Monday, September 29, 2008

How to run a board meeting Part 2: In a market crisis

I had written a basic primer on How to run a board meeting nine months ago and have been pleasantly surprised that it continues to be one of the more popular postings. But it's just the basics and I've been working through some more sophisticated challenges recently.

FirstRain sells to both financial services and corporations. Most of our financial services clients are on the buyside, but even the buyside is not immune to the fear running through the markets - and they are reacting to unprecedented volatility so they understandably get distracted. We have been discussing what strategy and tactics to pursue to keep our business growing in difficult times for our customers. And of course this is a subject of great discussion at our board.

We had a regularly scheduled board meeting last week and in preparing two weeks before I found myself consciously stepping back and thinking about how to make the meeting as useful as possible for both FirstRain and the board members given the challenges our financial customers are facing. And this led me to develop a set of additional points on how to run a board meeting in a market crisis.

1. Stay grounded in strategy. You put the strategy in place for a reason but in times of trial not everyone remembers. If you start the discussion with a refresher - what your strategy is and why - and whether any fundamentals have changed that materially impact the strategy - it creates a good grounding for the board discussion. What problem you are solving - who you are solving it for - what market discontinuities you are leveraging and - what products and technology you are building as a result.

2. Review the facts of the crisis - what's happening, what is the hard evidence and how does it interact with your strategy. Review how your supply chain and/or your customers are affected.

3. Prep the board members for the discussion - as I said in point #6 of my prior post, board members don't like surprises. Get your agenda out 8-10 days before the meeting, outline what you think needs to be discussed and then call them in advance to make sure you have their input and you get them thinking about the critical issues before they come to the meeting.

4. Make sure you get everyone's input, especially if you have to make a material decision. If someone can't come to the meeting ask them to call a few key board members in advance to share their opinion or ask them to send an email summarizing their opinion to the rest of the board.

5. Be clear about what the real choices you face are. Boards do better when you lay out the strategy, the facts around the challenge you are facing and then options A, B or C. That way they can engage and advise you, and while they may come up with an option D which is even better than the choices you gave them you're more likely to have a productive discussion with some structure.

6. Create opportunities during the meeting to tap into their creativity. If you are trying out new product ideas describe them and use board members experience to help you refine them or break you out of a rut.

In FirstRain's case our customers need information now more then ever. The CEO and CMO needs to understand the ripple effects of the credit and stock market crunch on their markets and competitors, the portfolio manager needs information in cratering markets even more so than in a bull market. As one of my board members fascetiously said to me - "You should tell prospects it's irresponsible not to have FirstRain in this environment". Somehow I don't think that would be a very effective sales pitch. But revisiting the strategy helped remind us all of the discontinuities that help us: the decline of the sellside will accelerate now, and the web is noisier than ever, making a platform that can create alternative research from the web even more critical.

In the end I believe that unless whatever challenge you are facing changes your fundamental assumptions about your market and solution, unless that is the case you should stay the course with your strategy. Change tactics, try new ideas, but stick with the fundamental strategy. And experienced boards will support you if you are executing and the market needs your product.

Friday, September 19, 2008

Not too venerable to change

It's obviously sad and sobering to watch the financial crisis unfold, but for me it is at a human level not at an institutional level. I don't respect all the media rhetoric and blame about "short sellers" and "greedy executives", and especially not John McCain calling for the firing of Chairman Cox (great editorial today in the most-conservative of papers - the WSJ - calling him "un-presidential").

The rhetoric shows a lack of understanding that markets move, and people behave, the way they are paid to by their shareholders (who elect the board after all). The blame game (read Paul Kedrosky this week - great commentary) is naive.

No question the men running the major institutions are smart and aggressive, and as a result they take risk and sometimes it doesn't play out - that's why it's called risk. But it's bad for the country and the economy when it plays out at this scale and affects as many people's lives as it is this time so sadly a bailout is needed.

New York Magazine puts it in perspective though, with the article Bank on it this week - Why Lehman Brothers wasn't too venerable to fail. It tells the story of how Lehman is not an old and venerated institution (as the media has described it) but instead the result of a revolving door of mergers, failures and spin outs reaching back to 1867.

Tuesday, September 16, 2008

Valley self absorption?

It would seem that we experienced yesterday differently than our silicon valley brethren. I was surprised to see a Valleywag post that the discussion of the day was self absorbed as usual - about user interface and how tech can make money, not about the impact of the meltdown on the lives of people on both coasts.

And Kara Swisher at Boomtown who said "Last week, one of the things that struck me about the coverage of the two main tech conferences devoted to start-ups, DEMOfall and TechCrunch50, was the almost complete lack of discussion–or, more appropriately, worry–about the troubled economy."

