Friday, June 29, 2007

Market, Product, Team and/or Luck?

Marc Andreessen wrote a great post on what's most important for a startup - and while I agree with most of what he says, in the end I don't agree with his conclusion. Yes, market is a powerful, compelling force that pulls products out but you also need the right team to figure out the market and how to get access to it. A strong team will tell the investors if they are in the wrong market and figure out how to shift strategy (we've refocused FirstRain over the last 18 months for just this reason). A great team will be honest with themselves about what it is going to take to get to a terrific product. But I do agree that great products are hard to create.

Some venture firms store statistics on the parameters that contribute to their company's success. When Mayfield funded my last company, Simplex, one of the partners told me they ask the investing partner to rank the factors that contributed to him investing - and the result over 25+ years of results was that the choice of the CEO has an order of magnitude higher impact on the probability of success than any other factor. Of course at the time, as a brand new CEO, this was scary as hell.

So I also humbly suggest that alongside of team, market and products there is a fourth very powerful parameter that plays in startups - and that is Luck.

Trust - it's just more efficient

Trust allows a team to move fast and make more money. It’s a simple but true fact so often neglected inside companies. It comes down to two simple issues that are an advantage in a culture of trust and a huge liability in a culture of politics and mistrust:
1) how long it takes to make a decision and
2) the quality of the decision.

Consider annual (or in the case of a startup often quarterly) financial planning. It’s classic. Jim executive asks for a 20% increase in headcount even though he knows he only needs 15% but he’s planning a) to negotiate hard with the finance department so he ends up with 15%, or b) position himself as a hero when he reluctantly agrees to “manage” with 15% although it will (sigh!) be hard on his team, or c) any number of other politically motivated behaviors. I’ve seen this game too many times as an executive of large companies.

But consider, in contrast, the management team that operates on trust as a basic principle in financial planning. The dynamic is quite different. Sally executive makes a case for the 15% increase that is really needed. She explains the background but also listens carefully to the other execs needs so she can be part of the total decision on how to allocate dollars for the next period. Her peers know that if she says she needs 15% then it is 15% and if she can only get 10% then the scope is going to have to change. Everyone sees all the budgets and goals – total transparency. There’s no negotiation – just open discussion on the requirements of the business. There’s no false heroics, again because of the transparency.

And as a result, the decision takes less time and is a higher quality decision for the business.

We are growing fast at FirstRain now and so another incredibly important decision we have to make frequently is hiring, especially hiring senior talent. One of our values is “Demand uncompromising quality” and I have been known to tack “in our people” on the end of the sentence. Hiring is the single highest leverage point on quality (more on that in a later post). So, the hiring decision needs to be open, transparent and filled with honest assessment. That only happens if the hiring team trusts each other.

We have a hiring process that counts on trust. The hiring manager assigns an interviewing team, everyone meets the candidate and then the team assembles for a “round table”. At the round table everyone is required to express their opinions is an open, constructive way, but all input is OK, both good and bad. The process moves fast and gets to good results because there is trust that the hiring manager truly wants the team’s input, and that the team is honestly trying to get to the best decision. Without trust you see posturing, cronyism and manipulation of the process. I’ve worked in companies where senior executives bring in friends with no interviewing process whatsoever. Now that’s a recipe for others to trust – not!

Running a young, growing company we make hundreds of decisions a day. We won’t get them all right but we need to get the majority right, and to make them in little to no time.

In a nutshell, trust allows a team to identify problems without baggage. My COO, YY Lee, and I have worked together twice before. We’ve fought battles together, watched each other’s backs and developed a deep trust that no matter what’s happening the other’s intentions are good and for our common goal – the success of the company. As is usual with any aggressive technology development plan, s**t happens, features slip, experiments fail. I trust that I am always getting the straight scoop – no baggage, no positioning. It’s incredibly efficient.

My CFO, Luis Buhler, and I built my last company together, took it public together and sold it together. Nuff said. I would stake my career (huh, come to think of it I do…) that our books are clean and that what Luis tells me is exactly what’s in them. Again, incredibly time efficient and our planning conversations move quickly and come to crisp decisions in very few iterations. It’s not that we’re smarter, or better – it’s just that we have a management process, called trust which allows us to move fast.

