Startup Lessons: Tough Decisions

This is the 6th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one is a tough one to write and it is important to acknowledge that when it comes to strategy there is a lot of nuance and the fact remains that you are dealing with a complex multi-variant problem so there is no playbook you can pull off the shelf and just hit go. Having said that, a key failing of startup management teams is the inability to develop and adhere to a strategic planning process that lays out priorities and initiatives that have to be attacked in order to achieve the only metric that matters, growth.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing
5) Board Management

6) Tough decisions: Today I want to highlight is the challenge of making tough calls in a startup, decisions that may mean giving up one thing you already have in exchange for something you would like to have. You can’t have it all so you have to narrow down the range of strategies you are executing to those things that sustain the company over the short and medium term, grow shareholder value, and result in a culture of winning. The bottom line is that your resources will constantly be 120% consumed and the only metric that matters is growth, so bias every decision you make to delivering growth

Case in point during my tenure was the observation I made in late 2010 that a reliance on a feature driven packaging approach was hamstringing the company and creating a bias to the direct sales side of the business. Enterprise sales models deliver revenue and there is an extensive library of company case studies on building large businesses off enterprise license agreements but those models don’t deliver customer number growth and coverage across businesses of all sizes.

We kicked this can for a full year – we wasted a year – until we took one step in the right direction and replaced our antiquated billing system. The problem is that this is just one piece of the puzzle and it wasn’t until I took it on myself to start driving change on the pricing model itself that the product, packaging, and pricing aligned. The massively frustrating part of this work was getting people to look beyond the revenue impact in the current customer base. Once we moved beyond the protracted months long debate that centered on existing revenue streams, people got behind it and delivered a thoughtful and well presented agent-based pricing model. and then abandoned it.

This realization helped me understand the human psychology of decision dynamics more than anything else. People, rational and educated people no less, have a tendency to overvalue the thing they already have relative to the thing they are moving to. Looking at the revenue impact of customers moving from high price points to lower price points that are consumption metered misses the point that protecting the existing revenue is not the strategic priority. growing the business is. The risk in allowing the compromise to be driven by existing customer dynamics is that it is is encapsulated by the saying “a camel is a horse designed by committee”. so much gets compromised in order to protect something that you end up in a position that really isn’t much different than where you already are.

When you push out tough decisions that will ultimately never be made with perfect information you are wasting the one resource you will never get more of – time. Assumptions have to be made and decisions fully committed to, the consequences of failing are serious but equally serious consequences result from failing to act when action is precisely what is required. If the decisions and commitments were easy they would already have been made, the fact that teams struggle with tough decisions is not the exception but when you know with certainty that what you are doing today is not optimal and within your capacity to improve, there is no excuse for pushing it for the sole reason that doing nothing is easier until the point when you literally have no choice but to change.

Startup Lessons: Board Management

This is the 5th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one will certainly inspire a lot of head shaking around the table as anyone who has been involved with a startup can relate to this.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing

5) Board management: My point here is not about criticism of investors because at the end of the day what investors provide above all else is access to capital, and point in fact their motivation is ultimately pure, which is they are in it to make money. Clarity of purpose is really a blessing but as anyone who has been involved with venture capitalists from the perspective of a startup can attest, there is a lot of complexity.

Investors do not do that much to help a company operationally, despite what they may want to believe about their contribution. They are a sounding board and provide critical objective voice on strategic subjects, but an investor is far too removed from the day-to-day decision making to be useful in an operational capacity, and if they are involved in the day-to-day then the are no longer simply investors.

Where this all comes to a head is when a company is facing headwinds. People in general tend to want to simplify things down to the just one thing moment and any problem set in the modern tech startup that can be distilled to just one thing at it’s root is an exception if there ever was one.

An example of this is having a board member say “well you should just charge more” without first considering the competitive dynamics of a market, or the product and customer perspective on value. If the challenge of running and growing a business like this is easy then anyone could do it, so for all the investors reading this right now, it would be helpful to acknowledge that people running these businesses have more knowledge than you do about the business itself. As much as you want to pattern match, that isn’t always helpful because no one person has experience with all the patterns that can be identified and patterns of the past are not indicators of future performance.

Companies and markets are highly volatile multi-variant problem sets that defy simple explanations and recommendations. What investors across the board should be doing in environments like this is helping clear the fog and applying intellectual horsepower where it is really needed, the planning side of the business. Building good forecasting models against the backdrop of fast changing performance factors is no small task, and planning is 1/2 of the planning/controlling responsibility a team is responsible for, but typical boards end up spending a lot of time on the controlling part of the equation.

Furthermore, when it comes to planning the typical startup has the additional dynamic of being not well equipped to push back against investors who have an expectation of growth rates in the early stages that well exceed 100%. This is where the multi-variant challenges rears it’s head, which is that no market is static so while you are building a product, growing a customer base, facing new competitive threats whether they be other startups or incumbents who have identified you as a threat, and then hiring people to support growth in the business. well a lot of things can derail the best laid plans.

Managing for growth vs. managing for margin enters the discussion because investors want to manage cash efficiently while also proving the growth capability of the company in order to get to the next stage of financing. There is little room for error here and the capital markets are far less forgiving of pivots than they were 2 or 3 years ago.

