Friday, July 27, 2007

Balance: A Myth for Ambitious Women

One of the more controversial positions I have taken over the last 10 years is that balance is a myth if you really want to climb the corporate ladder. It came up again as I was interviewed for a profile in a local Bay Area magazine yesterday and the reporter asked me my opinion on balance (I’ll link to it here once it is published).

I think I first said it out loud at a panel for women in design automation and not only did I clearly upset the room and shock some people, but several women (and one man) came up to me to thank for speaking the truth out loud.

My opinion is that as women in the corporate world we are competing for opportunity and promotion and, like it or not (especially in tech), we are competing for the most part with men. For time immemorial men have worked hard, competed, and given up personal time to build their careers and provide for their families. They know its part of what’s required to go the extra mile and help the business excel.

I know women like to find new and better ways to do things but I think it’s naïve to believe we can provide as much value to our companies as the men we’re competing with if we are not just as committed to the job and the business results. That will require, at times, long hours and travel and I believe makes the ideal of “balance” an unachievable, and so ultimately depressing, goal.

Now, I am not talking about striving for balance as you stay in a middle level, fun job, but need to leave at 5pm every day to pick up the kids. Or running your own, home operated, small business. That is very possible and (just) takes great organizational skills. I have a number of friends, and employees, who have conquered this challenge very successfully.

I am talking about wanting to be a senior exec, be in the board room, run a billion dollar division or be a CEO. I have experienced some harsh realities on the way up:

1. Business is global today. There is no getting away from it – customers are all over the world and to run a global company, or service global businesses you have to travel. Webex, email and cellphones are helpful but none of them substitute for meeting customers face to face and rubbing shoulders with your sales team. One of the great things about FirstRain is that at least the travel is to New York, Boston and then New Delhi maybe twice a year, which is much easier than Japan, Taiwan, France, England at least every quarter in my last company.

2. Many times the men I have been working with have wives at home. At one point I was on an exec staff where I was not only the only woman, I was the only exec without a spouse at home. I strove to hold my ground against weekend meetings, or endless late night dinners, but it was clear that the rest of the execs were not going to change their pattern of behavior easily and at some point I had to make their schedule work in my life. I did not like it, but I was pragmatic about it.

3. And to complement that, there is no question my family’s life got better when my husband decided to stay home and kite board every day. We still have childcare for the few hours after school (until the wind drops) but the impact of my job requirements and my travel was reduced because one of us was home. That was hard for me to admit, but now, 3 years later, I admit it and am grateful.

4. As CEO I do have more control over my time than in any other job, but I also have the ultimate demanding boss - mycompany - and there is no excuse I have ever been able to come up with to not put my company first when it really needs me. All my employees depend on my company for their livelihood, not to mention my investors expectations.

I very much agree with the comments in the New York Times article “Women Take Off The Gloves and Come Out Multitasking”. Many women do have evolved skills in multi-tasking (try running a board call while cooking for a hungry 2 and 4 year old) and many women are great communicators and builders of community which can lead to terrific management skills.

Women have the skills and the aptitude to win in any field we take on. I just want young women who are coming up to make informed choices and not try to have it all and end up frustrated or exhausted or, worse, self critical because they didn’t bake cookies for the library group or volunteer for the school play.

Finally, I’ll add that the moms who don’t work can put a lot of time in and do a spectacular job helping out the school and I just can’t, but I do my best to thank them and make sure they know I appreciate the choices they have made.

At the end of my daughter’s kindergarten year ten years ago she asked me “Mummy, how come you are the only mom who didn’t volunteer in the classroom this year?” After I pulled the knife out of my heart I crouched down next to her and took the opportunity to talk to her about how much I loved my job, how I want to change the world so that women have equal opportunity with men to do whatever they want to do, what this required me to do, and how I hoped one day she’d have a job she loves as much and a little girl as great as her to talk with about it.


Thursday, July 19, 2007

Tech blogs: The Canary in the Coalmine

The pending demise of Red Herring (hinted at in Forbes earlier this week) is hot gossip in silicon valley these days as - not surprisingly – tech blogs eat away at tech pubs revenues. It’s simple and fast to develop a blog and in a world where everyone is connected 24/7 and cocktail party conversation is about technology it’s very comfortable for pundits and journalists alike to turn to blogs as a way to publish content and opine.

However we see such strong growth in blog content across all markets that I believe tech blogging is just the canary in the coalmine. We track:
- the number of documents we process per day (hundreds of thousands and growing fast based on source research)
- the number of documents we “publish”. ie. that we promote into the underlying knowledge base because they are bona fide content - in some way relevant to an investor
- the percentage of those documents that are of each type: press releases, news wires, duplicates of the same, filings, local or international news, blogs etc. so we can monitor the makeup of content we are processing.
- the breakdown in the type of blog by industry

Between January 15 and July 15 this year the absolute number of documents from blogs that were published grew 10X. And only 21% of the blogs we source from are tech blogs. So, while tech blogs continue to grow in absolute terms, their proportion as a percentage of the total will decline, over time, to approximate tech as a percentage of total published content worldwide.

