Jul 262018

Sometimes a Good Loss is Better than a Bad Win

I just said this to a fellow little league coach, and it’s certainly true for baseball.  I’ve coached games with sloppy and/or blowout wins in the past.  You take the W and move on, but it’s hard to say “good game” at the end of it and feel like you played a good game.  And I’ve coached games where we played our hearts out and made amazing plays on offense and defense…and just came up short by a run.  You are sad about the L, but at least you left it all out on the field.

Is that statement true in business?

What’s an example of a “bad” win?  Let’s say you close a piece of business with a new client…but you did it by telling the client some things that aren’t true about your competition.  Your win might not be sustainable, and you’ve put your reputation at risk.  Or what about a case where you release a new feature, but you know you’ve taken some shortcuts to launch it on time that will cause downstream support problems?  Or you negotiate the highest possible valuation from a new lead investor, only to discover that new lead investor, now on your Board, expects you to triple it in four years and is way out of alignment with the rest of your cap table.

On the other side, what’s an example of a “good” loss?  We’ve lost accounts before where the loss was painful, but it taught us something absolutely critical that we needed to fix about our product or service model.  Or same goes for getting a “pass” from a desirable investor in a financing round but at least understanding why and getting a key to fixing something problematic about your business model or management team.

What it comes down to is that both examples – little league and business – have humans at the center.  And while most humans do value winning and success, they are also intrinsically motivated by other things like happiness, growth, and truth.  So yes, even in business, sometimes a good loss is better than a bad win.

Jun 282018

Feedback Overload and Confusion – a Guide for Commenting on Employee Surveys

We run a massive employee survey every year or so called The Loop, which is powered by Culture Amp.  We are big fans of Culture Amp, as they provide not only a great survey tool but benchmarks of relevant peer companies so our results can be placed in external context as well as internal context.

The survey is anonymous and only really rolled up to large employee groups (big teams, departments, offices, etc.), and we take the results very seriously.  Every year we run it, we create an Organization Development Plan out of the results that steers a lot of the work of our Leadership team and People team for the coming year.

I just read every single comment that employees took the time to write out in addition to their checkbox or rating responses.  This year, that amounted to over 1,200 verbatim comments.  I am struggling to process all of them, for a bunch of reasons you’d expect.  Next year we may give employees some examples of comments that are hard to process so they understand what it’s like to read all of them…and we may reduce the number of places where employees can make comments so we try to get only the most important (and more detailed) comments from people to keep the volume a little more manageable.

But I thought it might be useful to give some general advice to people who write comments on anonymous surveys.  Your company may have every good intention of following up on every last comment in an employee survey (we do!), but it’s difficult to do so when:

  • The comment is not actionable.  For example, “The best thing about working at Return Path is…’I can afford to live nearby.'”  That doesn’t do much for us!
  • The comment is too vague.  For example, “I’m not the engineer I was a year ago” – we have no idea what that means.  Is it a plus or a minus?  What is behind it?
  • The comment is likely to be in conflict with other comments and doesn’t give enough detail to help resolve conflicts.  40 positive comments about the lunch program in an office and 40 negative comments about the lunch program in the same office kind of get washed out, but “Lunches are good, but please have more gluten-free options” is super helpful.
  • The comment lacks context.  When the answer to the question “What would be the one thing we could do right away to make RP a better place to work?” is “Investing in some systems,” that doesn’t give us a starting point for a next step.
  • The commenter disqualifies him or herself.  Things like “Take everything I’m saying with a grain of salt…I’m just an engineer and have no real idea of what I’m doing” that punctuate a comment are challenging to process.
  • The commenter forgets that the comments are anonymous.  “I have serious problems with my manager and often think of leaving the company” is a total bummer to hear, but there’s not a lot we can do with it.  I hope with something like this that you are also having a discussion with someone on the People team or your manager’s manager!

We’re doing everything employees would expect us to do – reading the ratings and comments, looking at trends over time, breaking them down by office and department, and creating a solid Organizational Development Plan that we’ll present publicly and follow up on…but hopefully this is useful for our company and others in the future as a guide to more actionable commenting in employee surveys.