How to tap into this simple advantage? It takes two critical elements:
1. To be trustworthy and demand trustworthy behavior of everyone in the company. That means dealing in the truth and not tolerating politics, ever. Zero tolerance.
2. Time. No escaping this one. Time.

Tuesday, June 26, 2007

Solving the “last mile” problem with human-powered search

Yesterday’s New York Times article Human Touch May Loosen Google's Grip covers a topic near to my heart – the difference human-powered search can make in quality of results.

Professional search users – in our case portfolio managers and analysts – require very high relevancy in their research results. Relevancy means delivering articles that match only the companies and topics of interest. So, if an investor is not interested in Microsoft Office, but is interested in the adoption rates for Vista, the system needs to only return the latter. If the investor cares about CEO’s comments to the media, but not every time the CEO’s name is referenced the system needs to only return media interviews - or if you really want the less guarded insight - only media interviews given to international news or blogs.

There are countless examples where you'd get frustrated without a specialized system. Think about trying to find out when your small-cap investment wins a local contract - for example winning an outsource contract from a large customer that does not get picked up by the national press but does get written up by an employee blog or the small town newspaper - or wanting to be notifed when your international electronics component company wins a contract with Apple for iPhone production - but it's not picked up by the news wires because it's only covered in local press. Imagine the time and effort it would take you to make any standard search engine find these types of intelligence.

This is where human-powered search comes in. Yes, great search engines can get you close, but they can’t get you the “last mile”. Having a team of skilled search authors is essential to the final step of configuration. In the ideal case the users would be able to do this themselves, but the reality is that a) it requires one level of complexity beyond the user’s skill level and b) 90% of professionals using search for a business application simply cannot put the time in to configure a system to get them that last mile of quality relevance, even if they have the IT team who could get trained up enough to do the work.

By picking the target user base, whether it is consumers with the 10,000 most likely searches, or portfolio managers investing in global securities based on fundamental research, the system can get to genuine content that matters to that group of users. Algorithms are important to review the millions of documents that apparently match an investment topic and select the set most likely to be relevant. Then human editors review the content and both refine the search configuration to get better and better results over time for that topic, and to hand select particularly interesting insights for users who subscribe to the topic in question.

It’s all about that last step. It takes a man-machine combination to get to consistently relevant results for every user. And this combination of algorithms and editors needs to be designed to scale over thousands of users. That’s what makes it interesting.

Friday, June 22, 2007

Honored by the Highest Leaf Award

I was privileged to be honored with an award from the Women's Venture Fund in New York this morning. The Women's Venture Fund is a non-profit helping women get their ventures off the ground by providing mentoring, micro-loans and encouragement. The honorees were an amazing group of women with a common thread of taking risk, supporting and growing other women and achieving business success as a result.

As a silicon valley geek it was scary and humbling to be in the company of so many smart, accomplished and sleek New York women and their stories were truly inspirational.

I was impressed in particular by Ileana de Dios Muniz who owns and publishes FAMA Magazine and has built it from the ground up herself. Also, by Stacy Gray who, as an African American law student overcame her anger at the racism and sexism she experienced to found her own independent law practice in New York.

All the women honored were spectacular in their fields and shared personal stories, challenges and joys they had experienced along the way. The event re-confirmed for me that women can do anything when they set their minds to it.



Here are my remarks:
Thank you for this award – it is terrific and I am honored and humbled to be in the company of this group of honorees.

There have been many ingredients to my success, and I am grateful to the many people who have helped me along the way. When I think back over the last 25 years one common theme to the decisions I made was having an appetite for risk – and so I decided to share a couple of stories about risk with you today.

I became CEO of a venture backed software company when I was 36. I worked in the male dominated semiconductor industry and I was the first female CEO in the field. I felt I had to become a CEO because I couldn’t stand not to. As I did it I was very scared of failure. Not only because 9 out of 10 startups fail in silicon valley but also because I felt if I failed everyone would say “see, we knew a woman could not do it”.

But I was also very excited about my company, Simplex, and I decided to channel the fear into my work. I was driven, and I know I was hard to live with at times, but when my company did well and went public I was as much motivated by showing all the doubters around me as I was by the achievement for my team and my investors, and it was very sweet. Without the adrenalin of the risk I don’t know that I would have been as focused on getting the company successful.