It is only a matter of time until other specialized publications are eaten away by blogs and only the best publications – like the Wall St Journal and the Washington Post– will survive.

Saturday, July 14, 2007

Why Investment Research is a Long Tail problem

Since the term “Long Tail” was first coined by Chris Anderson in Wired Magazine three years ago, many articles have been written about new businesses developing using technology to solve the problem. Examples abound in internet companies, the movie industry, simulation systems, network traffic to name just a few. In the case of the internet companies Amazon, eBay, Google, Netflix - these businesses release value in their markets by giving consumers access to products (in these cases books, auction products, general information or movies) that live in the long tail of the distribution curve of available products.

The business of investment research is a classical long tail problem which is very expensive to solve with traditional research approaches but which can be solved, like the examples above, with search technology.

Consider the problem of doing qualitative research on a company. The high-frequency information needed is straightforward to find (the initial deep part of a Pareto distribution curve of the information) – it’s in news feeds and articles from the mainstream sources of information and researchers combine this with old-fashioned research: talking to management teams, trying to find non-obvious sources of information and modeling the financial behavior of the company.

But for stock research significant information lies in the long-tail of information that is available – we see more than ~50% of the meaningful information to be found . We process millions of documents from the web each week and, after we have filtered out all the obvious junk, about half are in the head of the curve: news, press releases or near duplicates of the same as news travels through the web; the remainder are unique and need to be mined for fit.

The first aspect that is a long tail lies in the ecosystem of a quiet company. By ecosystem I mean the trends in the market affecting the company, competitors, suppliers or customers. For a quiet company, or even a noisy one in a complex market, information is available on all aspects of the ecosystem but there are too many dimensions for a human being to search every day. As one of our customers said to me after an evaluation “we could not duplicate the results with infinite resources”. But vertical search technology can model the ecosystem and persistently mine the long tail, across hundreds of topics and many thousands of qualified sources, storing and sorting the results to make the information accessible. For topic driven search like ours the company does not even have to be mentioned, just the topic itself is referenced in some way the search engine can detect.

Consider the analogy to Amazon, first researched in 2003. By building a model of all books available, by subject matter and title, and then connecting them together with user reviews, Amazon made you, or me, able to find books of great interest to us that would never have made it to our local bookstores. The reason is the frequency of someone having an interest in the book is not high enough to justify the store carrying the book but there are enough people interested in the book to make money on it if you can match reader to book.

Now consider following a company in your portfolio. There may be over 1000 sources of information (like local news papers, blogs, local filings etc.) that can give you information that would deepen your understanding or even change your mind – and maybe 950 of those sources are in the long tail. We have many examples of stocks like this is our system, for example in source rich sectors like technology and retail. But the frequency of any one source yielding information is probably too low for you to check the source every day and the documents typically won't get correctly caught and filtered by google because they don't fit a simple keyword match. There aren’t many hedge fund managers who have the time or the inclination to check 950 sources a day and so the information never gets factored in. This problem is perfect for vertical search technology.

Just like in the Amazon case where the solution requires both technology and the hard work of collecting all the descriptions of books in one database, in our world the collection and research of sources is, in itself, a long tail problem. The web is populated by billions of sites, more than 80 million blogs and they continue to grow exponentially. However, more interestingly for the investor (although I can’t prove this yet), we see that, while there is a lot of junk to be discarded, the number of interesting blogs – with quality writing – is growing incredibly fast as informed people discover the blogging world and the publishing world gets turned on it’s head. Keeping up requires both technology and the research to find and catalog the sources contributing to the long tail.

Vertical search for investors - what we call search-driven research - is a new field. There are just a couple of companies doing it, all of us start ups, and each trying different approaches, but it is so clearly a long tail problem, and perfect for search technology, that it’s taking off fast.

If you want to read more about the Long Tail check out the excellent definition by Chris Anderson on Wikipedia and on his blog.

Friday, July 13, 2007

Startup to IPO: Choosing your sales channel strategy

For young software companies one of the highest impact and most expensive decisions you can make is what type of sales channel to use. Impactful because if you get it right you can grow revenue and customers quickly but if you get it wrong it does not matter how good your product is, the market won’t be able to adopt it. Expensive a) because of the above (which is one of the most critical issues as you get the company off the ground) and b) because you’ll spend money developing any of the alternatives and you’ll spend more money if you decide the right strategy is to go direct.

In this posting I’m talking about software companies that are in a B2B business model – selling to a professional user. In my current case, FirstRain, the user is in the buy-side of financial services or a corporate user, typically in marketing, sales or finance; in my last company the user was a semiconductor design engineer but the issues are the same in both cases.

