Thursday, May 29, 2008

Adults only hedge fund

I saw an amusing validation - yet again - that porn is a great money maker today. Adultvest is a hedge fund that invests only in the porn industry and - as reported by BusinessWeek - the hottest new hedge fund may also be the raciest. The $7.9 billion AdultVest [is] one of four firms in the running for Alternative Investment News' Hedge Fund Launch of the Year award.

If you link through to their site you find probably one of the only hedge fund sites that greets you with an (attractive young female) avatar inviting you into their business - signs of understanding the younger pop culture - and they just purchased iPorn.com. Imagine the on the ground research for that fund!

Thursday, May 22, 2008

The Enron of Norway

When Microsoft bought FAST it was clear they were building a search arsenal to compete with Google. What wasn't clear was just how much of a financial mess they were taking on.

The recent article in Portfolio.com The Fast and the Curious describes the tangles around FAST's issues: "Three weeks before it embarked on its blundering attempt to acquire Yahoo, a Google-obsessed Microsoft agreed to pay a juicy $1.23 billion for a Norwegian tech company mired in enough accounting problems, regulatory probes, and conflicts of interest that it had become known as the Enron of Norway."

"....Still, Lervik's business appeared to grow steadily until the second quarter of 2007. The company reported revenues of $35 million, $20 million below forecasts, and an operating loss of $38 million. Financial regulators in Norway investigated, and the losses widened the following quarter. When trading in Fast was suspended on December 12, the company said it would review accounting for all of 2006 and 2007. The latest unaudited results show revenue growth of 7 percent for last year, which is far below Goldman's forecast [of 27%]. Steve Papa, CEO of rival search firm Endeca, characterized 2007 as "the frothiest year for enterprise search since 2000." Endeca, he said, grew 70 percent last year.

Goldman Sachs criticized Fast's habit of capitalizing an unusually high level of research and development costs and booking sales based on future licensing revenue, calling it "aggressive.""

Yet another case reinforcing the benefits of taking your revenue ratably as you deliver, not up front, which can so often lead at a minimum to missed revenues, but sometimes to ugly restatements.

But there's one additional insight here which appals me. "The former president Ali Riaz left in 2006 after six years and has started his own company, Attivio. "I left because after six years of outperformance, I and many other people did not have an equitable stake in the company. It was heavily weighted toward earlier investors, instead of people who actually built the company. I didn't feel it was right," Riaz says. "

That takes nerve to say. You run a company that was mismanaged financially so you have to restate revenue back years, and you say you're leaving because you didn't get a big enough share?! What about all the shareholders who lost money as a result of your poor revenue accounting?

Tuesday, May 20, 2008

Joe Costello at the Computer History Museum

I am doing some volunteer work at the Computer History Museum in Mountain View, CA and last Friday I had the fantastic experience of taking an oral history on video from Joe Costello.

The CHM is both the obvious - a museum on the history of computers – but also the non-obvious - the custodian of the history of the people behind the artifacts. The museum has been collecting oral histories from the people who created computer, semiconductor and software technology and the stories about the development of the companies which made the industry. The board of trustees hopes to capture both the stories of the technology but also the personal stories – the choices people made as they created such a vast impact on our society.

After the death of my close friend, Dean Richard Newton, we realized that we had lost one of the original pioneers of the EDA industry – and I was asked to be on the team of volunteers to capture history from the industry creators who are still alive. EDA (electronic design automation) is the industry behind the design of semiconductors – the incredibly complex software that make modern chip design possible.

Joe Costello was the CEO of Cadence as it grew from a tiny startup to the largest EDA company, and his stories are the stories of the formation of the EDA industry. His impact was larger than life and so it didn’t take much research for me to develop a timeline of questions to coax Joe through his memories of the creation and development of Cadence as we know it today.

Joe is a funny, animated guy so it took plenty of self control for me not to laugh or interact too much as he covered so many aspects of both his own career and EDA, only a fraction of which I can capture here.

