Guest post coming Monday

March 13, 2009

I wanted to let you know that OpenAmbition will be showcasing its first guest post, from Jenny Hall, former CEO of Trendi.com, which was a social networking destination focused on young women’s fashion that was shut down in October of 2008.  Jenny will be sharing what she learned as a first-time CEO through the success and eventual failure of Trendi.

I met Jenny the first time a little over a year ago, when she was trying to raise a Series A financing for Trendi, and for  reasons I explained to her, my partners and I were not able to fund her company.  Jenny touches on a few of the reasons in her post on Monday, but in many respects, what she describes are what many entrepreneurs wrestle with in an emerging but crowded market, where so much is learned in real-time. 

Like with many of the entrepreneurs I am fortunate enough to encounter, she and I have kept in touch, and when she stopped by my office a few weeks ago to tell me about her next startup idea, the subject of Trendi of course came up.  Jenny talked me through some of what she had learned, and how valuable the failure of Trendi had been for her personally (but not painless for her, for her employees, or for her investors). 

When we moved on to discussing her next startup idea, it was inspiring to see how much was informed by what she had learned through Trendi’s failure, how she had embraced what many would have tried to forget or move on from.  And so it seemed like she had a story to tell that the followers of this blog could relate to, find interesting, and hopefully find some meaning in too.

I hope you all enjoy it, look for her on Monday.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, fundraising, meaningful failure, Self-knowledge, Success, Values, Venture capital | Leave a Comment »

Google’s iPhone audio search – Newton redux?

March 11, 2009

Up in the attic of our home I have a small “Apple” museum, where I still keep the MacPlus I bought in 1987, the MacII si my wife and I bought in 1992, and most importantly, the Newton MessagePad 110 I bought in 1994.  For years and years, these just took up space, but this year they’ve come back to mind in interesting ways.

On the occasion of the Macintosh’s 25th anniversary, I brought the MacPlus downstairs and set it up.  I had splurged when I bought it, and got the external SCSI floppy drive.  The expression on my 14 year-old’s face was priceless when I turned it on, and he looked at that small screen and said “how did you ever get anything done on this thing?”.  When I explained there was no hard drive, and showed him the single floppy that contained Microsoft Excel, he looked at me as if I’d told him I did my homework as a kid on the back of a shovel with a piece of charcoal (as Abe Lincoln supposedly did).

But the Newton came to mind last weekend, when we were out at a restaurant with our kids along with three of my 15 year-old daughter’s friends.  Nine of us at a table in a bustling restaurant.  Boredom began to take over with the boys (outnumbered), so my 14 year-old son grabbed my iPhone, and downloaded the new Google app.  He discovered it contained “voice based search”, where you could speak a phrase into the phone, and Google would do the speech-to-text conversion, and provide search results.

Before long, this became quite a game.  The phone was passed around the table, and hilarity ensued when someone spoke one phrase, and Google came back with another.  Here are some examples I wrote down:

  • “Steyr A-U-G” (this is an Airsoft BB gun) = “cast iron tub”
  • “Martini, shaken not stirred” = “mikey ticketmaster”
  • “And if you need advice in PawPaw Michigan, there’s only one place to go” = “the wandering sons of anarchy, episode 13, full stream”

We thought that last one, ‘The wandering sons of anarchy” would make a great name for a band.  In defense of Google, the background noise in the restaurant probably didn’t help things.

But then I thought, I’d done the same thing in 1994 with my Newton.  We’d sit around in restaurants and pass it around, writing stuff on the screen and seeing what it came back with.  The tough part for Apple was that so were Gary Trudeau and Matt Groening.  The Newton was just ridiculed in Doonesbury and The Simpsons as a result, which was good sport, but unfortunate. 

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From Doonesbury http://www.doonesbury.com/strip/

All the rest of what made the Newton incredibly revolutionary got swept aside, and to a large degree pronounced a premature death sentence on the product line, and the whole category until Palm, and now the iPhone.

