Mar 312011

Should You Have a Board?

Should You Have a Board?

As I mentioned last week, Fred’s post from a few months ago about an M&A Case study involving WhatCounts had a couple of provocative thoughts in it from CEO David Geller.  The second one I wanted to address is whether or not you should have take on institutional investors and have a Board.  As David said in the post:

Fewer outsiders dictating (or strongly suggesting) direction means that you will be able to pursue your goals more closely and with less friction

Although I have a lot of respect for David, I disagree with the notion that outsiders around the Board table is inherently bad for a business, or at least that the friction from insights or suggestions provided by those outsiders is problematic.

While that certainly CAN be the case, it can also be the case that outside views and suggestions and healthy debate, as long as incentives are aligned, people are smart, and founders manage the discussion well, can be enormously productive for a business.  I recognize that I’ve been very lucky that the Board members we’ve had at Return Path over the years have not been dogmatic or combative or dumb, but I do think selection and management of Board members is something very much in a CEO’s control.

But beyond the issue of who sets the agenda, Boards create an atmosphere of accountability for an organization, which drives performance (and many other positive qualities) from the top down in a business.  Budgeting and planning, reporting on performance, organizing and articulating thoughts and strategy – all these things are crisper when there’s someone to whom a CEO is answering.

As a telling case in points, I’ve known two CEOs over the years in the direct marketing field who have more or less owned their companies but insisted on having Boards.  While I’m not sure if those Boards had the ultimate power to remove the owner as CEO (which is the case in a venture-dominated Board and of course an important distinction), I do know that having a Board served them and their organizations quite well.  The fact that they didn’t have to have “real Boards” but chose to anyway – and ran spectacular businesses – is a good controlled case study for me in the value of this discipline.

Mar 242011

Size of Pie, a.k.a. What Type of Entrepreneur Are You?

Size of Pie, a.k.a. What Type of Entrepreneur Are You?

Mmmm…pie.  A post that Fred had up a few weeks ago about an M&A Case study involving WhatCounts, a company in the email space that I’ve known and had a lot of respect for for years, got me thinking about two different topics.  The first is thinking about types of entrepreneurs.  I’ve always said there were two types:  serial entrepreneurs who are great at starting companies but less great at scaling them, and entrepreneurs who are often part of a group of founders but who go on to continue to run the business for the long-haul.

CEO David Geller’s quote that gets to the heart of this in Fred’s post was:

…a bigger piece of a smaller pie, at some point, is the same as a smaller piece of a much larger pie.  And, donʼt let anyone tell you that baking a bigger pie isnʼt a whole lot more difficult.

Although David is talking about taking in outside capital and founder dilution in pursuit of larger business growth and objectives, he is also getting to the same point about entrepreneur type.  Scaling an organization beyond proof of concept, happy few customers, and profitable to be a $50-100mm business (and beyond) requires a whole different skill set than starting something from scratch and turning an idea into reality.

And in a sense, David is right.  Baking a larger pie can be a whole lot more difficult for some entrepreneurs if they are more of the serial entrepreneur type, or at least it can be far less interesting and fulfilling if what gets you out of bed in the morning is creating new things.  But for other entrepreneurs who are more of the “run the business” variety, getting out of the creation phase and into the scaling phase is more interesting and maybe even less difficult.  Even though businesses are never de-risked and a larger business with more employees just means there are more chips on the proverbial table, baking a larger pie and tending to the things that come with it – people issues, innovating within a platform, solving customer problems – can be less daunting than creation for some entrepreneurs.  (Return Path is in its twelfth year – can you guess which kind I am?)

So David’s right in terms of his core point about founder equity value and how large a slice of how large a pie the founder ends up with.  But whether baking a larger pie is easier or harder is less about an inherent difficulty in pie-making and more about the type of entrepreneur involved.

I’ll cover my second reaction to Fred/David’s post next week.


Aug 262010

Style, or Substance?

Style, or Substance?

I had an interesting conversation the other day with a friend who sits on a couple of Boards, as do I (besides Return Path’s).  We ended up in a conversation about some challenges one of his Boards is having with their CEO, and the question to some extent boiled down to this:  a Board is responsible for hiring/firing the CEO and for being the guardians of shareholder value, but what does a Board do when it doesn’t like the CEO’s style?

There are lots of different kinds of CEOs and corporate cultures.  Some are command-and-control, others are more open, flat, and transparent.  I like to think I and Return Path are the latter, and of course my bias is that that kind of culture leads to a more successful company.  But I’ve worked in environments that are the former, and, while less fun and more stressful, they can also produce very successful outcomes for shareholders and for employees as well.

