Thursday, July 31, 2008

The art of closing a quarter

We're closing our quarter today and - as I sit on a conference call waiting for the client to finish debating changes with their lawyer - I am musing on what it takes to get all the business closed.

I asked the guys I am sitting with on this end what they've taken away as learnings this time ...

- Deadlines are a good way to get focused. As a small company quarters don't matter the way they do in a public company, but we treat them as if they do.
- Have your lawyers teed up and on call - you don't want to lose time finding them.
- The customer won't drive the deal, even if they want the system. You have to drive it and have the uncomfortable conversations early, testing price, determining their true level of interest.
- Have a CEO who is a utility player (!). We're working on a large contract where I needed to jump in and be conversant with all the contract terms and issues. I had to call the CEO of the other firm very early this morning and be able to discuss everything they wanted to see addressed.
- Beware of happy ears. These are sales people who don't want to hear the bad news behind a customers words and so forecast too optimistically - it's back to making sure the sales people are having those uncomfortable conversations.
- Don't schedule any other meetings on the last day of the quarter.

And most importantly - don't let up. Don't stop until you've got all the business in.

Tuesday, July 29, 2008

The VC energizer bunny

It keep going and going...

Despite talk of a tech bubble earlier this year, despite the difficulty of getting to an IPO, despite the credit crunch and it's effect on cash availability for some young companies venture capital investment dollars continue to flow in - as reported by the San Francisco Chronicle.

Diagram via

However, while Silicon Valley continues strong, the strength is not consistent by geography. The Washington Post reports that local investment in the Washington area fell 15% year over year "It's really a question of staying the course and surviving," said Roger Novak, general partner of Novak Biddle Venture Partners in Bethesda. "This is the worst we've seen."

It is taking an average of 8.6 years for a venture-backed company to go public, compared with four years a decade ago, and venture capitalists think that's unlikely to improve soon.

As the time horizon stretches out you can see that the total number of deals is down in Q2, and there is a swing towards later stage deals which should have a more secure path to liquidity, albeit at a lower multiple. But this means venture firms are staying with companies for the long haul and placing bigger bets into an uncertain economy - and I do believe that the good ones will reap the benefits because valuations are more rational these days.

At some level Silicon Valley VCs are like the energizer bunny. They just keep on going (thankfully for our local economy). I can attest that as we hire engineers, which we are doing in San Mateo right now, it's as competitive a hiring market as ever. Fiercely competitive. There appears to be no shortage of well funded, exciting companies for good engineers to go and work for.

Wednesday, July 23, 2008

The power of ratable revenue - redux!

Cadence (CDNS) announced Q2 results today and, while they made the quarter, they've lowered Q3 guidance as a result of forecasting a change to a ratable revenue level of 90% (see primer on revenue recognition).

It's like GroundHog Day for investors - perpetual changes in EDA revenue model that crater the stock - subsequent resets of guidance one after the other. Dire results as reports. Then EDA companies wonder why there are so few sell-side analysts covering the space? It's happened before many times - when will all EDA vendors get smart and transparent about their revenue - or investors get smarter about the truth underneath their software models? Maybe now?

As I posted in December last year the power of a subscription revenue model is that revenue is ratable - it's smooth - and most importantly it's never a surprise. Looks like Cadence is maybe, finally, figuring that out?

Note1: the "redux" in the title refers to the revision of Apocalypse Now - "Redux" released in 2001 - fantastic film.

Note2: FirstRain's revenue model is 100% ratable.

Monday, July 21, 2008

One way to balance

As I've posted before - balance is a myth if you are a CEO. But I have found one way that helps and that is to involve my family in my work. We held the FirstRain CA summer picnic at my house on Sunday - and it was a lovely way for the California team to spend some relaxed time in the sun, eating great food prepared by my husband and members of the team, and generally enjoying each other's company.

I recruited my daughter as a life guard (she's a high school water polo goalie so she's as much fish as teenage human being) so the parents could have fun while she masterfully handled four little people in the pool.

Down time together is important - especially when you are working as hard as the FirstRain team is today.

Joining the board of JDS Uniphase

It's been announced that I have joined the board of JDS Uniphase today - and several people have asked me why? I am already on the board of Rambus, and I have a full time job as the CEO of FirstRain, not to mention my family and my growing interest in triathlons.

The decision to join a public company board is a big one. It's a big responsibility as you take on the interests of the shareholders and it carries liability as you are accountable to all and any who choose to challenge the actions of the board. It should also be educational and rewarding - but it is not a decision I took on lightly.