So, where are the comics ridiculing Google’s voice search for the iPhone?  A search on the following word salad “google audio search mistakes iphone” yielded a single reference to an article mocking its performance.  Revealing it not surprisingly struggles with accents, and illustrates how it does with various British/scotch/welsh accents speaking the word “iPhone.”  But then again, haven’t the British always been ahead of us in terms of humor?

It is notably ironic that it’s on another Apple handheld device that the limits of the human/machine interface are laid so bare.

But what has happened since 1994.  Have we all gotten more accepting of technology shortcomings?  Have we been just accepted being perpetual beta testers? 

Or are we just intimidated/enchanted with whatever it is that Google (or Apple for that matter) present to us? 

What do you think?

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Posted in Failure, Intellectual curiosity, meaningful failure, Success | 4 Comments »

Peripateia and the value of getting it wrong

March 9, 2009

One of my kids favorite TV shows is “Dirty Jobs”, and I have to say that what I’ve seen of it, I have liked, because the host Mike Rowe comes across as genuine and inquisitive.  He’s there to understand, not to judge.  That alone is a wonderful set of values for children to see and explore, regardless of medium.

So, when a friend forwarded a link to Mike Rowe’s TED talk  (embedded below) on the merits of hard work, my intellectual curiosity was high.  His job is to question assumptions and to get all of us to understand the real, human aspects of jobs that other people are unaware of or assume just get done. 

He talks about how he’s “gotten it wrong” a lot, but that getting it wrong informs the essence of what he does and how he does it.  He shares the meaningful failure he encounters as an apprentice on a sheep ranch where it’s his job to castrate the lambs. 

He does his research ahead of time and determines the “humane” way to perform said castrations (with a rubber band).  Then he gets to the ranch, and finds the castration performed there is quite different (with a knife, and more); on the surface a more grisly method than he or we could have imagined.  Let’s just say that this would make killing an actual chicken seem simple and an easy choice.

But in the process of telling the story he introduces the concept of peripateia – the sudden or unexpected reversal of circumstances or situation (remembering it from his days studying Greek classics).  What a wonderful way of describing meaningful failure. 

Mike’s castration dilemma is so clearly framed, his assumptions apparent (“the ‘humane’ way is the right way”) and then, through first-hand experience, not only questions that assumption, he casts it aside when he realizes the definition of “humane” needs to be questioned. 

He describes in twenty minutes what some entrepreneurs I know have taken years to internalize, and he draws on some key themes I’ve explored:

  • Getting it wrong is something you need to embrace, it’s what enables you to both perform better and to comprehend your purpose and goals more insightfully.  It’s meaningful failure from another point of view.
  • You need to know when to stop what you’re doing, and question your core assumptions.  This is hard, as I’ve mentioned in previous posts.  When he stops what he’s doing, he demonstrates incredible integrity and purposefulness.
  • Facing up to the unfamiliar, the unpleasant, is precisely what presents you with the opportunity for discovery and learning, and improving the quality of your results.  This is a benefit of chicken-killing I hadn’t thought about.

But the impact of Mike Rowe’s honesty doesn’t stop there. 

He has a transparent methodology (no takes, no scripts, it’s all real) that underpins the credibility of his “product”.  What I loved about this anecdote is that he even had to question that foundational element of his show; he had to stop the filming because his core assumptions about the subject matter were so precarious.   That takes experience and a confidence in your process and values.  He didn’t rationalize, he didn’t talk about the cost of stopping production, he just did it because he knew he needed to.

Back to peripateia.  That doesn’t exactly roll off the tongue, but what an elegant term to describe how you bring meaning to failure, from getting it wrong. and finding meaning from the doing.  I want Mike Rowe on the board of the next company I fund too.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, Intellectual curiosity, meaningful failure, Self-knowledge, Values | 3 Comments »

More Series B musings

March 8, 2009

In talking to a few folks since my post Thursday on the nuances of Series B financings another analogy for Series A, B, and C financings came to mind.