My tolerance and acceptance of risk also shows up in the interface between my personal and professional lives. I have two children – now 13 and 15 and both taller than me. When my youngest was 4 weeks old I was VP marketing at Synopsys and my boss – who was and is CEO of Synopsys– called me up and asked me to come in and help with a total reorganization of the company. I had not weaned my son by then, but my boss communicated that it was important, although he understood I was on maternity leave.

This was a moment of truth for me. Just how ambitious was I? Well, the answer was very and I took what – at that time – felt like a very risky and non-obvious path. I packed the diaper bag, picked up my son and went to work. Now, remember I said he was not weaned. So, when he got hungry in the middle of an executive staff planning meeting (all men but me of course) I did the most natural thing in the world – I breast fed him. You could have heard a pin drop at the shock in the room. I did this for a week and we got the company reorganized, including me leading a discussion with a hundred of my employees while feeding my son. I definitely broke some kind of glass that day!

If you are pushing your self to the limit to contribute you will face risks every day. It’s part of the fun - and the challenge is how to channel the fear.

Let me close with one more story. I had 20 years of increasing success and had been blessed financially. At 43 at the top of my earning power in a big executive job I had 2 strokes. Not from over work, just from bad luck blood chemistry and they were probably not my first. After a few weeks of denial, I retired but was losing my mind a year later - consulting and doing some work with a VC - when I was recruited into the CEO job at FirstRain. The company had terrific talent and technology but was out of money and needed to be restarted. I knew nothing about search engine technology and the job was in New York but my family is in California. Very risky and my parents were horrified that I was going back to work. But 2 years later FirstRain provides research from the web to institutional investors, is now successful and growing rapidly.

I love what I do. I love the joy of accomplishment, working with talent and friends and I now know I love the risk. Risk is good and you need to embrace it.

Thank you again to the Women’s Venture Fund for this award. I am very honored to be in such great company.

Thursday, June 14, 2007

The power of teamwork


My ears are ringing this morning because I spent last evening at The Police concert in Oakland. It was hard to imagine that this band had not played together for 24 years. Their quality and precision were spectacular and Stewart Copeland is the heart and soul of their signature sound. Complex, perfect percussion. All three watched each other's timing carefully throughout the 2 hour show and the result was superb, high energy music. Plus, being over 40, I knew all the words to every song... so I am also hoarse.

Wednesday, June 13, 2007

All Venture Money Is Not Equal

If you’ve ever been CEO of a venture backed company you know that while all money is green it is not all equally valuable. VCs, like human beings, come in all styles and when you are raising money it’s important to keep in mind some key tenets when selecting investors.

1. Pick someone who has the same vision and values as you. You are (hopefully) in your venture because you believe you can change the world (if you are doing it to get rich stop now because you don’t get rich in the startup world by trying to get rich, you get rich by building something) and it’s very important your investors want you to change the world too. There are many tough moments of truth when building a company, and none more so than when you get an offer for your company before you think you are ready – before you have built the strategy and value that you believe is possible. That moment is when you find out whether your investor truly shared your vision on how to change the world or was just telling you he did.


2. Pick a partner who can do heavy lifting for you when you need it. Great venture partnerships have a rich, deep network to help you recruit, develop partnerships, manage sticky HR issues and even find office space.

3. Avoid the money based VC who’s motivated by running a portfolio. Find someone who walks the talk and builds great companies. If you can, find a VC who has been doing it for more than 10 years and has a great track record – and talk to their CEOs – or find one who’s been a CEO, built a good company and taken it public. When you work with someone from a leading firm like Benchmark, Oak, Sutter Hill, Sequoia or Mayfield and they’ve done it for years you get access to a level of wisdom and advice that you simply won’t get from the new crop.

4. Pick someone you enjoy being with. Most companies take many years to mature and if you are going to meet with your board a couple of times a quarter for 5 years it certainly makes the journey more fun if you enjoy interacting with them.

And I have many more lessons learned… but of course, in the end, you do need to get funded and you may need to take what you can get, but if you have the chance to be selective, the right investor is more important than the highest valuation because you’ll build a better company and so make more money in the long run with the right partner.

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