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Strategy Is About Winning

We have a number of companies that have recently made the shift from proving out product / market fit to focusing on execution.  This often happens in the $3-6 million revenue range and in a SaaS business, it happens when growth is sustained at levels well above 50%; the sales engine has shown an ability to scale beyond the initial founder; SaaS metrics are strong; and churn is under control, and hopefully negative on a net revenue basis.  Company leaders then shift to the task of attempting to scale the business without breaking the components that are working.  A lot has been written on how to scale a predictable revenue model and how to build out teams.  I won't attempt to replicate that here.

This stage of focused execution needs to be combined with an emphasis on strategic thinking – and the CEO needs to spend sufficient time on each.  Execution is about every day behaviors and process excellence and it should be the daily focus for much of the organization.  Strategy involves fewer people, it happens less frequently, and if done correctly, it should be asking big and uncomfortable questions.  People use the word strategy all the time to describe things that are actually pretty functional and tactical.  Sales strategy, HR strategy, customer retention strategy, outsourcing strategy and so on.  These are all important but at a micro versus macro level.  Corporate strategy is about winning and is played with the knowledge that for you to win, others will lose.  

I had the opportunity to spend some time at Uber’s headquarters in San Francisco recently.   Uber has great offices, tremendous energy, and an intensity to the place that is surprising in an 8,000 person start up.  In a discussion with one of their senior executives, who had come from another great tech success story, I asked what was different at Uber versus so many other successful companies.  The answer was that the team at Uber feels that their future, their success, and their existence are constantly under tangible and measurable threat every day.  The battlefield is multi-faceted – there are well funded existing competitors and new ones emerging all the time, there are local & state & federal & international regulators trying to stop them, and entrenched providers attempting to avoid disruption.  While many of these battles are tactical, the war is strategic, and major “bet the company” decisions are made with high frequency.  While this strategic urgency may be more palpable at Uber than other companies, status quo can’t exist forever for any business.  In the words of Andy Grove – the former CEO of Intel who completely shifted the company’s strategy from DRAM to microprocessors during a period where another CEO would have been complacent with dominant market share – “only the paranoid survive.”

The paranoid CEOs ask themselves and their teams the tough questions:

  • If I worked for competitor x or competitor y or some absolutely new competitor, what would I do to hurt or kill us? 
  • What would happen if we lost our largest customer?  our biggest channel?  What could one of our competitors do to take this away from us?
  • How could one of our competitors shift the economics of our industry?  How would we recover?
  • What if a competitor with a broader footprint offered their answer to our solution – for free?
  • Is there a strategy for killing any of our competitors or mortally wounding them?   This means understanding at a high level where our competitors make their money and where they are most vulnerable
  • What if the market evolves in a certain direction?  What would render us less relevant or not relevant?
  • What are we doing today that is a distraction of time and resources that could be better spent extending our competitive advantage?

While this sounds obvious, most start-up CEOs get so caught up in the day-to-day details of their business, especially when they are scaling and dealing with all of the issues related to growth, that they forget that businesses built on disruption can get what they have been giving and face disruption of their own.

What are some things a CEO and a management team can do?

  • Schedule strategy off-sites at least once a year and force your executive team to do some work ahead of time answering key questions on the market and your company’s position; emerge with a clearly articulated point of view on where to play and how to win in your market
  • Jump on sales team calls once a month and ask the team what changes they are seeing – new competitors, different customer questions, surprising losses, anecdotes.   These can all be leading indicators
  • Build a product management function that is macro as well as micro-focused and feature / function focused.  Your head of product management should be your strategy consigliere
  • Become an industry expert.  Talk to everyone – analysts, bankers, partners, competitors, other tech CEOs in tangential spaces – ask them what they are seeing, feeling, sensing
  • When you hear something or read something that looks new or different – send it to your management team – use slack or something collaborative.  It is always interesting how that gets the interplay going and how thoughtful different team members can be on topics that seem out of their functional area
  • Maintain a thorough competitive analysis document – again, using Slack or something collaborative; empower your entire team to post information about competitors as they come across it, and conduct a thorough update every 3-6 months, which should include signing up for your competitors’ sales demos

Execution is a prerequisite to success but not a guarantee of it.  The right strategy and good execution trumps excellent execution and the wrong strategy any day.  Strategy is ultimately owned by the CEO because key strategy decisions don’t happen unless you agree and make them happen.  If you are not asking questions such as: “How do we win?” and “How will this (competitor, event, market dynamic, customer segment, etc.) impact our ability to win?” then you are not doing a big piece of your job.  Remember – strategy is about winning.