So what do you do as a Board member if you don’t like the way a CEO operates, even if the company is doing well?  I find myself very conflicted on the topic, and I’m glad I’ve never had to deal with it myself as an outside Board member.  I certainly wouldn’t want to work in an organization again that had what I consider to be a negative, pace-setting environment, but is it the Board’s role to shape the culture of a company?  Here are some specific questions, which probably fall on a spectrum:

Is it grounds for removal if you think the company could be doing better with a different style leader at the helm?  Probably not.

Is it fair to expect a leader to change his or her style just because the Board doesn’t like it?  Less certain, but also probably not.

Is it fair to give a warning or threaten removal if the CEO’s style begins to impact performance, say, by driving out key employees or stifling innovation?  Probably.

Is it fair to give feedback and coaching?  Absolutely.

This is one of those very situation-specific topics, but probably a good one for others to weigh in on.  I do come back to the question of whether it is part of a Board’s role to shape the culture of a company.  Is that just style…or is it substance?

Dec 062009

A Perfect Ten

A Perfect Ten

Return Path turns 10 years old today.  We are in the midst of a fun week of internal celebrations, combined with our holiday parties in each office as well as year-end all-hands meetings.  I thought I would share some of my reflections on being 10 in the blog as I’ve shared them with our team. What being 10 means to me – and what’s enabled us to make it this long:

  • It means we’ve beaten the odds.  Two major global economic meltdowns.  The fact that 90% of new small businesses fail before they get to this point.  Probably a higher percentage of venture backed startups fail before they get to 10 as well
  • We’ve gotten here because we’ve been nimble and flexible.  Over our 10 years, we’ve seen lots of companies come and go, clinging to a model that doesn’t work.  We may have taken a while and a few iterations to get to this point, but as one of my Board members says, “we’re an overnight success, ten years in the making!”
  • We’ve also made it this long because we have had an amazing track record with our three core constituencies – employees, clients, and investors – including navigating the sometimes difficult boundaries or conflicts between the three

What I’m most proud of from our first decade:

  • We’ve built a great culture.  Yes, it’s still a job.  But for most of our team members most of the time, they like work, they like their colleagues, and they have a fun and engaging time at work.  That’s worth its weight in gold to me
  • We’ve built a great brand and have been hawkish about protecting our reputation in the marketplace.  That’s also the kind of thing that can’t be bought
  • We haven’t sacrificed our core principles.  We’ve always, going back to our founding and the ECOA business, had a consumer-first philosophy that runs deep.  This core principle continues to serve us well in deliverability (a non-consumer-facing business) and is clearly the right thing to do in the email ecosystem

What I most regret or would do differently if given the chance:

  • We have not raised capital as efficiently as possible – mostly because our company has shifted business models a couple of times.  Investors who participated in multiple rounds of financing will do very well with their investments.  First or second round angel investors who didn’t or couldn’t invest in later rounds will lose money in the end
  • I wish we were in one location, not five.  We are embracing our geographic diversity and using it to our advantage in the marketplace, but we pay a penalty for that in terms of travel and communication overhead
  • We have at times spread ourselves a little too thin in pursuit of a fairly complex agenda out of a relatively small company.  I think we’re doing a good job of reigning that in now (or growing into it), but our eyes have historically been bigger than our stomachs

Thanks to all our investors and Board members, especially Greg Sands from Sutter Hill Ventures, Fred Wilson from Flatiron Partners and Union Square Ventures, Brad Feld from Mobius Venture Capital, and Scott Weiss for their unwavering support and for constantly challenging us to do better all these years.  Thanks to our many customers and partners for making our business work and for driving us to innovate and solve their problems.  Thanks to our many alumni for their past efforts, often with nothing more to show for it than a line item on their resume.  And most of all, thanks to our hardworking and loyal team of nearly 200 for a great 2009 and many more exciting years ahead!  

Sep 032009

Ten Characteristics of Great Investors

Ten Characteristics of Great Investors

Fred had a great post today called Ten Characteristics of Great Companies.  This link includes the comments, which numbered over 70 when I last looked.  Great discussion overall, especially for Fred’s having come up with the list on a 15-minute subway ride.  Fred used to write a series of posts about VC Chiches, and I would periodically write a Counter-Chiche post from the entrepreneur’s perspective.  This post inspired me to do the same.

So I’ve taken 15 minutes here, pretended I’m on the subway, and here is my list of Ten Characteristics of Great Investors, in no particular order:

  1. Great investors know how to give strategic advice without being in the operating weeds of a company
  2. Great investors get to know whole management teams, not just CEOs — in fact, great investors become part of the extended management team of their portfolio companies
  3. Great investors invite you to do diligence on them by giving you a list of every CEO they’ve ever worked with and asking you to pick the ones you want to talk to
  4. Great investors ask great questions
  5. Great investors don’t publicly take credit for the success of their investments, even if they were major drivers of that success
  6. Great investors show up for meetings on time and don’t spend the meeting using their smartphone
  7. Great investors treat their portfolio companies’ money as if it were their own money when spending it on things like lawyers or travel
  8. Great investors look for connections to make between their portfolio companies or relevant people but have a strong relevance filter and don’t send junk
  9. Great investors never have a ready-made list of the ways they add value to companies — and they specifically never talk about the help they give in recruiting executives or making sales/bus dev introductions
  10. Great investors recognize when they have a conflict around a portfolio company and are clear to represent their separate points of view separately

I’m not sure I’ll be invited to present this anywhere, but there it is for discussion.

