred Wilson (who himself is quoting a long time friend and former colleague Bliss McCrum), if you lie down with dogs, you come up with fleas.  If we suddenly turned into the kind of company that talked trash about competition, I bet we’d find that we had diminished our brand and our reputation among the people who matter most to us.  Our simple messaging and positioning showcases our people, our expertise, and our detailed knowledge of how email marketing works, with a collective 2,000 years of industry experience across our team
  • Trash talking your competition can unwittingly expose your own weaknesses.  Think about Donald Trump’s memorable line from one of the debates against Hillary Clinton – “I’m not the puppet, you’re the puppet” – when talking about Russia.  That hasn’t turned out so well for him.  It’s actually a routine tactic of Trump, beyond that one example.  Accuse someone else of something to focus attention away from your own issues or weaknesses.  Don’t like the fact that your inauguration crowd was demonstrably smaller than your predecessor’s?  Just lie about it, and accuse the media of creating Fake News while you’re at it.  Disappointed that you lost the popular vote?  Accuse the other side of harvesting millions of illegal votes, even though it doesn’t matter since you won the electoral college!  Think about all these examples, regardless of your politics.  All of them draw attention to Trump’s weaknesses, even as he’s lashing out at others (and even if you think he’s right).  We don’t need to lash out at others because we have so much confidence in our company, our products, and our services.  We are an innovative, happy, stable, profitable, and growing vendor in our space, and that’s where our attention goes
  • Publicly trash talking your competition just gives your competition extra air time.  As PT Barnum famously said, “You can say anything you want about me, just make sure you spell my name right!”

Don’t get me wrong.  Competition is healthy.  It makes businesses stronger and can serve as a good focal point for them to rally.  It can even be healthy sometimes to demonize a competitor *internally* to serve as that rallying cry.  But I am not a fan of doing that *externally.*  I think it makes you look weak and just gives your competitor free advertising.

May 182017

Being a CEO is Like Playing a Game of Hearts

Hearts was one of my favorite card games in college.  I remember staying up deep into the night regularly with my roommates playing it.  I recently taught our kids how to play and have been playing with them more regularly of late…and I was reminded how much I enjoy the game.  No metaphor or simile is perfect, and this one isn’t either, but it occurred to me the other night that being a CEO is a little bit like playing a game of Hearts.

First and foremost, you have to play the hand that you’re dealt.  No matter how proactive you want to be about running your own agenda, things happen around you — with your people, your customers, your competitors, and you have to figure out how to react to situations.

Second, you usually get to pass 3 cards to another player, but sometimes you have a “hold” hand.  Even within a situation you have to react to, sometimes you can mute the edges of it before you actually react (but occasionally, you can’t change the situation at all).  Consider the difference between a customer telling you they are about to churn (maybe you can still save them on price, terms, feature sets) vs. sending you a termination notice after they have signed with a competitor.

Next, when playing the hand, there are times when you want to get the lead so you can control the flow of the game, and there are times when you want to avoid getting the lead so you just hand out point cards to others.

Also in the course of the play of a hand, you want to keep close track of what the other players have and don’t have in their hands, particularly so you can avoid the Queen of Spades and so you can try hard to capture the Jack of Diamonds.  Day in and day out at work, you need understand as deeply as possible what your competitors and partners are up to…and you always want to have an eye on the biggest opportunity in front of the company — a new prospect you’re trying to win over, for example — and the biggest risk point you’re trying to avoid.

Finally, you have to recognize that any given hand is one out of many in a game, just like every day, or week, or quarter, is just one piece of your overall stewardship of your company over the long haul.  And of course the simple act of being an entrepreneur is in and of itself analogous to Shooting the Moon.  It’s almost impossible to do, and you have to both have the right cards AND play the hand extremely well.  But when you do, the reward is spectacular!

(That wasn’t too much of a stretch, was it?)

Apr 172017

A Two Week Vacation is More Than Twice As Good As a One Week Vacation

I’ve said this for years, but as I sit on the train commuting into work after a week off relaxing with my family for my Dad’s 75th birthday (or as he prefers to call it, the 46th anniversary of his 29th birthday), I feel particularly inclined to write it up!

I love my job, so I almost never mind going to work. But I also love being on vacation and traveling with my family and try to do as much of it as I can. Years ago before we had kids and became tethered to school and sports schedules, we used to take at least one full two week vacation, completely unplugged, at least once a year. I miss that!

The problem with any vacation longer than a couple days off (which is NOT a vacation) is that it can take several days to unwind, decompress from work and the small stresses of every day life, and unplug, meaning not checking email, reading blogs or the newspaper every morning, and not fidgeting every time you’re more than 10 feet away from your smartphone. Then on the other end of the trip, trying to triage email the day before you go back to work and generally gearing up for reentry into the fast lane also consume a bunch of cycles — and for me, I’ve never been able to sleep well the night before the first day of anything, so it means starting back with diminished relaxation even before walking through the office door.

So all in, that means the true part of a week-long, meaning 9-day vacation (including two weekends), is about 4-5 days.

That’s not bad. But I think you have all that same overhead associated with a two week vacation as well…so a two week vacation of 16 days leaves you with 11-12 days. Mathematically, if not psychically, more than twice as good as the standard one-weeker.

I’m inclined to start doing that once a year again, schedules be damned!

As a side note, two things I also used to do on vacation, even a one-weeker, that I am regretting not doing this time are (a) actually turning my work email account off my phone and leaving it off until the Monday morning after vacation so there’s no cheating on a couple minutes of email here or there, and (b) making sure my schedule is almost completely open that first Monday back to catch up. Next time, those two features will return prominently…along with that full second week off.

Oh, and if anyone says a Startup CEO can’t take a long unplugged vacation…I call bullshit. You may not be able to do it any two weeks of the year with no notice, but plan ahead, leave things in good order, leave someone in charge (or don’t, but be deliberate about that), and let them know where to call you in case the building burns down. It will be fine when you get back, and healthy for tour team to have a break from you as well.