Working the Middle of the Pipeline - PeopleLinx: A "Dialer" for Salespeople

I love high velocity sales models - when they work.  Books like Predictable Revenue capture the essence of the model.  While each company has a different mix of inbound and outbound lead gen efforts and other initiatives, such high velocity models are a highly productive way to sell many SaaS products, and certainly beat classic enterprise sales models for efficiency and measurability.

In general, BDRs (business development reps) drive MQLs (marketing qualified leads) which become SQLs (sales qualified leads) which move down the funnel to contract and an initial sale which then through land and expand efforts driven by CSMs (customer success managers) become larger and more loyal relationships.  Some products just fly through the funnel and get sold on the spot, but many others get assigned to a sales person and become the classic "pig in the python.”  Having had sales roles in my career, I know the challenge of working the funnel.  There are a number of things I could possibly do for each prospect.  I could send them content.  I could schedule a demo.  I could spend time researching them.  I could do an influence map.  For many years, that set of activities has been pretty well known – and pretty finite, with sales people only having so many arrows in the quiver.  With the advent of social, however, that list has expanded significantly, and I can now do so much more.  I could connect with the buyers and influencers on LinkedIn or Twitter.  I could react to things they write.  I could follow the companies.  I could send targeted content curated by my marketing organization.  

Truth is that for every company in the funnel, there are probably twenty to fifty things I could be doing to move any particular opportunity along the funnel depending on stage in the process.  If I had thirty companies in my funnel, that means that I could be doing one of six hundred to fifteen hundred activities to move things along.  How do I determine which to do?  How do I remember them all?   How many activities do I do if I am working to get a deal or two closed this week?  With that stress, who has the time to change gears and THINK ABOUT which activities to do?  What if someone could give me a list of the top activities to do today based on where companies sit in my funnel, what I did last with each opportunity, and what they might have done in terms of social postings or other activities.  What if this list was integrated with Salesforce and also made each of these activities - email, content share, social linking - quicker and easier.  Wouldn’t my productivity go up?  Wouldn't opportunities move faster in my funnel?  Wouldn't I stay engaged with opportunities even as I closed other deals?  Wouldn't I make more money for me and for my company?

What I described is PeopleLinx.   This company does for sales reps what the automated dialer or InsideSales does for the BDR.  The Dialer tees up the next call as soon as the last one is made.  It can also leave pre-recorded voicemails as the BDR moves to the next call.  Call efficiency goes up.  BDRs are no longer spending time thinking about what's next.  PeopleLinx does the same for sales reps by providing daily prioritized "optimizations" or recommendations of actions with efficiency steps for achieving each activity quickly.  And it's working.

PeopleLinx customers are seeing accelerated sales cycles, higher win rates, and engaged sales people.    As an ancillary benefit it also drives higher usage and adoption of because it shifts the CRM product from a management reporting tool to a sales productivity tool.   

Osage is an investor in PeopleLinx and I am chairman of the board so maybe I'm biased, but I think the product is worth a try.  By the way, if you reach out to PeopleLinx and end up in their funnel, you will experience the product from the side of a prospect.  They eat their own dog food and it serves them well.


Thoughtful Listening Leads to Wise Decisionmaking

I took a course in law school on medical ethics, mostly because it was taught by Dr. Jay Katz, a Harvard trained physician, medical ethicist (he had participated in the Federal inquiry into the Tuskegee Syphilis Study), Freudian analyst (in his spare time, I suppose) and campus wise man.

