Posts Tagged ‘start-ups’

You miss 100% of the shots you don’t take

December 15, 2009

Something I have just loved about being in the venture capital business is the people I’ve met, running businesses I did not fund.  And of those there are a few I found so relevant to my own interests, and with founders who had such passion and integrity, that I continued to meet with them well after saying “no.”  Trying to be a productive sounding board, making introductions, passing along knowledge or experience where it seemed helpful.

It’s always been such a pleasure to get the updates from these CEOs, they arrive when you least expect them and it’s exciting to see how things are developing, where the connection is no longer the possibility of financing, but a genuine interest in the business and a relationship with the CEO/team.

Dustin Hubbard of Paperspine is one of these.  His company offered a subscription service for books.  Physical books.  He  had the idea for his company after finishing a book, and having no room for it in his already jammed bedside table.  So, he planned and planned, left his job at Microsoft, started and ran Paperspine out of his garage.

Paperspine worked really well, and solved problems that people cared about.  It probably saved my family hundreds of dollars, just with my 16 year-old daughter, a voracious reader, and who routinely dropped tens of dollars at bookstores, only to read the books once.  She loved Paperspine.  She was on a five book out at once subscription at one point, and it enabled more massive reading without bankrupting her.

And while Dustin had gotten Paperspine off the ground with funding from friends and family, he couldn’t raise his next round of financing – in a market where raising money is almost impossible anyway.  But he applied himself to solving this problem with every ethical means imaginable.  Cut costs to get to break even, went back to work at Microsoft, tried to expand into ebook rentals.

Dustin and I spoke every 45-60 days, where he would walk me through his latest set of challenges, his ideas to address them, and we’d then spend the next hour testing his assumptions, plans, and brainstorm solutions.  But he always arrived prepared and ready to dive into a meaningful discussion, and sometimes I could help, other times I think he just valued the opportunity to have someone outside the company to run his thinking by.

But for many reasons, some within in his control, many outside it, he was unable to get his next round of financing.  And he seemed to be reaching the limit of how much this business was encroaching on his life, quality of life, and family.

So, last night I was truly saddened but not necessarily surprised to receive an email from Dustin, saying that he was closing the doors.  I can only imagine how hard this was for him, how heartbreaking.

And he closed off his dreams for Paperspine with the kind of grace and thoughtfulness that we should all take note of, and admire.  You should read his final blog entry, a real fitting testimonial to a worthy business, and an incredibly decent founder.  And you can see pictures of his “warehouse” in his garage, and learn more about how he took his idea and brought it to life.

His wife framed this so well, reminding him that “you miss 100% of the shots you don’t take.”

That phrase captures the essence of what it means to take an idea that crossed your mind, and have the courage to start a company to bring that idea to life.  And you bring it to life focused on why it will and should succeed, while also keeping, in a separate place, the knowledge that there are many reasons why it could fail.

Dustin, you should be very proud of what you accomplished and learned these past two years, but you should also be very proud of how you ran your company, and how you finished.  Well done, not painless, but well done, indeed.

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Posted in Business planning, chicken killer, fear of not succeeding, meaningful failure, Success, Venture capital | 2 Comments »

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 »

How to make headcount reductions without killing your company

December 1, 2008

A friend of mine forwarded me an interesting article from Wharton about how companies are thinking through headcount reductions, pointing out how CEOs and boards in smaller companies frequently have more flexibility in how they reduce headcount.

Headcount reductions in startups are tricky; it’s an exercise in figuring out “what level of success can I still create with fewer of us” – you’re lowering the growth rate from some high double digit number to a lower double digit number – by other measures, this is still great growth.

Yet, in a small company, the people create the whole alchemy of the culture that is such a big factor in success, you don’t want to fatally harm that. At the same time, running out of cash will be fatal too. So, to conserve cash you’ve got to reduce heads. Here are five ways to do this without killing the company and its culture.

· Establish a planning horizon. If you know you can’t get to cash flow positive soon, then the planning timeframe is “when you do you think you can and should raise money” which is a guess about when the vc industry will get back to normal and a guess about what the operating milestones you’ll need to hit to get someone to invest. You want to end up with end up with as much cash as possible (in case you’re wrong about the planning horizon), or enough to fund the company to a sale (if the business isn’t on a path to recover the original growth projections/potential).

· Assess the horizon’s environment. This is both the environment you think you’ll be operating within, and your ability to operate reliably within the environment. Be sober about what expectations you have around revenue, customer acquisition, and product development. But make sure you keep the right core set of people who can sell to and support customers, and keep product development moving forward. You can’t afford to be very wrong here. If you miss your revenue targets, all of a sudden your cash-out date can come rushing at you like a locomotive.

