Seth Levine's VC Adventure

$1

Would you work for $1? Here's a few people who do.

Delivering bad news

Let's say you have some bad news to deliver to your board/investors. For example, you lost a huge customer or your software has a major bug that's going to set you back 6 months or your CFO just got arrested for cheating on his taxes, etc. Should you:

1. Take out an advertisement in the Journal announcing this and then send out a note to your board with a link
2. Rent one of those sign trucks and have it drive by your investors offices repeatedly
3. Bury it deep inside a board book and hope no one notices it
4. Don't say anything – your investors/board are too involved in your business already and ask way too many questions as it is
5. None of the above

This won't come as a surprise to regular readers of this blog, but my suggestion (strong preference, actually) is that the companies I work with be direct about news – good and bad. If you're just before a board meeting, include the news in your CEO letter that prefaces the board material (see my post on running better board meetings for more detail). If you're not, either call your board directly or send an email around updating everyone. Better yet – do both.

I received a board package the other day (not for any of the companies listed on my left nav bar – this was for another company I'm helping out with) that contained material bad news (they lost an important customer and as a result, significantly changed their cash outlook for 2007). However this news was completely buried in the board package. Everyone found it and called it out before the board meeting, but I wonder how it might have come up if the board hadn't been diligent and picked up on it. The company clearly wasn't trying to completely hide it (it was there in black and white) – they were just trying to somehow obfuscate the issue by making it hard to find. The irony was that losing this customer was not entirely unexpected and we'd already discussed contingency plans. I have no clue why they didn't highlight it as a major topic for the meeting …

Clarity

I was on a call recently where I had to ask someone 4 times to repeat what they were saying using more exact terms.  It's a major pet peeve of mine and so prevalent I'm losing my ability to be nice about it.  Perhaps it's a result of being a kinder, gentler society or maybe it's just because we've all sat through too many PowerPoint presentations or maybe we're all testing our political-speak skills, but whatever it is the result is the absolutely maddening trend of people not saying directly what they mean and forcing the rest of us to play 20 questions to tease it out of them.

Here's an example:

Direct description:  This is a red circle

"Business" description: The object displays certain characteristics that you might find in areas that were prone to liking colors that were deeper and brighter in tone.  I also note that the object is rounded on four sides.

 

UGHHHH!  I know you know exactly what I'm talking about…

When you know it’s not right, it isn’t

 

When you know it's not right, it isn't.

A fellow board member said this to me the other day and I wrote it down as something I wanted to remind myself of every once in a while. She was referring to the human tendency to act slowly in the face of clear evidence and in particular to venture capitalists' reluctance to be decisive. A good thought to ponder.

Quote of the day

"Successful people spend the majority of their time on major things.
                Unsuccessful people spend the majority of their time on minor things."

Relayed to me by my good friend Chris, who is dutifully following this advice...

Fire Fast

My last post generated a bit of harsh comment (a few on the site, but many more in private e-mail and on a few other sites that picked up the theme).  Apparently I came off as pretty insensitive (perhaps ‘jerk’ would be an appropriate description) in how I described my approach to some of the “can I get 30 minutes of your time?” meetings that I seem to have a difficult time saying no to (note to commenters: I do see value in the meetings and as a general rule spending time getting to know as many people as possible. Hey - at least I TAKE the meetings . . .).

Trying to roll with that theme, I’ve been thinking recently about how companies get rid of non-performers. I have a lot of visibility into the performance of most of the executive teams of the companies I work with and some visibility down the ranks.  One thing I’ve observed over and over and over again is that companies tend not to fire fast enough.  I understand that US employment law can make this difficult (I am NOT giving legal advice here, so don’t take this as such in any way shape or form), but regardless, companies tend to hold on to people too long.  This is true both in terms of mass lay-offs and more disturbingly in the case of non-performers.  This is true almost 100% of the time and often in the face of extraordinarily clear evidence that supports the decision to ask someone to leave.

I’m not trivializing firing people – it is and should be hard (I vividly remember the first person I let go crying in my office; it was extremely uncomfortable and I felt terrible for this person who was a great employee, but whose position was being eliminated).  But if you really care about running an effective organization, own up to making a bad hiring decision and take out the red pen. Keeping people around too long ultimately only damages an organization (particularly when their lack of performance is obvious to all around them) and delays the inevitable. 

Why are we here again?

I should probably do a better job of controlling my meeting schedule. I don’t and as a result end up with too many ‘networking’ meetings (i.e., where I’m on the receiving end of the networking).

I have two observations about these interactions:

1) Left to their own devices, people tend to ramble . . . ramble . . . ramble. The conversation lacks focus, direction and purpose. Sometimes this is fun; most of the time it’s a waste of time.