One day in class he told a brief, self-revealing anecdote.  When he first started seeing patients in analysis – and this was the four day a week, on the couch, Woody Allen variety of treatment – he was terrified of making a mistake, so he listened very closely but said almost nothing.  After a few years, he gained a great deal of confidence in the power of his insights, so he shared them with his patients, often and at length.  Then, in what we might call the third phase of his career as an analyst, he recognized how his strong views were not as helpful as he had thought and settled back into thoughtful listening, occasional guidance and trust in the power of the analytic process.  His patients, he came to realize, largely improved through self-discovery.

This memory came back to me (I suppose I free-associated to it) in thinking about a recent CEO retreat we held at Osage Venture Partners.  Fifteen of our CEO’s attended a two day session of intensive and structured conversation.  Although OVP is an early stage fund, our CEOs range broadly in experience, from the very new to some who have led multiple companies.  They are a talented group, and gathering them together is one of the highlights of our year. 

This year our retreat featured a panel of four regional CEOs who had led their companies to hugely successful outcomes.  They were, given their success, surprisingly modest in affect and advice.  Rather than say, “You should do this or that,” they said “This or that worked for us, and it may work for you.”  Rather than trumpet their success, they talked about luck, timing and perseverance.  And rather than ascribe their success to their own talent, they emphasized the importance of having a great partner in their enterprises and, of course, in hiring A Players.  All four of these highly successful CEO’s had great confidence, although they spoke of fear and paranoia as an important motivator.  Their confidence did not come from a belief that they were a walking encyclopedia of best practices that guaranteed the next Unicorn.  Their confidence was rooted in their belief that they had learned a process, that through careful listening to highly- talented people they and their teams would self-discover what was best for the company at that moment in time.  Their confidence was not so much knowledge based as process based, that they had learned how to combine humility with decisiveness. 

When we gather our CEOs, all focused on B2B software but each with a unique strategy and organization, and augment them with four seasoned and successful CEOs, it becomes obvious that there is no single path to success.  Since most of our CEOs are in the portfolio for several years, we have the benefit of hearing their voices change over time.  The trend is fairly consistent; no matter your starting point, running a start-up is a lesson in humility, and the faster and deeper you learn the lesson, the more likely you are to make winning decisions.


Physical Space or No Physical Space – No Question

Start-up with Physical Space or No Physical Space – No Question

I was going to call this blog post “To office or Not to Office” – but the term office can be used to mean where the company is located or whether people sit in little private boxes versus open space, so I changed it to Physical Space.  I am a fan of start-ups eliminating offices in their physical space, but I am increasingly NOT a fan of companies being completely virtual and eliminating physical space altogether.

Osage Venture Partners has a couple of companies that truly are virtual.  At the seed stage or pre-revenue stage maybe this works while the company is only a handful of people.  At the Series A stage when we invest, I am convinced that it doesn’t work. 

Maybe I am missing the stories that are becoming cultural lore, so I welcome the opportunity to be informed.  Stories like: “We founded the company in three different cities and didn’t meet until we hired our tenth employee;” “We hire only anti-social people who don’t leave their apartments because we find they work 20 hours a day;” “Our culture is one of only using Slack from remote locations so that ideas are valued on their merit, not by how tall, attractive, or funny the person is.”  I did find some stories online about companies that had a culture of no office but I often get the impression that companies are built this way because the CEO wants to work this way, not because this is the best way to create a sustained culture of success.

The stories I know are the famous and not so famous ones like this: Hewlett and Packard in a garage; Jobs and Wos in a garage; Pied Piper in a rented incubator house (maybe a fictional company, but one with a fictional space); Facebook in that crazy summerhouse in Palo Alto; SevOne behind the comic book store; Verticalnet in that tiny little office located halfway between Hagan and Nults.   And so on. 

People are inherently social.  Culture is about interaction.  Loyalty is about relationships.  Something is lost in text and email and Slack including irony.

The entrepreneurial community is redefining what an office is.  Incubators, accelerators, and co-working spaces are making it easier to have an office, to expand, and even while small to be part of something bigger.    We have two companies in WeWorks.   One of our investments, Canvas, has always had a co-working space (called Refraction) as part of its overall office model because the founders believe that being part of a broader start-up ecosystem is critical to remaining entrepreneurial.  Sidecar (not the ridesharing guys) is moving all of its people back into one office from the two they were forced into due to space constraints because the CEO felt the separation into two offices was killing their culture.  What if all of these people worked from home?   What is the culture like then?