You can look at investing in startups like selecting who among a classroom of kids will get into Harvard; if you don’t take this (completely dangerous) analogy too seriously, there are some interesting relevant analogies.  So just for a moment, enter a playful state of mind and let’s look at the landscape.

Series A investments are like evaluating a kindergarten class and trying to select the child you think would make it into Harvard.  You could look at a whole lot of characteristics about their classroom participation and capabilities and then try and figure out who would be likely to get be accepted twelve years down the road.  But it’s very much about taking a bunch of early, early data and trying to make a long range prediction. 

[If any of you have had kids in kindergarten, the sad thing is in real life there seem to be parents doing this math for their own children.]

But to play this out, with whoever you picked you’d have enough time and resources so that if circumstances develop along the way that take the kid you’ve “funded” off-track, you’d be able to help address these. 

Series C investments are like evaluating a high school junior or senior class and trying to select the child destined for Harvard.  Now you’ve got substantive and relevant historical data about performance, capabilities, and aspirations.  You have a much richer data set, and a much shorter time horizon – one to two years. 

With Series A, anything seems to be possible when you make the investment, and you have plenty of time to deal with surprises along the way.  With Series C, you can see and evaluate a lot of the substantive date, and have a reasonably clear sense of the prospects and risks.

Series B are like evaluating a middle school seventh grader’s class, and trying to pick who’s going to be Harvard-bound.  There is a trajectory that’s been established, but you don’t have the SAT scores, the high school GPA, or the extra-curricular activities that are going to factor so heavily in the outcome.  And, it’s hard to know who will blossom in high school and who won’t.  That the sullen introspective kid in the corner may deceive you as he or she may develop the confidence and leadership to become the head of the class in two to three years.  That popular kid  vying for attention may end up having more social skills than discipline, and could flame out academically in 10th grade.

This is an entertaining thought exercise precisely because it is so ridiculous. 

By the way, I have nothing against middle schoolers (I have two myself, and think the world of them, and their friends), but it’s an awkward stage.  Taking this back to our investment stage analogy, Series B is hard because you are between the “anything is possible” world and the “we have some relevant historical data and a shorter horizon”.

I’m not saying Series B investments are bad, it’s just that they’re their own unique animal that are particularly vulnerable in the current economic climate.  Fortunately, middle schoolers, regardless of the economic climate, will be just fine.

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Posted in Business planning, fundraising, Venture capital | 1 Comment »

The nuance of Series B financings

March 5, 2009

Given the economic climate, and the implications for startups, Series B financings are going to be tough to get done;  here are some substantive and “beauty” reasons. 

Substantive reasons. 

Series B financings happen at a vulnerable stage of a startup.  The company has generally proven its core value proposition, has demonstrated it knows where to find customers, acquire them, and has begun to monetize them.  The operative term here is “begun” – they haven’t generated enough revenue to cover their burn, and likely will need another 12-24 months to do so.

What the company or the investors don’t know yet is how scalable and predictable the revenue is.  How broadly into the target market the problem really exists (and whether or not they just got lucky with those first customers in the A round), and if/where the source of explosive leverage in the business is.

But the confidence of that revenue forecast, that can matter a lot.  Startups can run out of cash more quickly than they expect because the revenue forecast shows net cash needs going down over time…which is true only if the revenue comes in as planned.  So it’s easy to get a nasty surprise here if you miss your revenue forecast; all of a sudden you’re not managing to a break-even date, but a cash-out date that’s coming at you like a locomotive.

Series B financings may have less engineering or product risk, but they can have loads of revenue and market execution risk that can be hard to get your arms around.

Beauty reasons

There are also some beauty reasons why Series B financings are nuanced.  It’s precisely because they’re not Series A financings and they’re not Series C financings.  Let me explain.

Series A financings are attractive for VCs because they’re a product of your relationships and your deal flow – a result of personal, proprietary value.  The best deals involve shiny and bold unblemished ideas, are looked at by a small number of firms, and can be highly competitive. 