There are three basic approaches to consider:

VAR or OEM: In this case the VAR (or OEM) designs your product into their platform. Sometimes it will be fully buried and not visible, sometimes visible but well integrated so the user is getting an advantage from your integration into their platform of choice. If it’s not integrated then you are really dealing with distribution in the guise of a VAR so beware (see below).

VAR relationships are great if the whole is greater than the sum of the parts. If you have designed a product that is good on it’s own but great when integrated into another system then this can be the most efficient way to go to market and grow. The VARs become part of your customer set and you serve them accordingly. You’ll often still need to talk to end customers to figure out what’s needed next and how to improve your product but the VARs needs can become just as important because they are your oxygen – your access to the market.

In our case this would be integration and distribution through a financial platform like Thomson or CaptialIQ. If we had a service that leveraged their data and platform in a unique way to create a customized service for select end markets it would make sense. However, we don’t do this today (see direct below).

It can definitely be less expensive to go the VAR route. It requires investment into business development and support resources but not a full sales force. The risk is whether you pick good VARs and whether you can get more then one. To have all your revenue coming from one customer is like selling your company without selling your company. You’re owned but without the financial benefits of being owned. So, for the strategy to be successful it’s important to identify and sign up multiple VARs, each with a unique integration of your product, to ensure you have some direct customer access for product design and to make sure they are focusing enough to get you growth in your end markets.
(VAR: Value Added Reseller. OEM: Original Equipment Manufacturer)

Distribution: Probably my least favorite for a software startup although it can be good for hardware. In a distribution relationship a rep or company agrees to resell your product as is. Sometimes it’s a soft reference sale – introductions, helping you through the front end of the sales cycle only – and sometimes it’s full distribution – taking your product through the full sales cycle including evaluation and close. For the former you pay less to the distributor and your sales costs can come close to direct, see below.

The advantage of distribution is clearly cost. You’ll typically pay a percentage of the sales price to the distributor and you train one team once and then they run with your product, taking advantage of their existing relationships and infrastructure to develop and make the sale. But the risk lies in two stumbling blocks: First, can the distributor truly represent your product? Do they have the knowledge to do it and can they focus enough? After all, making sales is life or death to your young company and not to them. But even if that hurdle is overcome the second issue is the higher risk to a new product and often overlooked. Can you get the information you need with an intermediary between you and the customer? If you have designed the product to ultimately be standalone (so you haven’t chosen the VAR or OEM route for that reason) it is critical to be in an intimate, give and take discussion with your customer so you can tune your product to perfectly match their needs – essential to creating a great product. Very tough to do unless you are in a direct relationship and I’m not a big fan of distribution for young B2B software products.

Direct: Definitely the most expensive but also the most rewarding if you have a rapidly evolving technology.

Setting up a direct channel is expensive because you need to lay in significant costs ahead of revenue if you want to scale. You need to
a) hire a great sales manager (yes, many entrepreneurs and CEOs think they can do this themselves, moi included, but having worked with great sales managers I swallow my ego and bring one on),
b) hire a (small) sales team – and plan for turnover because some of them won’t make it
c) hire a customer support team (although R&D can do this early on) and
d) develop a sales process, often through trial and error, until you have a model that scales. “Scales” means you can add 10 sales people and get 10X the sales you get from 1 sales person today. A lot harder than it sounds. Often sales people take 6 months to become truly productive so you are paying their salaries (and IT and office costs) 6+ months before they produce.

But the advantages can be spectacular: A direct relationship with early adopter users who will give you feedback and guide you to make your product great, not just good; the ability to try out ideas quickly and to rapidly respond as you see customer usage patterns; the ability to try out difference markets and messaging – it’s not unusual for young companies to try several markets before they find the one that is explosive for them and – when you work out the sales process – the ability to double or triple sales headcount and so double and triple revenues. I’ll write about the metrics that tell you when you’re ready to scale in a later post. And finally, the ability to focus and have 100% of a sales person attention on your fledgling product instead of competing for attention with more mature products.

In our case we’ve decided to go direct for FirstRain. The reasons were the advantages of the direct sales model. When you have a powerful technology that is revolutionary but needs to be integrated into a customer’s existing process I believe focus and frequent conversations directly with the end user are absolutely essential.

Thursday, July 5, 2007

Managing India-based teams #1: pros and cons

There’s a flurry of articles (NYT and WSJ) in the last few days on the challenges of outsourcing to India and debating whether the trend is changing or even reversing in some cases. Since we’re set up with more than 100 employees in India we debate the pros and cons on a frequent basis as we consider which side of the Atlantic to put projects on.