I agree with the path she takes in the post - that the woes of Wall St will indeed affect the Web 2.0 economy, with no path to liquidity in the public markets and the economy slowing there is no question the "ad driven" business models will slow - yet again tech entrepreneurs need to be patient and stay the course. Either weather through with the cash they have, find an acquirer, or (the more fun path) find a VC who will invest for the long term gain and wait the markets out with the company.

But there will be direct impact on tech companies who were selling product to traditional Wall St - specifically to the big banks and broker dealers like Lehman and Merrill, and Goldman and Morgan Stanley. There indeed we'll see a dramatic slowing of spend as the market shakes out and we may see this fallout affect large IT suppliers like Oracle and Salesforce.

At FirstRain we made a strategy decision not to sell to the "sellside" - not to sell to sell side analysts and investment bankers and instead to focus on the buyside portfolio managers and analysts so our exposure today is distraction not a loss of customers.

The personal loss this week will be painful for many thousands of people, and so very sad and unnecessary. Much has been written about the causes leading up to this week's events and I'm not going to add to the chatter. I'm going to be there for my friends who are affected and stay focused on our business. And today we're talking to our buyside clients and they are in the market making money as they do every day - there's a job to be done.

Friday, September 12, 2008

A technical insider's view of the UAL Google Alerts fiasco

Guest post by Marty Betz, VP of Technology

This week saw the stock of United Airlines (UAL) drop by 75% in a single day because of information posted on the web. In this case, it was because 6-year-old content seemed ‘new’ to a user of the web – and that user pushed the ‘news’ into a major tool (Bloomberg) used by professional investors, and the markets reacted.

I thought I’d share my thoughts from a technical perspective on what happened, and how it can be avoided.

Quick (simplified) review of the chain of events:
1. Something lead to higher than usual clicking on an old news story about United going bankrupt
2. That spike in clicking made the story appear on a newspaper’s “Most Viewed Articles” list on their web site
3. Google News crawled that list and article, and sent it to Google Alerts users who track UAL
4. An investment advisor posted it to a public forum on Bloomberg
5. A Bloomberg editor pushed it up into the closely watched flow of Bloomberg ‘headlines’

So, how could this have happened? From a technology/product perspective, it’s because one very specific type of user (a professional investment researcher), doing a specific task (investment research) used a tool designed for a different user with a different task (plain old consumers like you and me keeping up on the news).

Re-purposing is a good practice. It’s often how investment professionals as well as tech startups move the ball forward, but it comes with a requirement that you get disciplined about making trade-offs between the added value and the costs and risks. In this case, there are a few aspects of a) the web and b) investment research that boost the risk of that mismatch. Let’s start with the web.

Finding what’s “new” on the web is hard. Old content makes up 99.99999…% (you get the picture) of the web. Because of this, you need to make a number of significant technical specializations to use it as a source of news. Add to that the fact that the web wasn’t designed for news delivery, so there is no reliable time stamp on a web page, much less the kind of “I’m new” flag that we would like.

Second, consumer search engines were not built to find news. As search engines have done the work to build this capability, they’ve had to make hundreds of technical choices. In the case of Google Alerts, to give their consumer user a great experience by sending them news to “keep up with what’s going on,” Google very reasonably chose to crawl a given web site’s “Most Viewed Articles” list. And even when the assumption is wrong, the worst possible consequence is old (but popular) content showing up in your Google Alert. That is, at worst, a little annoying.

Investment research is a very different animal. The investment firms and hedge funds that manage the majority of money in the market earn their keep by being careful and thorough about deciding when to buy or sell stock, but along with their deliberative research process, they are also required to pay attention to the news. It would be reckless, and potentially illegal for them to ignore news – because news moves the stock’s price. Many of the professionals who do the research at these firms have re-purposed Google Alerts to track news, and they’ve simply gotten used to some level of old stories coming in.

The impact of the repurposing shows up in the lopsided consequence of Google’s assumption being wrong.
- For the consumer user, annoyance
- For the investment professional, a $1.16 billion intraday loss
- For United Airlines, the kind of attention that hurts when you’re already under stress
- For Bloomberg and the researcher who posted the link, a big hit to their credibility.

What does it take to avoid it?

In contrast, we make our hundreds of technical decisions with the investment research user in mind. These include:

- Carefully understanding each site’s structure and publishing patterns. For example, we generally don’t look at the “Most Viewed Articles” pieces of a web site, because widely known information is the least valuable to an investment researcher

- Analyzing the words and phrases in the article to place it in time

- Sampling small pieces of every article and compare them against our database to detect stories we’ve crawled before

A lot of the hand-wringing in the press and on blogs has been about “machines gone wrong,” but the right machine/technology actually works well for the portfolio managers, analysts, CFOs and CMOs it was built for.