Series C financings are attractive for VCs because a lot of times they involve companies who have figured out how to scale revenue and have some clarity on the leverage in their model.  The engineering/product risk is generally behind them as is the revenue unpredictability; they need capital to expand and get to break-even.  These deals can also be highly competitive, and are shiny and old, old in a good way – they’re much closer to being sold (exiting).

What about Series B?  Well, a lot of times they’re just not as pretty.  They’ve been out in the market enough to success and have some warts and have already been seen by a lot of VC firms.  There’s still all that revenue and sales/marketing execution risk.  Series B deals are tweeners – neither a shiny Series A deal with a promising unblemished future, nor a “we’re just a few years away from an exit” Series C deal.  Picking a good one is tough.

What if you’re raising a B round?

You’ve got to embrace the reality of where you’re at.  You should expect to have a fair amount of “longitudinal” metrics supporting your revenue forecast.  Metrics you’ve been tracking for quite some time that communicate fact-based clarity in generating reliable revenue.

A closely related area is to have data that examines where in your business model the leverage comes from, and how that affects the economics of your business.  This too is best done longitudinally with data collected over time (like showing a strong network effect).

Finally, you need an operating plan that spends behind revenue; increasing expenses only after revenue has increased, reliably.  This means having some clarity around the context of expense increases, tying them to product or customer initiatives; “tear-off” plans that overlay onto your base revenue/expense plan.

B rounds are nuanced, and thoughtful planning and analysis can help you navigate the nuance.

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Posted in Business planning, fundraising, Venture capital | 3 Comments »

Series-shifting, terms, and fallout

March 4, 2009

The good news in the startup landscape is that companies are getting funded, and the pace and quality of startup activity remains strong, especially here in Seattle.  This seems to be the case in the valley too. 

But the deals that are getting financed are generally “obvious” ones; series A deals where the founders have solid track records or later stage deals that have proven they can acquire customers and most importantly, monetize them.  The deals everyone would like to do. 

What about all the others? 

Well, they’re ruled by the bleak exit landscape for venture-backed companies.  Any investor looking at a good company now is doing a returns analysis using much lower exit valuations than they’d used six months ago.  The economics have to adjust downward to make the numbers (and the risk) workable.  Make no mistake, the obvious deals feel this “compression” effect too, perhaps the fundraising process moves more quickly for them.

The first “compression” effect I call “Series-shifting” – when a company that’s out raising its B round gets valued as if it were on its A.  Or a C round company gets valued as if it were raising a B round. 

Colley Godward reports median Series C valuations dropped almost 40% in 4Q08 compared with the prior 1Q08-3Q08 timeframe.  40% isn’t a bad approximation of the step-up in value you might expect from the Series B post-money valuation to the pre-money Series C valuation, based on the company’s progress in developing the business.  In today’s fundraising environment this means the market is assigning little to no economic value to that progress.  Ouch.

As an aside, this introduces some nuance into your fundraising.  The post on your last round is likely high relative to today’s market.  At an appropriate time, you need to signal that you know this and will be flexible on valuation without prematurely putting a “fire sale” sign up.  If you wait too long to signal, you’ll scare off investors who think you’re out of touch with today’s market.  There’s no rulebook for how to handle this, just experience and good judgment; the goal for both parties is to be fair and realistic, not to take advantage of either party.

There’s a second “compression” effect: terms are getting much more aggressive, reflecting today’s more conservative assumptions on returns and capital recovery.  While not painless to the entrepreneurs and early investors, liquidation preferences can be a way to let the valuation retain some “loft” while enabling the new investor to limit the downside if the outcome isn’t what everyone hoped for.  If everything goes as planned, everyone’s happy, if not, it’s the new investor who gets protected. Ouch again.

Don’t take it personally, it’s just math, not a case of predatory investors.  It’s the messy reconciliation of the business model of the startup and the business model of the investor.  If you choose your investors (or your investment) well, this is a juncture that can be navigated honestly and transparently, but perhaps not painlessly.