People come up with all sort of reasons to not have offices – here are five (and my counterarguments):

  • You can hire the best talent anywhere – not near the office.
    • Start your company near talent and hire people near your company or who will commit to relocate
  • Offices mean more meetings
    • Meetings happen on the phone too and people on the phone are far more prone to distraction, email, games.  Meeting quality and quantity is about management discipline
  • I can work more productively without distraction
    • Buy a set of sound compressing headphones and read the data – people need interactive breaks in order to sustain productivity
  • It keeps costs down
    • Then why am I seeing all of the costs for all of this travel and for the Regis bills because we need to bring the team together to create culture
  • I can be more flexible in my hiring – older people, blind people, handicapped people, people with social challenges – this gives me a huge hiring advantage
    • Really – do older people or blind people or people with other handicaps place a lower value on social interaction?   I don’t think so.

Senior experienced executives who have worked together in the past may have established norms that allow them to work together without being in the same place.  But when they bring in new people, and younger people, and people who need training and mentoring – how does that happen?  Without an office it is a challenge.  Entrepreneurs – if you are building something sustainable and large and meaningful, your company needs a home.  And if you are pitching us at OVP, have an office in your future.



Start-up Executive Survival Tip - Live Within your Salary

I hate to say this but if you join a start up, you need to be able to live within your salary.  Not salary plus planned bonus.  Not salary plus 50% more coming out of savings, justified by the value of future stock options.  Live within your salary.

Too many executives leave corporate America and $300k jobs to join startups.  The rationale is like this: “I want to do something entrepreneurial and get out of the corporate rat race.  I love the team, the product, and the market.  It is something I always wanted to do and the time is now.” (That is all awesome)  “I can live with a salary of $150k for a year and with my bonuses targeted at 30%, that takes me to $195k.  The company is growing and we should raise a Series C next year, so twelve months out I should be up to at least $200k and with the bonus that is $260k and by then my stock options will be close to 50% vested.  So what if I need to pull $50k out of savings in year one to cover after-tax gap in cash flow, it will be worth it.”

Great logic - except for a couple things.  Startups don't give 30% raises even after a Series C – they use this money to hire more people.  Bonuses get paid when a company is on plan, but startup CEOs are aggressive, plans are hard to hit, and bonuses at 80% of plan (in the companies where I am on the compensation committee) often equal zero – especially for the leadership team.  So now, twenty four months in, you are making $160k and didn’t quite hit the bonus threshold; you are having the time of your life; you are learning a ton; you are working with great people but have never worked harder; and you just hit your IRA for the second time, with penalties, to cover the second year of $75k after-tax shortfall.  You love your job but your wife or husband doesn't.  

What do you do?   Most often you try to stick it out for another six months but the pressure gets too much and you start looking back toward the security and paycheck of the kind of job you left two years ago.  It is just too hard to dial back a lifestyle and it is impossible to operate in negative cash flow for too long.  Maybe your experience in the startup positions you for a new gig and even more money.  I hope so.

CEOs need to understand this challenge when they hire experienced people for their executive team or for key management positions.  Explain that bonuses are a stretch.  Explain that wealth creation is in options not raises or bonuses.  Explain that cash is king for the business and the focus of all employees should be on sharing in value created.  Explain that this is likely a five year or longer journey and not a get rich quick scheme unless you really get lucky.  Try to understand the cost structure of the person being hired.  Ask the question and be honest.   “Can you live on this salary?  Because if you can't, don't take this job.”  It is the CEOs responsibility to fully explain what should be expected in compensation.  Don’t paint a picture you can't deliver on because having this great hire join with the wrong expectations is not only bad for her but also bad for the company.

At the end of the day though, it is up to the executive or manager to answer responsibly.  “Can I live on this salary for the next several years assuming little to no change in salary and little to no bonus?”  If yes then congratulations.  This looks like a great job and you are off on a great adventure and the possibility of real value creation down the road.  If no, then do yourself a favor and stay where you are and enjoy the benefits of a great health plan and a 401k match.  You will be doing everyone a favor – including yourself, your family, and the company you are thinking of joining.