Our main offices are in Gurgaon, outside of New Delhi, and we have a small R&D operation in Mumbai. For context, our U.S. operation is bi-coastal: lead R&D, marketing and G&A is in silicon valley; sales, client consulting and business development is in New York. So we are used to running meetings at odd times of the day and night across multiple time zones and I certainly rack up the air miles.

Also for context, our business requires high end software technology skills – architects and algorithmists – and well as bench strength in engineering, research and services delivery.

When I walk through the allocation of projects and resources with my team we look at both sides of the coin:

Challenges managing India-based teams:
• time zone and cultural/language differences – successful projects need to be able to be specified sufficiently tightly to overcome the distance
• lack of experience with leading edge technology in our space – not surprising since it’s being invented every day in silicon valley
• outsource or subsidiary – today all our work is done by employees of our sub. We believe this gives us higher quality, which is why we do it, but less cost flexibility than we’d have with an outsource contract.
• ever increasing engineering salaries - they are climbing at such a pace that it’s hard to budget and the cost advantage over the U.S. is disappearing fast

Advantages managing India-based team:
• talent and ambition – sometimes our Gurgaon team reminds me of the wild west of silicon valley 20 years ago – ambition, drive and a hunger to grow and succeed that is exciting
• time zone differences – since our business is delivering research and analytics from the web to predominantly U.S. customers this works to our advantage.
• availability of well-educated talent – especially in software engineering and research/service delivery - hiring for growth is very competitive in silicon valley now.

The type of projects that get assigned to the silicon valley team therefore tend to be the breakout R&D projects – building a new database schema, making a categorization technology breakthrough, changing our duplicate grouping algorithms, designing the new UI to show off our product but follow the latest from the new generation of consumer UIs (like Facebook) at the same time.
In contrast the type of projects that get assigned to India tend to be the engineering and process projects – building the new UI to the specification, radically changing the customer delivery system to reduce latency, developing techniques to generate categorization rules automatically or changing the tools our researchers use to serve customer specific requirements.

But as with any generalization, there are exceptions. We have a few radical, leading edge architects in India, and we have some process folks and researchers in the U.S. So, we weigh our options every time based both on the general trends we see in the two locations and on the individual Rainmakers involved in each case.

Monday, July 2, 2007

Prying open the IPO market crack

Last week’s New York Times article Door Is Open to High-Tech Offerings That Meet Thresholds brought back memories for me of taking my company Simplex public in 2001. We had the best first day performance of the year by opening up a crack in a closed IPO market and it took some old fashioned thinking to get out.

Leading up to our IPO – during the bubble years of 1998-2000 – we had built a terrific “real” company. We had rapidly growing revenues, rapidly growing earnings, deep technologies and a growing number of customers among the who’s who of our market. But could we get investment bank attention? No. Sadly I could not pitch eyeballs or pageviews. We were not part of the bubble and so were not considered IPOable. No one wanted to represent us.

Since we were growing fast and needed cash, but did not want to do another round of venture money which we knew would be challenging (for the above reasons) we secured a line of credit, drew it down and managed our cash very carefully. It’s challenging to manage a business with $40M in revenue, growing fast and no access to cash!

Determined to get access to the capital markets, we finally convinced the tech team at CSFB to bank us and we filed our S-1 on September 11, 2000 and waited, ready to go. And waited. And waited. The window was closed.

But, we were ready for a glimmer of light and like boy scouts, we were prepared. To get out in a bad market we focused on quality:
- quality of revenue, with 70% recurring so very high visibility
- quality of management team
- quality of customers, with 80% of the leading semiconductor companies as major customers
- quality of technology, with our second act – a new generation of chip architecture (the X architecture) ready to be announced a few months after our IPO
- quality of our story for investors

I must have called the bankers at CSFB every week for months to get support to go and in the end, in a fateful meeting with Larry Sonsini (who was on my board) and Frank Quattrone (who was running CSFB technology banking at the time) in late March 2001 we agreed on a price for the front cover of our filing and pulled the trigger to go. I saw the wheels of power at work that day as two old friends listened once more to my case and decided they believed I could get the company public and so to put me on the road.

We were the first IPO for the CSFB tech banking group that year so nerves were frazzled and the capital markets team were very tough to work with – so much so I made a gift of a giant plastic rat, with a red bow around it’s neck, to the head of their team at the end (it was an inside joke). We had decided to put just one price, $10, on the cover instead of the usual range, because no one could predict which way the market would swing and whether we would get out at all. I remember deciding I had to drive this one all the way to the cliff, not knowing if we’d take off or crash, but I knew I had a quality company. I knew we were prepared and if I could just get an audience with the buy-side that they would see the value of the company we had built.

We priced on May 1, 2001 at $12 and closed first day trading at $22. And sustained great pricing until we, like everyone else, were hurt by September 11.

So now, the capital markets are skeptical but there are great companies ready to go and wanting access to them. I believe, once again, it’s all about quality. Quality of revenue, earnings, customers, product and people.

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