So now what?  How many businesses are going to be able to pass through filters that have such conservative assumptions or where new investors need such aggressive forms of protection?  The answer is, not a lot. 

As Andrew Chen also highlights, there are just too many Web2.0 businesses out there, and as with the Web1.0 bubble, a lot of these in hindsight are features of someone else’s platform, or have thin value propositions to begin with.  We’ve seen this before, and lots of companies just won’t get funded, or won’t raise their follow-on rounds.  In the medium term, a good thing for the industry, in the short term a lot of carnage will result.

Paul Holland of Foundation Capital says it well in a BusinessWeek interview “The most healthy thing for this industry would be a clearing out of people who don’t have the stomach for it.”  That applies to both sides of the table, companies and investors.

Healthy, yes.  Pretty?  No.

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Posted in Business planning, fundraising, Success, Venture capital | 1 Comment »

Finding the chicken killers – part two

March 2, 2009

I got a lot of positive feedback and comments on Finding the Chicken Killers, where I explained what the concept of a chicken-killer was but stopped short of providing an example of one.  Let me tell you about someone who was on my marketing team at Vivo.

[This is a longer post than usual; I hope you find it worth it!]

Ann-Marie was responsible for our online marketing, our website marketing, and our demos at Vivo.  She grew up in a large Italian-American family outside Boston; while she was polite and well spoken, she had a nice independent streak.

The situation was this.  We were now 18 months into the turn-around of the company, marketing our internet video product VivoActive.  We’d become the market leader, but internet video was still small compared to internet audio, and RealNetworks was the big gorilla out there.  Oh, and Microsoft was trying to muscle into the market; they’d recently licensed Real’s product and were giving it away for free (but not really marketing it).  How’s that for being neighborly?

We’d aligned ourselves with Microsoft and could create internet video in their format.  VivoActive together with Microsoft’s server made a complete solution, and we had their marketing and sales teams promoting it to their customers. The plan of course was to get Microsoft to buy us.

The bad news was we were running out of cash (we had about six months left), and we needed to sell the company – remember, we were on a Series D financing.  There was no appetite for a Series E.

So, the CEO, my BusDev director, and I got on a plane and went to Redmond to try and move/force the conversation along, but all we got was a tepid commitment to consider an investment.

We came back from that meeting frustrated and depressed.  The three of us were in our conference room, trying to figure out what to do.  It was almost as if a literal light bulb went off when one of us said “Companies buy their enemies to take them off the market… who are we an enemy of?”

RealNetworks.

Holy cow.  RealNetworks.  Were so aligned with Microsoft; we could be a big threat to RealNetworks.  We had at best an arms-length relationship with them (meaning relations were generally frosty).  How could we get them to feel threatened, really threatened, very quickly?

So, I suggested “What if we let all the RealNetworks customers know they could replace the server they bought from Real with the free one from Microsoft?  All they’d need to do is pay us $500 for VivoActive.”  Hmmm… replace your $50,000 RealServer with a $500 alternative.  That sounded workable.

But how to pull this off?  We needed to quickly find out who was using RealServers and then somehow contact enough of them to make this a credible threat.  I got my team together, and Ann-Marie was the first one to come up with an idea.  “We can use Wired’s HotBot search engine to find web pages with the .ram file the RealServer embeds on pages with the media file, and then find out who the company is that owns those pages.  We can look up who the exec team is at the company and send an email offer to them.”  Great idea, but a lot of work.  She agreed to take the lead on pulling this all together.

Working backward from our cash-out date, we’d need to get this done within the next few weeks.  Otherwise, we’d run out of money in the middle of the negotiations.

Ann-Marie showed up at the next war-room meeting and said she’d gone through the process a few times; it was working, but it was going real slowly.  I suggested she have our receptionist, Amy, help her out.  Away she went.

The next day Ann-Marie came back, deflated.  She and Amy had only been able to build a database of about 50 customers.  This was going to take too long.  More brainstorming.  Ann-Marie offered to see if some of the developers could be pulled off their projects to lend a hand.