The Bigger Picture

While this news tracking piece of what we do is valuable for our clients and technically challenging for my team, the more compelling impact of the web for financial research comes from recognizing that the web is a comprehensive reflection of reality – the biggest investment research database that has ever existed.

Every other data source is relatively limited – and very picked over. We began releasing new capabilities in FirstRain earlier this year that mine this ‘database’ for unique insights, trends and patterns over time. The reaction from our users tells us we’re on to something big.

Thursday, September 4, 2008

Employee blogging (and politics in the workplace)

Writing a blog (almost) every day can be challenging and great fun at the same time. There are days when I have several ideas and no time to capture them all, and then other days when I have a brain cramp and can't think of anything to write.

But we are in the business of the Web, and blogs, and so I work at it. I am discovering that so do some of my employees. I learned a few weeks ago that one of our senior sales reps writes a blog - completely unrelated to his work - because he loves to write and express himself. I must admit I was delighted when I checked on his blog today and saw this post about Sarah Palin and the Republicans (it's probably not a surprise that I am a Democrat).

We have other employees who blog but are more shy about sharing - they're writing about dating et al which I understand may not fit in the workplace. But overall, I encourage everyone to blog, both to express themselves but also to learn the pros and cons of the media so we can help our customers better understand the radical changes that are happening in publishing right now.

Wednesday, September 3, 2008

When too much marketing hurts

I spent half an hour this afternoon listening to Kevin Kennedy, CEO of JDSU, present at the Citibank financial conference in New York. My objective was to continue to come up to speed on JDSU as a new board member, and also to give Kevin feedback on his presentation. Kevin is a world class CEO and a thorough and detailed presenter - deeply operational and no spin.

At the same time, earlier today, I had lunch with a former Monitor 110 employee who was seeking career advice and we had a chance to do a debrief on what went wrong there (they were a competitor to FirstRain and recently closed up shop). Roger Ehrenberg has already written a thoughtful blog post on their mistakes and I was interested in the color behind the story.

As I walked back to my office from the Citi conference I found myself thinking about the stark contrast in style, how powerful marketing can be when done right but how damaging it can be when over done. There are two recent examples of the latter. Monitor 110's story of how a mention in the FT effectively overexposed them and paralyzed management's ability to get a product out because it wasn't going to meet expectations. And the disastrously over hyped Cuil - where too much PR on day one, before the search engine was ready for prime time, led to such negative press and dropping volume that they may not be able to recover.

When growing a new technology company it's a fine line you have to walk on how much exposure is enough? I like to use customer need as my metronome.
- Does the PR get to the right customer audience?
- Is the message interesting to the target customer?
- Can we back it up - is it truth?

If "yes" then do it, if the answer to any of these questions is "no" then don't do it. I'm an extrovert so I love to tell the story, but I don't believe all press is good press so we work hard to send strong, positive, relevant and supported messages into the market.

Monday, September 1, 2008

Contention: SaaS is history repeating?

Interesting interview with Harry Debes of Lawson software last week - SaaS Industry Will Collapse in Two Years. In the interview Harry predicts that SaaS as a business model cannot sustain because of inherently lower profitability and so it will go the way of previous attempts like ASPs. He thinks the model has been hyped and while Salesforce.com has been successful it "just has average to below-average profitability" and it's the poster child for an industry that will collapse the first time CRM doesn't make its growth projections.

Frankly I don't agree with him. I think whether SaaS is the right model or not very much depends on the application you are selling and how well you service the customer. Licensing software is more profitable up front, but it inherently restricts the customers choices and, when competing with a well run SaaS application, the customer benefits of SaaS will win out.

In the marketing world we see vendors like Vocus providing on-demand systems for PR professionals and obviously the fabulous Salesforce.com for CRM. In the financial world the industry standard is subscription with services like Bloomberg and Thomson. We'd have many fewer customers if our business model was an up front purchase. Our customers simply don't invest in on-site software infrastructure for their front office activities - although they do for back office and trading systems.

But if you are going to provide your application through a SaaS model - the "service" component of SaaS is essential. I was talking with the CIO of Oracle's largest on-demand customer last week (who shall remain nameless) and she was talking about bringing Oracle in house just because their on-demand uptime is so bad. It's impractical to use a financial reporting system that is not available 99.99% of the time - just as it would be unacceptable to our customers if our system did not have similar uptime. Maybe Lawson and Oracle are down on SaaS because, unlike Salesforce.com, they haven't figured out how to provide the level of service required to be successful yet.

And in the end, for us, it's about being a Web application. We live on the web, we mine the web, the product was architected to live out on the web - i.e. on demand - from the beginning and we're not about to change that. So we're focused on building our client base rapidly with a model that works for them and maintaining a level of service to earn their renewal business.

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