2) Most people don’t seem to know what they want to get out of meetings like these. This clearly contributes to the rambling – there’s no focus because there’s no clear end point or goal.

To speed things along a bit, I’ve been starting these meetings of late with a simple question: “What do you want to get out of this meeting”

Turns out this isn’t something that most people come prepared to answer, which I think explains why I was encountering the two problems described above and reinforces the need to start meetings this way.

I’m starting more and more meetings with this question (or the answer to it if I’m the one initiating the interaction) – not to be callous, but to get things started with an outcome in mind. Plenty has been written about how to make meetings more efficient, but for me, other than skipping them altogether (which tends to make them much more efficient – at least for me), this has worked better than just about anything I’ve tried to speed things along. Especially those pesky “networking” introductions . . .

This post reminds me of my Networking 101 post from last year. Worth taking a look at if you haven’t read it yet. See point 3 for another description of what I’m talking about here.

TLAs

In a recent note Bill writes:

I love your blog, but if you’re going to use TLAs (three letter acronyms), you need to spell out the first reference so the uneducated (like myself) know what you’re talking about. When you write about NOLs, us neophytes from Colorado think you’re talking about spending three days alone in the wilderness. ;-)

He’s right. I sometimes forget how insular venture/finance/technology can be. In one of my very first ever business experiences - a training session at Morgan Stanley - I spent an hour listening to a Morgan associate (who happened to be the assignments associate from the group I was about to start working with) talk about the “Morgan way of doing DCF analysis” all the while thinking “I’m totally screwed. There are 100 people in this room and I’m the only one who has absolutely no clue what DCF stands for, let alone whatever subtlety he’s talking about that is the ‘Morgan way’.” (Turns out DCF stands for discounted cash flow analysis – something I have gotten intimately familiar with over the years). 

Thanks for the reminder, Bill. If people don’t understand what we’re talking about we’re not really very effective. Good to keep in mind.

What DON'T you do?

Companies -  and start-ups in particular - spend a lot of time working through market analyses, product positioning and the like, trying to figure out how to tell the world what it is that they do (and differentiate that from what everyone else does). It is, of course, a very worthwhile and important effort. 

One thing few companies spend much time on, however, is the opposite question – what do you NOT do. Not the broad question of what you don’t do (we don’t make toasters is not very helpful), but focusing in on the gray areas between what you clearly do and clearly don’t do and deciding where you draw the line. I watch companies struggle over decisions (product extensions, sales targets, delivery methods, etc.) or get slowly pulled off track as they chase down revenue and partner opportunities that are just a little bit off track (enough to reap havoc across an engineering or delivery organization, but not enough to be clearly out of bounds). 

Have the conversation first – know what’s in bounds and what’s out of bounds and how to tell the difference. 

Feedback

There was a great article in last weekend’s New York Times Magazine by Stephen Dubner and Steven Levitt (of Freakonomics fame) that talks about the role practice plays in becoming truly great at something. They walk through research that suggest that while people clearly have some natural level of ability or affinity towards certain skills, it’s the hard work and dedication they put into the practice of their chosen art that ultimately sets them apart. There’s a feedback loop here – people tend to work harder at those things that they are good at (because they enjoy it more).

There was one paragraph in particular that struck me and it relates to something that I’ve been thinking about that every business does, but most in my view do poorly.

Deliberate practice entails more than simply repeating a task — playing a C-minor scale 100 times, for instance, or hitting tennis serves until your shoulder pops out of its socket. Rather, it involves setting specific goals, obtaining immediate feedback and concentrating as much on technique as on outcome.

If you believe this, then you have to scratch your head at how most businesses and managers offer feedback to employees – through annual or semi-annual reviews. There are two problems with this approach: 1) the feedback is stale (and negative feedback easily rationalized by its recipient as memory fades and more importantly the time for correcting poor performance or reinforcing good performance has long passed); and 2) its generally tied to a conversation around compensation – either an annual bonus, pay increase or both.

Rather than limiting the majority of feedback to a review period, try giving more consistent feedback (both positive and constructive) on a more regular basis. Get out of a presentation – talk about what worked and what didn’t; finish a sales call or demo, figure out what seemed to resonate with the customer and what can be improved; feel someone in the company did an outstanding job with a task – let them know why it worked so well. Equally important, reviews should be about reviews (and what I’m describing above shouldn’t replace a more formal review process, it should supplement and feed into it). Comp conversations should be about comp. Obviously they are related, but its much more constructive to review an employees performance when the outcome of that meeting isn’t about money (but rather about the improvement of performance).