The next day everyone was looking haggard and tired.  Ann-Marie showed up, looking worse than any of us. “I was up most of last night.  I realized we’re never going to get this done on time, even with the developers.”

What?

Then she said “But I realized we could do this differently.  I wrote an automated script that queried HotBot and wrote the results into a log file, and then I wrote a script to filter out the domain name of the page where the content was hosted.  I wrote another script to take that domain and query the “whois” database, and found out who the system administrator of the site was, and then put the email address and wrote it into another log file.”  The system administrator was a long way from the guy who paid for the RealServer, but it was close enough.

“It’s working really well; I’m up to about 700 names so far, and should be up to about 2,000 by tomorrow.”

Around the table, jaws were bouncing off the floor.  Ann-Marie hadn’t just killed the chicken, she’d plucked it, dressed it, and had it in the oven, roasting.

We got cracking. It was like a commando movie.  We quickly established a launch date for the emails.  Everyone had their task and took off.  I finished off the copy and reviewed the design of the email.  My busdev director made 1000% certain we had the license agreement in place.

Two days later, we were ready to go.  We briefed the CEO and the rest of the exec team on the plan.  Ann-Marie wrote a script (her new core competency) to send the emails out at midnight.

The next morning we came in, eager to see the results.  By mid-morning we had lots and lots of irate emails from system administrators and, as a result of the system administrators forwarding them, a good portion of similar emails from business execs at companies who were loyal to Real.  Irate was good.  Especially when many of the forwarded emails also copied the account manager at Real or even Rob Glaser, Real’s hyper competive CEO.

Lots of tension; everyone ate their lunches at their desks.  A little after 1pm, our CEO came walking down the hallway, a huge, huge grin on his face.

“Rob Glaser just called.  They want to talk about buying us.  I’m heading out to Seattle, tonight.”

I kid you not, it unfolded that cleanly.  A little over twelve hours after sending those emails.

By the time the acquisition was complete, our CEO was neck deep in chickens, killed.  But Ann-Marie was the one who so matter-of-factly and so fearlessly got that first chicken out of the way, and made it all possible.

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Posted in Business planning, chicken killer, Failure, fear of not succeeding, meaningful failure, Success, Venture capital | Leave a Comment »

Finding the chicken killers

February 24, 2009

In early 1996 I was contemplating my next career move, and was taking a serious look at Vivo Software, who had developed the industry’s first software-only desktop video conferencing system.  It was four years old, and had gone through three rounds of financing from some of silicon valley’s premiere VCs.  But what they’d learned was no one really needed desktop videoconferencing back then (ie they were generating no revenue). 

I liked the team a lot, they were being led by an experienced “CEO for hire” who was a well known entity in the venture capital community.  He’d been brought on board along with a new round of financing (Series D!) to take the company in a different direction – to pivot the technology to internet video.  He wanted to know if I would come on as VP of Marketing.  After some serious investigation, I took the plunge.

But the company had been working 80+ hours a week, for four years, and had heard every “success is just around the corner” story under the sun.  And here we were, needing to get them excited about success being just around the corner, again. 

The first day, the CEO and I were in a conference room talking through the plan to get the company going again, and needed to quickly sort out who was up to the task.  He grew up in Texas, and could get to the point with charm and a flair for language that was disarming. 

He looked at me and said “Pete, we need to figure out who the chicken killers are here”. 

“Huh?”  is what I thought, and said with the expression on my face. 

I asked him what he meant.  He said something very simple: “everyone likes to eat chicken, but when most folks want it, they buy it in the supermarket wrapped in plastic.  We need to find the folks who will go out back and kill the chicken themselves because they want it that badly.”

Then I smiled and nodded in acknowledgment.

What he meant was we needed the people who will do the dirty, thankless work, the unpleasant unseen tasks, stuff that most people assume someone else will do for them.  It’s the person who you explain something to, they understand it, and only come back to tell you they it got done.  And they did it differently than they’d planned or expected, dealt with broken commitments, maybe having to do someone else’s job.  They just got it done. 