There are two primary reasons that JDSU was of interest to me:

First - the company and it's stage interested me. JDSU was a high-flyer (some would say hyped) in the era. Valued on bubble potential, not on financial fundamentals. It's taken many years and a great deal of hard work from the management team to bring the company into line on fundamentals. It's now a portfolio company, not in a single market, and there is real potential to grow the top line and financial metrics - and as a result sustainable growth in shareholder value.

I developed great respect for the CEO, Kevin Kennedy, while he was the Chairman of Rambus. When he and the JDSU board Chair, Marty Kaplan, approached me about the board seat I was not certain how I would be able to add value. I am a software CEO, with a background in marketing, not optical components, and currently engaged with customer bases who are the institutional investor and the CMO. But the more I talked with them about the new JDSU, and the positioning, marketing and strategy opportunities, the more intrigued I became and the more I felt that I could be of service.

Second - I want to be as good a CEO as I can be. Running FirstRain, or for that matter my last company Simplex, it is easy to get caught up in the weeds of my own company's (or my own) issues. So wrapped up in the day-to-day challenges that I lose perspective.

However, when I am involved in another company, especially a public one with all the strategy and governance issues that come up, it makes me think in ways that make me a better CEO for FirstRain. It's not obvious how this happens, but it does. For example, I work on executive and employee compensation issues as chair of the compensation committee at Rambus that expand my thinking, challenge my assumptions and cause me to step back and look at my own compensation plans. Or I am continuously educated on good corporate governance and what that means, even for a small company. Or listening to other board members input on strategy can shake me out of my narrow world and stimulate new ideas. The conversations and ideas that stretch me in my director role directly stretch me as FirstRain's CEO.

I'm excited by the challenge, and committed to being an excellent director - and to weaving this responsibility into my life in a way that enriches FirstRain, Rambus and JDSU. And two public boards is enough.

Thursday, July 17, 2008

Dress-code politics

This train of thought started with a call from a friend about dress-code in his office. He's a senior partner at a law firm and he'd been in an argument with a young partner in the New York office about dress code. His question for me was what did I require for dress code in the office? (which I'll answer below)

But then I saw the WSJ article Dress-Code Politics: Who Wears the Pants? When a Man Regulates Attire At Work, Women Often See An Oppressor, Not a Mentor

It starts: "Jim Holt doesn't see himself as a "Neanderthal Man," but that's one of the nicer names he's been called since he expressed his view publicly, in this column, that panty hose are more professional than bare legs for working women". Unbelievably presumptuous. I love the story our client Valerie Malter from JP Morgan told me - when many years ago her boss told her she had to wear hose she asked him if he thought it would change her fund's performance? And he, of course, backed down.

Likewise I was horrified when I read the Washington Post article about the campaign rally with Michelle Obama and Michigan Gov. Jennifer M. Granholm. It is so blatantly sexist calling the tone an "estrogenfest" and commenting on the statuesque Mrs. Obama, baring enviably chic, muscular arms in a sleeveless sheath". That kind of coverage would be unthinkable (especially from a renowned paper) about two white men. Both women were very professionally attired!

Reality is we're still in an age when people make judgements based on what people wear rather than what they say or do. And men and women often underestimate the role their clothes play in how seriously people take them in the office.

So for the record, and in answer to my friends question, here's Penny's view on office dress code.

1. If you are meeting a customer or outside party, or there is a chance that you will - dress professionally. Smart, well-tailored, suit/dress/pant-suit. I don't subscribe to hose, but if you're not wearing hose the skirt shouldn't be too short. You represent the company, clients are going to pay money for the service, you should respect that with every aspect of their experience of you - including your clothes.

2. If you're definitely not going outside then I don't care provided you are clean, appropriate for an office (no thongs showing/bare midrifs etc.) and have showered. My California team sometimes wears shorts and that's OK with me.

The exception to this in my mind is if you are new and you want to be taken seriously I'd wear business casual until you've established your credibility.

#2 is the controversial one that I ended up debating with my friend. Does what you wear change the way you think in the office? Does it change your demeanour, your seriousness - even on the phone? If you come in wearing a collared shirt and dockers do you take yourself more seriously, and do other people subconsciously take you more seriously? I think it matters, but if you're going to stay on the inside all day in my company then it's your choice.

But don't be surprised if other people consciously, or unconsciously, judge you by what you wear.

Wednesday, July 16, 2008

New York holds it's lead

Hedgeworld reports that New York still holds the lead in hedge funds over London, although the lead is dropping. There has been speculation that London is winning - but yesterday's article (you need a subscription and it's an interesting read) reports that

"Though there has been much discussion of the United Kingdom taking market share from the United States due to looser U.K. financial regulations, New York is still home to 40% of all global hedge fund assets. Another 26% of assets are managed elsewhere in the United States, chiefly in states like Connecticut, California, Illinois and Florida.