· View this as an opportunity, sort-of. Headcount reductions are an opportunity to apply a scalpel to underperforming businesses/functions/people, and can be a productive means for clearing out roles or functions that were already identified as being questionable. So while these cuts are hard to make, they end up not being surprising. A lot of times companies convert full time employees to contractors, which is easier for a startup to do than for a big public company.

· Size the magnitude of the expense reduction. In a startup, this number is arrived at through equal parts art and science. You need to be thinking about your math around preserving the essence of your culture, keeping enough forward momentum for key initiatives (sales, products), and retaining who holds the most DNA relative to those initiatives. Iterate (a lot) with your CFO or Controller and you’ll get a feel for whether the number is 15%, 20%, 25% or more.

· Don’t do this in a bubble, think empathetically. To me, the most thought provoking sentence in the article was this one: “(Headcount reductions are) driven by the executives’ view of the way things work, and the executives, frankly, think that everyone thinks like them.” The discussion and thinking done by the board and the CEO needs to be done cognizant of the tradeoffs and values of the employees. What will work for them, and for the company.

This is as much about embracing the fact that much is unknown, and there is tremendous value in iterating, combining thoughtful intuition with data-driven analysis, and giving yourself the freedom to think outside your personal point of view.  Headcount reductions are in a sense, meaningful failures, perhaps of the macroeconomic conditions, perhaps of your own making, but from these unpleasant circumstances, value can be created, and opportunities siezed.

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Posted in Business planning, Failure, meaningful failure, Success, Venture capital | Leave a Comment »

Why “I don’t know” is a great answer

November 27, 2008

Here’s a news flash: You can learn a lot about someone by asking a question and seeing how they answer it.

 

That’s so obvious, and we’ve all heard it a million times. I spend a lot of time listening to pitches from startup company CEOs, as well as spend a lot of time with the CEOs of my companies, and in both cases, end up asking a lot of questions.

 

The questions, that’s where the really hard part of making productive use of time is. Anyone who has the ambition and the drive to start a company is generally smart, and has spent so much time on their business that they’re awash in information about it. Anyone who is CEO of a startup is the same way, except they’re not pitching a vision to you, they’re living and managing it. In either case, it’s their job/role to have anticipated the key questions, and have the answers to them.

 

So, it’s hard to ask questions that dig below the surface, that reveal something that hasn’t already been thought of. If you’re lucky enough to have thought of one, it can accelerate everyone’s understanding of the business and the people running it. Conversely if you’re the CEO, when those questions are asked, it will put you in a potentially awkward position. Do you have an answer, and should you have had an answer.

 

This is true about life in general, so while what follows is specific to my job, I find it’s the same calculus with friends, spouses, children, parents….

 

I love it when we get to that juncture and the CEO says “I don’t know the answer”. It’s even better if they then say “there are a number of ways to try and answer it, let’s start….”. Now you’re about to take a trip to a very rich landscape indeed. A landscape where you’ll find out something potentially valuable about the company, about the CEO, and about your ability to work together to solve problems.

 

But there’s another direction that frequently gets taken. When the CEO produces an answer. I choose that verb deliberately. The answer is produced right there, like a big patch applied over a void. The void is hidden, not explored. This is where ego and insecurity hijack intellectual curiosity and drive it right past a tremendous source of opportunity.

It’s where the person being questioned feels the need to have an answer for every question, that somehow exposing that they don’t know is bad or weak.

 

Once you become familiar with the “answer for every question” mentality, it becomes a warning sign of significance. I hate it. It spoils all the fun. Worse, it destroys credibility at an alarming pace, but in a very quiet and nuanced way – because you can’t possibly have all the answers in a company that’s still more vision than substance.

 

And it turns out, the people who most often fall into this trap are the folks who have left the large technology companies to start up a company. It reveals the culture they had to navigate through to succeed in the “big company” world. The problems generally were so well understood you could have and were expected to have all the answers. And if you didn’t, you could “patch and pivot”, loop back, and get the answer – accountability was so diffuse, and decision cycles so long.

 

But what gets missed here is that the answer isn’t important, at all. It’s seeing that juncture where you don’t know the answer – that’s the super valuable piece of information. That may tell you about a core set of assumptions that are off, or an area of opportunity that’s been missed or overstated.