There were going to be a lot of difficult, unpleasant tasks if we were going to take this embryonic internet video technology and make something of it.  It gave me a new lens to see my team with; I had two in my marketing team, and we had two in the developer group.  It mattered a lot as we restarted the company.

And we did make something of it.  24 months later, we sold the company to RealNetworks (by the time the lock-up expired, the value of our stock increased 10x).  Success really ended up being around that corner, and the chicken killers got us there.

It’s crucial to know who these people are where you work, and in your life, if you’re going to get the big meaningful things done.  I think about this a lot.

My wife is a chicken killer of the highest order.  She can cause incredible, positive structural shifts to be made in the behavior of an organization, can build consensus spanning government and private interests, and can manage complex processes with precision and ease.  She does this by making sure that everything and everyone has been considered, including the very unpleasant, messy things that no one else thinks of or quietly tries to avoid.

At her 40th birthday party, in a restaurant filled with her friends from all across the country, I made a toast to her.  I’d worked with a friend who was a talented artist, and had transformed what I had written into a folding hand-printed and hand-colored card.  At each page, there was a thought or reflection.  Everyone had a copy to follow along with. 

When I came to “She’s a chicken killer – doing the unpleasant, the tedious.  The things that others assume just happen”  I got that same look from the audience that I gave the CEO at Vivo. 

Then I explained what a chicken killer was, and across the room appeared the smiles, and then nods of acknowledgment.

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Posted in chicken killer, Failure, fear of not succeeding, Intellectual curiosity, meaningful failure | 10 Comments »

Ask, Tell, Help

February 18, 2009

How often do you encounter a a situation at work where your personal values inform how to solve a difficult/ambiguous situation?

In 1998 I had just joined RealNetworks, and was running the RealSystem G2 launch; it was quite an adjustment professionally.  Real had just acquired Vivo Software where I had been the VP of Marketing, and I now had a much bigger job, with much bigger company ambitions.  G2 was Real’s next generation internet media platform, and was intended to become essentially a multimedia operating system for the web.  We never spoke those ambitions publicly, but they were very, very much the ambitions.

We had the upper hand on the internet a/v market.  Microsoft’s Windows Media Technology (WMT) platform was embryonic and poorly integrated across their vast product/platform landscape.  We routinely pushed the Windows Media guys around like how the New England Patriots pushed their opponents around.

But these were the conditions that provoke a response from Microsoft, and I remember the day we learned that Will Poole had been moved to Windows Media from Internet Explorer 4 – the understanding being the “A” team was now on WMT, the same team that had just crushed Netscape. (The Patriots analogy is eerily relevant here – I’ll save that for another post).

Two years earlier we had licensed RealSystem4.0 to Microsoft, and their players could play back our content up to version 4.0, but not our newest G2 content.  This was intentional and was common practice back then – a way to “provoke” upgrades.  We’d get our broadcast customers to produce audio and video in our newest version, and everyone would need to get the new RealPlayer to access the new content – our players were explicit and helpful about how to do this.

Microsoft saw an opportunity.  They made the Windows Media Player automatically become the default player on someone’s computer for our 4.0 content without telling them, and when it got to our G2 content it stopped and produced an error message.  Microsoft made sure the error message was cryptic (a core competency, apparently), implying there was something wrong with Real’s product, and that was it.  End of the road.

This caused a furor for us and our customers.  Competitive technology geopolitics at Cuban Missile Crisis levels.

So, I got called into a meeting with all the senior execs at Real to sort out what to do.  Our president (at the time) has an incredibly insightful mind, and summarized the problem as if he were explaining it to a child.  “Look, during installation you should ask the user if you can play other media types, then you should tell the user if you encounters one you can’t play, then you should help the user locate a player that can.  Pretty simple stuff.

But he wasn’t talking about a solution to this geopolitical skirmish, he was talking about his values, and applied them to a situation at work.  It was so simple; you ask for something before taking it, you tell people if you have a problem, and you help people.

