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.

Apr 062017

What kind of team do you run? Of Generalists and Specialists…

A friend of mine just left his job as CEO of a growth stage company to become CFO of a Fortune 500 company.  That’s a big deal…and also a big change.  When I was talking to him about the move, he said the following to me:

Some executive teams are like baseball teams.  You play shortstop, and you bat 8th.  That’s just what you do.  The team needs one of those because the sport is structured that way.  The CEO of my new company likes to run his executive team as a basketball team.  Everyone has a position, but everyone also has to be capable of doing everything on the court well – shooting, blocking, rebounding, passing – and is expected to go after the ball any time it’s nearby.

It’s one thing to say that of a Fortune 200 company, because you have the luxury of doing anything you want in terms of staffing at those levels.  My friend, who is financially oriented for sure, can be CFO of a company of that size because they probably have a strong Chief Accounting Officer.  But how does that dialog apply to startups?  Should you run a baseball team?  A basketball team?  Does it matter?  Can you switch between the two?

My take is that early stage startups need to be more like basketball teams.  You just don’t have enough people to get everything done unless you all take things off each others’ plates.  And you certainly don’t want to be siloed early on in a company’s life as you’re trying to find product-market fit and get those first customers on board.  Your CTO needs to be in front of customers in sales pitches.  Your CFO needs to run customer service and other staff functions.  Everyone needs to pitch in on strategy.

As companies grow, I think they need to become more like baseball teams because larger organizations require levels of specialized knowledge that you don’t often find in startup leaders (though you certainly can, especially as the world becomes more startup-oriented) if they are to survive and scale.  You need a CFO capable of putting in place more complex systems and controls.  You need a head of Sales who knows how to manage a more disciplined pipeline and sales power-driven machine, not just someone who is a fantastic closer of big deals.

At the larger sizes (well below the Fortune 500 level), you can afford to have more of a basketball team again.  You want people with areas of specialization, but you also just want great athletes, and you can have some of the more technical expertise working at the next couple levels down.

There are two challenges this metaphor raises for scaling businesses.  The first one is making your baseball team AS MUCH LIKE A BASKETBALL TEAM AS POSSIBLE when you’re in that mode.  Why?  I love baseball more than most as a sport, but executive teams of companies at any size need strategic thinkers and interdisciplinary, cross-functional work as much as possible.

And that leads to my second challenge with the metaphor, which is that you don’t want to swap out your executive team multiple times in a rapidly scaling business if you don’t have to.  So this begs the question – can you turn a great specialist into a great generalist and vice versa?  We have gone through transitions this past few years at Return Path from a functional structure to a business unit structure and back (sort of).  My take in the end is that it’s easier to turn a specialist into a generalist than to turn a generalist into a specialist.  You can interview for this.  There are great specialists in every discipline who are capable of being generalist thinkers.  But it’s really tough to take someone without proper training and experience in some disciplines and make them a specialist.  Not impossible (although in some disciplines it actually is impossible – think about General Counsel), but difficult.

Filed under: Business, Leadership, Management

Mar 302017

Everything is Data, Part II – Get Those Expenses In

Everything is Data, Part II – Get Those Expenses In

My friend and former colleague Angela Baldonero (used to run our People Team at Return Path, now is COO of super cool startup Procurify), used to say about her job as head of HR, “Everything is Data.”  She guest blogged about that principle on OnlyOnce years ago here , and she particularly cited this theory when talking about the recruiting and hiring process.

I’ve thought about this principle a lot over the years, and I’ve occasionally come up with other examples where I think peripheral data can inform whether or not an employee will succeed, at least in my world.  I don’t know how many of these can be caught in an interview process, but that’s worth thinking about.  Here’s one for today’s post:  I’ve noticed a very high correlation over the years between poor performance and being late turning in expenses.

I know, it sounds silly.  But think about it.  Most of the work we do involves some level of being organized, being on time, prioritizing work and working efficiently, and caring about money (whether the company’s money or our own money).  Someone who can’t bother to fill out a quick expense report following a business trip is demonstrating an absence of all of those traits.  The most glaring example of it we ever had here involved a fairly senior sales executive years ago who was delinquent in his expenses to the tune of over $40,000.  That’s right, $40,000.  It was so bad that our auditors made us footnote it in our annual audit.  We begged him to turn in his expenses.  We even offered to have him send a pile of all the receipts to us and have someone in Accounting help him out.  But he was always too busy, made too many excuses for why he couldn’t get them done.  I think it ended up taking us firing him for him to actually clean them up and get paid back.  Why did we fire him?  He was ineffective in his role, unresponsive to colleagues, unable to prioritize his work, and sloppy in his deliverables.

By the way, the opposite is not true – someone who is incredibly punctual about getting expenses in is not guaranteed to be a high performer, although they are usually guaranteed to at least be organized (which for some roles may be a critical success factor).

I suppose ultimately this is just another example of Broken Windows, which I blogged about in two different places, here and here.

 

Feb 162017

Reboot – Where do a company’s Values come from, and where do they go?

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.