For example:
- He studied mathematics at Harvey Mudd, then physics at Berkeley, but, after 2 masters, never finished his PhD because he enjoyed working in software at National Semi too much – it was just more interesting
- His first job at SDA systems (the startup that turned into Cadence) was as head of customer service – but it was an easy job because there were no customers – that was until they were on the ropes and he personally won a $20M partnership with Toshiba
- He was an accidental CEO not once but twice! The first time Jim Solomon (the founder of SDA) asked him to do it although the investors wanted to hire more experience; the second time Paul Huang of ECAD (which merged with SDA to form Cadence) asked him although the board wanted the more experienced CEO of ECAD. Today he just laughs at his luck and naivete at the time.
- He told the story of wanting to merge Cadence, Synopsys and Gateway – and proposing it at the craps table in Las Vegas. Had he succeeded he believes the industry would be quite different with one major player, but while Prabhu Goel (CEO of Gateway) wanted to – and did, Harvey Jones (CEO of Synopsys) didn’t and the rest is history. Cadence and Synopsys competed for the #1 spot then, and still do today.
- I hadn’t known that Cadence’s market leading analog products came out of Jim Solomon thinking of leaving. He felt he couldn’t contribute much more to Cadence’s digital strategy and so Joe asked him to take on a new field and gave him carte blanche. The result was Cadence had the best analog solution from then on.
- And there’s so much more… the Avanti theft of Cadence IP, the successful mergers and the failed merger with Valid, so many lessons. But what comes through loud and clear is how exciting the EDA industry was as it grew from a tiny fledgling to a mature market, how much Joe loved building Cadence over 13 years and how much passion he still has for the customers and solving their problems.

If you want to watch the colorful 3 hours of video we shot you’ll have to wait until the CHM gets it up on the web, hopefully soon, but if you haven’t been to the CHM I encourage you to go and see the videos of other pioneers of the computer industry.

And my next oral history will be Harvey Jones, hopefully in the next couple of months. Since I worked for Harvey on and off for 17 years I know too much, and yet not enough - I can’t wait.

Saturday, May 17, 2008

My 116 mile week

As I have posted before, we have a FirstRain team competing in the Vineman Aquabike in the Sonoma Valley on August 2 - and so we have started seriously training now.

Having never been much of an athlete on land (I'm more of a fish) it's been a challenge for me to start building up biking stamina given my crazy travel schedule - so this week was a big step up for me. And I was not the only one. It was bike-to-work week here and so several California team members rode to the office and the Aquabike is beginning to have the team building effect I hoped it would as we compare notes on our bikes, routes and aches and pains!

My week consisted of:
32 miles with my honey on Sunday
50 miles (to work and back) on Wednesday - in the heat wave
34.5 miles early this morning with my HR director, Ana.

The last is the longest ride I've done at once since we rode up the West coast of Italy at 21 years old - and even so I feel great! Now I am on the road with a packed schedule for a week.

I think we're all going to make it and be a strong team - it's clearly time to buy FirstRain bike shirts.

Wednesday, May 14, 2008

When an editor forgets his brain

I participated on a panel at the Red Herring conference in San Jose - "Women CEOs in Tech". It was an interesting discussion on why the dearth of female tech CEOs? what are the contributing reasons? and then telling stories and answering questions about our experiences. From my perspective it was a chance to share the work being done by the Anita Borg Institute, and for me to share my observations on how much things have changed in the last 20 years.

In response to the question - Have you ever experienced discrimination and how did you deal with it? I talked about my belief that the best way, unless it's malicious, is to deal with it with humor and I was reminded of a funny story from my past - which I shared.

Sometime in 1998, when I was CEO of Simplex and Aki Fujimura was COO, we were invited to a press meeting called "meet the editors" with Electronic News. Jim Detar was the editor-in-chief at the time and we arrived, exchanged cards with Jim and his two cohorts, sat down and prepared to answer questions.

Jim asked a question related to company strategy and I answered. (Aki and I had agreed in advance that I would answer strategy questions and he would answer product questions). As I answered Jim looked irritated but said nothing.

Jim then asked a second question - which I answered. This time he was visibly annoyed and took no notes.

When I finished he said "No, I don't think you understand the reason for this breakfast - we are here to talk to the executives". He hadn't realized I was the CEO; he hadn't checked my business card and because I was a woman he assumed I was the PR lady. Because Aki is an Asian male he assumed Aki was the executive.

I smiled, explained that I was the CEO, and suggested we keep going.

To Jim's credit he recovered after a few questions and then sent me a card in the mail a few days later. It was a brown card with a drawing of a brain on it. Inside he had written "I am sorry I forgot to use it, Jim". Of course I laughed and I forgave him.

James Detar is now an editor with Investor's Business Daily. I wonder if he remembers?

Update
Mike Cassidy covered the panel today in the San Jose Mercury News

Tuesday, May 13, 2008

How to evaluate a startup for you

I have a young friend who works at Google, is considering a startup and came to me for advice this weekend about how to think about his decision. He's in the very fortunate position that he's not yet 30, he's made a nice nest egg because his first startup, in which he was an R&D engineer, was bought by Google early enough that his stock had meaningful value and so he can now step back and decide what he wants to do next without significant short term financial pressure.

As we sat in my garden enjoying the sun, we walked through a set of questions I asked him to help him think through whether the company he's considering is the right one for him.