However, New York's 40% market share is down from 50% of total hedge fund assets in 2002, with institutional investors allocating greater sums of money to European and Asian hedge funds. Over that same five-year period, London saw total U.K. hedge fund assets double to about 20% of the global market share by the end of 2007, about $400 billion across 1,000 hedge funds."

Monday, July 14, 2008

The legs keep pumping

More training for the FirstRain Aquabike team - we're now training together on both coasts. Three members of the NY team trained on Sunday - riding 50 miles and swimming 1. Another member of the team did a mini-triathlon to work on his transitions. And three of us from California competed in a "splash and dash" - 1.2 mile reservoir swim and a 5k run - although we didn't do the run.

All in all - excellent practise both physically and mentally and the team is excited. We're going to finish and have fun!

Todd and Cory


Eugene and Ana at the start of the swim

Me coming to the end of the swim

Friday, July 11, 2008

Chairman/CEO - or independent?

Many startups have the founder as both CEO and Chair. The company starts small, there are a few angels who come to board meetings but don't want to run the company, and then when venture capital comes in the VCs sit on the board and wield power but they rarely want to put the time in to be Chair.

So how, and when does the transition to a separate CEO and Chair happen? It turns out it doesn't the majority of the time, even though this separation is well recognized as being good governance. The WSJ journal reports that "Today, despite growing shareholder opposition, the CEO and the chairman remain the same person in 65% of the S&P 500 companies." in an excellent article about the Imperial CEO.

The problem is that in well run public companies the chair sets the agenda for the board meeting and drives the recruitment of new board members. Without an independent board there is a risk that insufficient checks and balances are in place for the CEO - as discussed here about the banking crisis. With CEO as chair s/he sets the agenda when planning the board meeting thereby exercising control of what's discussed.

So as a company grows up how can you manage this problem?

- First, nip it in the bud - assign an outside chair on the first infusion of venture capital. Smart VCs would make this a term of investment for companies they believe have the potential to go public.
- If that doesn't work then make the break on the IPO. These days bankers and lawyers wield so much power on that transition that they could easily team with the independent board members to insist. It does affect ISS governance ratings after all.
- And then finally, if you just can't separate the chair/CEO for personality reasons then be sure to name an independent director who is a strong personality - with a mind of his/her own - and willing to go nose to nose with the chair-CEO to get the right issues discussed and the right directors onto the board.

Nothing is worse for a company than a passive board. Speaking from my own experience - tough board meetings where I am challenged are the ones where I learn the most and make breakthroughs in my own assumptions.

Sunday, July 6, 2008

Training and raising money

We (the California FirstRain aquabike team) did a trial run in Sonoma yesterday. 46 of the 56 miles through beautiful vineyards, weaving by wineries, under a hot blue sky. But before you read more about the ride - consider this:

As part of this event I'm raising money for a non profit I have been involved with since it's inception. The fundraising is for CCPY - California Community Partners for Youth. CCPY works closely with 9th and 10th grade kids in San Jose to keep them in school. We work with the most at risk kids and, through a program of after-school, mentoring and wilderness training, we have an extraordinarily high success rate. CCPY has to raise $200k this year over and above the city and state grants we get - which is a typical climb we face every July - but we'll have a record 200 kids in the programs this coming year. It was started in the offices of my last company, Simplex, 9 years ago so I can vouch for the long term impact and health of the operation.

If you enjoy this blog and you'd like to help encourage me through the race on August 2 and give to the CCPY kids at the same time you can donate at CCPY and click on the PayPal button on the upper left. If you know me personally you know I'm not an athlete so this is a big leap for me and every ounce of support helps. Thank you to my friends who have already donated.

Here's the team that rode yesterday. Everyone completed it, some much faster than others, and the last hill at mile 43 kicked butt (kicked mine right off my bike and onto Shank's pony). Lots of jokes about how good (or bad) we all looked in spandex. It was great that we did a practise ride because we learned a lot about how much we have to hydrate, pace ourselves and eat through the race. It's so much hotter in Sonoma than where we all live in San Francisco and Silicon Valley that we were unprepared for how much water we'd need.

Then we went and swam in the Russian River at Johnson's beach to check out the temperature - and decided no wetsuits needed. The swim should be a lovely experience.

As I drove back I started to think about how much a company can change lives. I started out on this goal as a way to bring us together outside of the office, but I hadn't realized that several of the team would be so changed by it - training seriously for the first time in their lives - and that we're now talking about the next race, and staying in the sport after this race is over.

Angela, Ana, Todd, Luis, Eugene and Chien

Ana, me, Luis and Eugene

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