 

I love the landscape that is revealed in not knowing the answer. I love working with people comfortable with traversing it. I love it when a CEO sits me down to talk through a tough problem, and will state the truth: “I know I’m missing something here, help me figure it out”. When I hear that, I know the fun is about to begin.

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Posted in Business planning, Intellectual curiosity, Self-knowledge, Values, Venture capital | 3 Comments »

Meaningful Failure

November 27, 2008

In my world as a venture capitalist and a veteran of four fairly successful startup companies, I see and have experienced failure, a lot. My colleagues and I talk about it a great deal, in familiar ways and in ways that assign value to failure that occurred in a meaningful way. With the big ideas and within the teams that build companies around these ideas, modest success is simply not valued as highly as failure that occurs while attempting something bold, new, and ambitious.

Outside of my world, failure is spoken of in ways that make me think the people doing the talking view failure more superficially than we do. It’s a pause on the way to success, something you move on from. It’s as if failure is treated as a currency that gets spent on the way, but it’s a currency that’s been in circulation too long; it’s grimy, and you don’t really want to touch it if you can help it.

In the ”sky’s the limit” world of startup companies it’s all about being in a place where you’re brave enough to go do something new and bold and the only thing you are scared of is not succeeding. My colleagues and I frankly spent less time worrying about the failure side of our businesses than we do understanding what the obstacles to success are. We know failure is going to happen. In those early days of our companies, in fact, one of the few things we know is that the plan will end up being wrong, or at least that the numbers in all those cells will be. But understanding why they are wrong – examining, seeking the knowledge of where we failed – is how we find the path to success.

It’s not that we’re in love with our failures, but we do have meaningful relationships with them.

Meaningful failure. It’s not just where things didn’t work out. It’s failure that happened even when you were really, really motivated for and focused on success. It’s that confluence of ambition and reach, hard work and commitment, preparation and talent; where all of that comes together, and it’s still not enough.

It’s why most of us have an iPod while we also still use Windows computers; Apple sure failed to get the Mac mainstream, but learned from that when they entered the music and phone businesses.

But this is a really big failure. What about the failures we all experience in our jobs and personal lives that happen on a very human scale. You can have ambitions, you can place yourself in uncomfortable and vulnerable positions in order to achieve something of importance to you, and still you can fail. In fact, if you accept, even embrace failure, then about all you can control is how you respond to it when it happens, and what you take with you to as a result of it.

I like the analogy of failure being the lubricant in the engine. Without it, the engine stops. Without the meaning from the failures we create and encounter, the engine of success will stop. Or rather, when success happens it will be a lot smaller. Failure can tell you why what you hoped would happen didn’t but also why something like it, or better, can and will. If you’re not experiencing failure, then, perhaps you’re not hoping with enough ambition. Embracing it, anticipating it, being resiliently open minded, well, that’s just being a good steward of a high performing engine.

That’s why when I describe what it’s like to be in a high octane startup I refer to it being in a place where you remain calmly focused on the very few reasons why you will succeed and not on the seemingly thousands of reasons why you might fail. You’re striving for performance towards the big goal, not results of any specific setback along the way. It places you on the balls of your feet, not your heals. You know failure’s bound to happen, so lean into it.

It’s as simple as shifting your perspective to a “fear of not succeeding,” which is fundamentally, and in a very nuanced way so much different from a “fear of failing.” By focusing on what it takes to succeed, you can embrace the fact that there will and should be many junctures involving failure along the way. It’s the focus on success that enables you to get the big things done in life.

But embracing failure and extracting the data isn’t enough. You need a resilient, open mind to care for and make use of what you learn from your failures. Resiliency is important; it provokes a stretchiness and adaptability of your frame of reference and enables you to let go of that firmly held set of assumptions developed yesterday in order to embrace a better, more informed set today.

I like to think of my life as living in a continuous startup. At some point along the way, I realized that it’s at the moment of failure where the real meaning is, where you can figure out both what you are deep down inside and then how to be a different, more capable you the next time. That in order to be living a life of meaning and value, failure has to be not just acknowledged but embraced as the missing ingredient to success.

When you’re busy being focused on how you’ll succeed and failure occurs, it seems so much simpler to look at what just happened as fodder and information to take another run at finding out how to succeed the next time. It may be that the “next time” is the next iteration of the business you run at your company today or a totally different business at a totally different company. The constant, however, is standing at a juncture of success, open-minded learning, and meaningful failure and being ready to take the next step.

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Posted in Failure, fear of not succeeding, meaningful failure, Self-knowledge, Success, Venture capital | 3 Comments »