So, I got tasked with spearheading the Ask, Tell, Help initiative, and spent the next six months rounding up industry support for this, eventually causing Microsoft to sign on.  The legacy is visible today to anyone installing iTunes, Rhapsody, or Windows Media – the application asks you for what media types you would like it to be the default.

I think about Ask, Tell, Help pretty frequently.  It reminds me that my values are my values regardless of whether at work or home, regardless of how charged or ambiguous the situation is.  And keeping clarity about those, and a tight grip on them, enables successful navigation of difficult circumstances.

Don’t you think, or rather don’t you desperately hope, that the folks who had a hand in the mortgage/banking crisis would have made different decisions if they’d have applied their personal values to the ambiguous and charged landscape of credit default swaps?

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Posted in Business planning, Empathy, Intellectual curiosity, Self-knowledge, Success, Values | 3 Comments »

Bad news should travel faster than good news

February 11, 2009

I love this phrase. It was a core principle of Rob Glaser’s at RealNetworks, and I think I must say it to myself or repeat it to someone nearly every day. It’s simple, true, and universal. It applies to work, life, relationships, everywhere.  It’s a core principle that cements the relationship with my partners.

I also love noticing how other people have internalized this principle. The CEO of one of my companies is an incredibly experienced and pragmatic executive who articulates the essence of this phrase another way: that bad news and good news are just different types of data, and just data.  You can’t make good, sound decisions with only half the data. In fact, you will consistently make poor decisions with half the data.

She creates a culture on her teams of “no cost to sharing bad news, and the more rapidly the better”. There’s a second-order benefit too. By treating bad news as data, you build trust within the team, and you shift the focus off the news, and onto what can be done, and how should the team or person respond.  This is easy to say, and really, really hard to put into action.

It also helps you appreciate good news more lucidly. When an executive only tells me what’s working well, the great forecast, the customer wins, part of my mind spins up, wondering “what’s he/she not telling me, because nothing ever goes well all the time.” It gradually deafens my ability to listen to the good news.

Conversely, when someone walks me through what’s gone wrong or what he/she is struggling with, when we get to the good news, I listen so much more closely, because it’s so much more credible. It also tells me a lot about the executive. I know I’m having a real conversation, that I’m not being sold to. 

But this isn’t just about work, it’s about life.  For example, putting into action with your children follows a similar trajectory.  Once my children entered school, and report cards started coming home, we applied the same approach the CEO at my company has with her team.  My children have been told that “this is just a collection of data that will help you and us understand where you need to apply your attention in the next grading period” and “Let’s not focus on the grade itself, but on whether you and we feel you’re working to your potential”. 

My two oldest are in 10th and 8th grade now, where grades matter a lot, and not surprisingly these two children respond quite differently to reviewing “the data”.  The oldest has found it easier to respond matter-of-factly while her younger brother has been less comfortable engaging in a discussion.  There are some likely “birth order” effects going on here, but those aside, he’s struggled to not be defensive…and it’s not about raw intelligence; both of them are at or near the tops of their classes.

So, last month when reviewing the interim grade reports, my son’s math grade had really taken a tumble, it was clear that he was struggling.  But he so didn’t want to examine why.  He wanted to focus on the courses where he was doing well, and pushed back in ways only a 14 year-old can do about applying some objective scrutiny on the basis of his math grade.  But, I guess he listened more than I realized.

A few days later, he walks up to me and says “I’ve got a big math test coming up, and I think I need help with some of this, I just don’t get it.”  We spent the next two nights working together going through the finer points of the standard, point-slope, and slope-intercept formulas with him. 

It was a lot of work, but the transformation was palpable.  He seemed to have turned this corner and saw/felt the benefit of not judging the data, but using it.  By the time we were done, he was confident and relaxed for his test, and he did just fine, better than he expected.

Then again, of course he did, he got to look at all the data.

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Posted in Failure, Intellectual curiosity, meaningful failure, Self-knowledge | 3 Comments »

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