1. What's the strategy and business - and can you get passionate about it?
Startups take a huge amount of energy to get off the ground and scale. If you don't care about the end product, or the impact of the business on its customers, it will turn into a grind when the going gets tough - which it inevitably will at some point. Even if the technology problem is fascinating the end solution needs to have meaning to you.

2. Can you make a difference to the company?
Again, it's about personal satisfaction, especially for engineers. Can you connect with the impact of the product on the end customer - and is the company impacted by whether you do an OK job or a great job? The fun ones are the ones where your technical breakthroughs flow directly to the top line.

3. Does the job/company you are considering meet the needs for where you are in your life and career?
This is a fuzzy one, and it is important to look at life and career. When I am advising I ask pointed questions like -- what is the experience you most want to get (independent of making money) and do you get it in the job you are considering? Remember, it may fail and you don't want to have wasted time on too many dimensions at once. Does it provide the technical/skill development/management/market experience you need next?

If I am talking with a friend I'll also ask the marriage/kids question and tell brutal stories from the choices I made - or better yet get my 16 year old daughter to tell them and she doesn't pull her punches. It's 1000% critical if you are married that your spouse is supportive of what you are doing because they pay the price.

4. Do you admire the CEO? And will this CEO be around for while?
Company cultures are made, or rot from, the head. If there is a terrific founder in place who you trust and has the maturity to work with the investors and bring in a new CEO if needed - great. If there is a terrific CEO in place who's there to stay for a while - great. But if there is a founder who's brilliant but clearly flaky and you know he's going to be replaced soon, be wary unless you are coming into a position of sufficient control that you feel you can influence the decision.

5. Can you learn from your manager?
For people early in their careers it's critically important that you work for someone who can teach you. There are a thousand ways to do things wrong for every way to do something right and it's much more efficient in the first 10 years of your career to work for someone who can teach you the basics, with quality, quickly.

6. Can you make money?
Again, any startup, if it's on a path to success, will eat the lions share of your time, so make sure the ROI is worth it. Think through revenue over time, look at comps for valuation multiples, consider your option package and the potential for future options, find out how many shares are outstanding and how many more rounds of cash are probably needed (and assume it's at least one more than they tell you) - and then do the math. Do you think you'll make enough money to make the financial risk and short term reduction of earnings worthwhile?

7. Finally, and most importantly - will it be FUN?
Definitely the most important question. Life is very short.

Sunday, May 4, 2008

How to review a sales team

Sales teams thrive on a balance of structure and freedom. Enough structure that they know what they have to work with and what’s expected of them, enough freedom that they can be creative, run their own territory and make money.

I have found that taking a sales team through a territory review process a couple of times a year can help them, and help me, find that balance. I am on my way to New York tonight to participate in one of the team’s reviews tomorrow with my VP Sales, Todd Rudley.

The first thing that is important, before you can ask a sales person to walk you through his/her strategy and plan, is to be clear on who has what territory. At FirstRain we have defined over 30 territories in the US and Europe (we don’t sell in Asia yet). Every territory is defined by accounts (eg. US majors #1 has a list of named large accounts), by alphabet in a geography (eg. New York A-D), by assets under management (eg. SouthEast <$2B) or by pure geography (eg. Corporate West - a list of western states).

Some sales people have one territory, some have 2, depending on the richness of the territory today for our current products and on the experience of the sales person. By defining the structure now though we reduce confusion within sales today and as we grow.

So, on to the review itself. It’s a meeting where the sales person makes a presentation with his/her manager to us – to Todd, me and then if other execs are interested they are certainly welcome to join us and hear what’s happening first hand. The sales rep develops a presentation that covers:

- the territory and an overview of the total opportunity within it

- their quota and progress against quota year to date

- the current quarter’s campaigns – both strategy and tactics to develop and close

- the longer term campaigns that affect the latter part of the year (or the following year)

- their process for developing accounts – eg. if it’s a cold calling type of territory how many calls per day and what’s the conversion and closure rate?; if it’s a major account strategy how are they approaching development of the key relationships?

- their forecast

- what’s working for them with the product and marketing

- what’s not working – what additional help they need.

In my experience everyone will approach their presentation slightly differently, even if you give them the same structure, but by covering these topics we get a good feel for both how the sales person is doing (will they be successful or not on the path they’re on) and what additional resources and support they need to be successful (our job is to get them what they need – obviously).

It also gives sales management insight into their own forecast. Having gone through the reviews do they still believe their own forecast or not – would they change it? This is especially important for a small company where as CEO you need to be very on top of cash burn, as I have posted before.

Our new quarter started May 1 and I have 7 back-to-back reviews tomorrow, on the hour for 7 hours. Should be interesting…

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