Jun 102009

Poking a little fun at VCs

Poking a little fun at VCs

Fred posted a great slideshow this morning of “things VCs will never say.”  I can’t tell if the show is meant to be serious or not — some of the things would be great to hear from VCs, some would be terrible — though Fred’s comment at the bottom leads me to believe he thinks it was serious.

At any rate, it reminded me of the brilliant and hilarious “VC Calendar Calisthenics” post of Dave Hornick from 5-6 years ago, which you can see here.  Even if you’ve read it before, it’s worth a refresher.

Dec 062008

Next One is the Big One, a.k.a. Nine is Fine

Next One is the Big One, a.k.a. Nine is Fine

Today, Return Path turns nine years old. 

What an exciting year we’ve had, too.  As I mentioned a couple months back, we completely reorganized the company this year, marking a major transition and a new stage in the life of the business.  We acquired our largest competitor, Habeas, consolidating our space and further establishing ourselves as the leader in email deliverability and whitelisting.  We marched right past our 1,000th client milestone and now are well on our way to our 1,500th.

Thanks again to our fantastic team and our great group of investors and Board members for another fun and exciting year.  Nine is fine…and now the march to The Big 1-0 begins.

Apr 302008

You Have to Shoot to Score

You Have to Shoot to Score

Fred’s recent post called From Messes to Successes left me thinking about the reasons why successful companies often have rough patches along the road to their ultimate success — the times Fred refers to when he says “they’re a mess.”   First, his premise is right.  Good companies are often a mess.  Probably more than most outside Board members (even good VC ones) even realize!  And while his explanation as to why this occurs, which is that the company focuses exclusively on the product to the exclusion of infrastructure, scaling, and planning issues, may be right some of the time, let me offer an alternative explanation.

I always tell people internally that You Have to Shoot to Score.  If you don’t take risks, you’re not a truly entrepreneurial company.  And for companies to move from start-up to high-growth and sustain that growth over time, they have to continually be taking risks.  50+% growth only lasts so many years without it.  Trying new things.  Developing new products or permutations of products.  Making acquisitions.  Making an out-of-the-box hire.  Entering a new market.  Morphing a pricing model or service delivery model.  You get the idea.

It’s inevitable that some of these risks won’t pay off.  They don’t all have to.  Only about 1 in 3 does.  (Sounds kind of like a VC’s portfolio, doesn’t it?)  But the other 2 can often leave you with a mess that has to be cleaned up.  People need to be reassigned.  Some may need to be let go.  Products need to be decommissioned.  Sometimes it takes longer than others to emerge from a clean-up period, but Fred’s right that when the company does emerge, it’s usually stronger for having gone through the experience.

Nov 212007

VCs Are Full of It

VCs Are Full of It

…at least that’s what Brad says.  Well, he says a lot more than that, but certainly makes for a good pre-holiday headline, doesn’t it?

Brad’s brilliant advice is not to confuse data – or even worse – anecdotes – with fact.  I’d add to the axiom my own observation that “just because someone says something with extreme conviction doesn’t mean it’s true.”

His whole post is very worthwhile – one of the best ones I’ve read in a long time.  Read it here.

Sep 262007

Lighten Up!

Lighten Up!

As with Brad, I love a good rant, and Dave McClure’s wild one this week about how VCs and Lawyers Need to Simplify, Innovate, and Automate is fantastic.  I have a roughly 3 foot shelf in my office that has all the bound paper documentation for the financings and M&A we’ve done here over the years and have always felt like it’s an enormous waste on many levels.  The insanity of the faxes, zillions of signatures, original copies, and triplicates is overwhelming.

But the core of the rant is a beautiful and simple suggestion that those who invest in lightweight technology companies and automation platforms should learn how to use just those technologies in their own businesses.  I couldn’t agree more, and it reminds me of my least favorite answer EVER from a VC about why some piece of legal documentation had to be done a certain way:  “Because that’s the way we always do it.”  That argument doesn’t even work when a parent uses it on a 5 year old!

I think lawyers are particularly problematic to this cause, because even if an innovative VC wanted to do things easier and differently, the lawyers would probably throw up all over it.  But in the end, if the VC is the client, he or she can and should overrule and manage counsel.  The world is now moving at too quick a pace to keep deal paperwork in the stone ages.

Filed under: Email, Venture Capitalists

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