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.

Dec 012017

Knowing When to Ask for Help in Your Startup

I had a great networking meeting yesterday along with Tami Forman, the CEO of our non-profit affiliate Path Forward, and Joanne Wilson, my board co-chair.  It was a meeting that Joanne set up that the three of us had been talking about for over a year.  Joanne made a great comment as we were debriefing in the elevator after the meeting that is the foundation of this post.  Tami and I shaped her comment into this metaphor:

Finding wood to help start a fire is different from pouring gasoline on a fire

As an entrepreneur, you need to constantly be asking for help and networking.  Those meetings will shape your business in ways that you can never predict.  They’ll shape your thinking, add ideas to the mix, kill bad ideas, and connect you to others who can help you in your journey.

But you need to have a good sense of who to meet with, and when, along the way.  Some people, you can only meet once, unless they become core to your business, so you have to choose carefully when to fire that one bullet.  Others will meet with you regularly and are happy to see longitudinal progress.  Regardless, being clear on your ask is critical, and then backing up from that to figure out whether this is the one bullet you can fire with someone or whether it’s one ask of many will help you figure out if you should push for that networking meeting or not.

Why?

Because asking someone to help you find wood to start a fire (the early stages of your business) is different from pouring gasoline on an existing fire (once you’re up and running).  If you’re in the super early stages of your business and looking for product-market fit, you won’t want to meet with people who aren’t conceptual thinkers, who aren’t deep in your space, or who might only see you once.  Maybe they can help you brainstorm, but you’ll find better partners for that.  They might be able to provide concrete help or introductions, but you’re probably not ready for those yet.  It’s a waste of time.  You need wood to start your fire, and people like this aren’t helpful scouring the forest floor with you to find it.

However, those people can be fantastic to meet with once you have product-market fit and are deep in the revenue cycle.  You have clear demonstration of value, customer success stories, you know what works and what doesn’t and why.  You can have short, crisp asks that are easy for the person to follow-up on.  They will be willing to lend your their name and their network.  You have a fire, they have a cup of spare gasoline, and you can get them to pour that cup on your fire.

The judgment call around this isn’t easy.  Entrepreneurial zeal makes it abnormally comfortable to call on any stranger at any time and ask for help.  But developing this sense is critical to optimizing your extended network in the early years.

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.

Aug 312017

Agile Everywhere, Part II

Over the years, I’ve written a lot about the Agile methodology on this blog. For those of you who are regular readers, you may remember a post I wrote about our Agile Everywhere initiative— where all Return Path teams were tasked with implementing agile practices. A little over a year later, I want to update you on our agile journey–where we are now and how we got there.  My colleague Cathy Hawley (our head of People) will write a more detailed series of guest posts  for those of you who want to get more details of our transformation process.

Before we started our Agile Everywhere initiative, only our product and engineering teams were using agile. The rest of the organization (a few hundred people!) weren’t at all familiar with agile practices. Despite this, there were a few things that helped accelerate our transformation:

  1. Strong executive buy-in
  2. A clear vision
  3. Agile-friendly company culture and values
  4. A passionate project team
  5. Resident agile experts

These 5 initial ingredients proved to be essential and enabled us to hit the ground running in Q1 2016. We started out by experimenting with non-technical pilot teams from all different offices, functions, and levels. After a couple months of experimentation, early qualitative results from pilot team members suggested that implementing agile principles was enhancing team communication and productivity. So we embarked on our next step, implementing agile practices across all non-technical teams at Return Path.

We are now 18 months into our transformation and the data shows us that the transformation is helping with our productivity:  we track a  metric that is comprised of many different measures of business performance that fall into 3 main themes–operating efficiency, planning effectiveness, and business success. So far we have already seen a 51% increase in the metric from Q4 2015 (before our Agile Everywhere initiative) to Q1 2017. We are emboldened by these promising results, but still have a lot of work to do to ensure that all teams at RP are taking full advantage of agile and reaping its benefits. Keep an eye out for Cathy Hawley’s posts for more information about our agile adventure, soon to be published the RP blog.

When the series is over, I’ll publish a summary with all the specific post links here 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?)