I also want to talk about shareholder interests and the Board members positions are, typically, preferred shareholders. What is really lacking in tech startups today is a strong voice for common shareholders, the employees, in private companies. The executive members of the board are supposed to fulfill this but all too often their voice is not equal to that of the other board members when it comes to shareholder classes. Preferred shareholders are inherently conflicted in this regard because they enjoy advantages such as liquidation preferences and anti-dilution protections that give them a built-in advantage over the common class of stock.

The modern board needs to cast off the standard operating procedures of the past, in the process becoming more inclusive of shareholder classes as opposed to representing the preferred shareholders first and everyone else second. Board meetings require great structure and strong leadership, and board members need to accept that there will be pushback and dissent based on facts and information that they may not see plainly relative to executives of the company.

As a startup you have a choice, you can be subservient to the board, bending to their pre-determined points of view, or you can be a strong force that counterbalances the parochial interests and instead favoring the greater good. Lastly, boards should be focused exclusively on the substance of the company and less about the personalities of the board members and the executive team.

Startup Lessons: Dynamic Org Structures

Last week I posted the first in a series of posts about my startup experience with Get Satisfaction. The first post focused on hiring and was appropriately the first in the series because hiring decisions will make or break your company.

However, it doesn’t stop there and once you have a team of smart capable professionals you have to create an organization structure that breaths and grows with them as the team accomplishes key objectives and develops an operational cadence around key business metrics.

2) Dynamic organizational structure: Not everyone will scale with the company and an essential strategy for accommodating and driving growth is continual reorganization. At Get Satisfaction we should have done more of this, moving people around as we grew and then pairing up different teams to accomplish specific objectives.

An example is that Marketing was inexorably linked to the enterprise sales demand gen requirements and while that would never go away the fact remains that other parts of the business suffered as that focus became all encompassing. In retrospect it would have been advantageous to pair marketing with a different team each quarter and set an an objective improvement in a key metric not related to demand generation, for example, working with customer support with the singular goal of improving customer communication efficacy.

As a company grows the requirements placed on individual leaders change and not everyone will make the shift so deliberate transition into different roles or out of the company is something that has to be planned. This isn’t a reflection of people failing but rather succeeding and the new demands evolving as a result.

Dynamic organizations reflect this by moving leaders into different roles not as a reaction to what is happening on the ground but as a forward motion intended to create progress in a new and emerging area. Successful startups move early executives into new roles frequently, not in an effort to sideline them but rather take advantage of their unique skills and organization knowledge to advance an area that would otherwise stagnate.

I am taken aback by how much time should be devoted to team and people issues in a startup, for a company like Get Satisfaction I would say at least half of the CEO time needs to be spent on managing this and recruiting the best people for the challenges that are currently being experienced and what lays ahead. Once you have a team of good people you need to continually optimize that for business results but also change it up keep the people you have operating at peak intellectual engagement and interest.

Part of the challenge with “the best people” is that they don’t neatly fit into the existing organization structure, and the other part is that everyone has a sweet spot of company phase that they thrive in. I am a good example of this, very large companies are soul crushing for me, the overburdened process and gravity to inertia absolutely deflates me, yet the pure play startup is equally outside my comfort zone because I don’t bring tools that are well honed for business creation. I am a best fit for a company with presence, a reasonably complete product, and customer assets, in other words growth stage or on the precipice of a growth stage buildout.

Creating organization structures for people based on their capabilities rather than your org chart and recognizing where people thrive and where they outlive their utility is essential.

Equally critical for dynamic organizations is to decentralize decision making to the nodes of the organization. This is no small challenge for companies that achieve mass after having slogged through a startup period that is an all-hands exercise. Top down decision making results in critical time lost and decisions that are inexorably compromised in order to satisfy the personalities of the team rather than the outcomes that is desired. You hire smart professionals who have, ideally, good judgment and intellectual capacity, why not lead them by getting out of the way and letting them do the jobs they were hired to do rather than managing indecision as a result of people not measured by the specific outcomes affecting the strategy and tactics required to get there?

Startup Lessons Learned: Hiring

I spent 3 years at Get Satisfaction, going from around 10 employees to 70’ish at the peak. Leaving was not an easy choice but after 3 years I needed to do something different, not better just different; I detailed my reasons and next move here. After much contemplation I decided to write a blog post in an effort to document my lessons learned about what worked and did not, in an effort to hold myself accountable for personal and professional development. I wrote it and posted it, then immediately took it down because I realized this was far too long for a single post. so instead I rewrote it as a series of posts, the first of which goes up today.

As you might imagine, I learned about more than just a business in my time at Get Satisfaction, and with the benefit of hindsight I was able to reflect on the subtle but critical lessons learned through mistakes and successes over my time there. This is not an easy series for me to write because while the thoughts are crystal clear I don’t wish to reflect poorly on my former colleagues, therefore take what I write with the intention it is written, that of self-reflection for the purpose of learning and self-improvement.

1) Hiring decisions will make or break you, sometimes all at once: The axiom that great companies are built with A team players could not be more true. There are 2 dimensions to this that are worth highlighting, hiring the best people and then structuring them to succeed, which will be addressed in a later post.

It’s not my intention to backstab people after the fact but the fact remains that we hired some people who were simply not up to the task that was in front of us. A worse failing than hiring the wrong people up front was keeping them in place after it became evident that they were not succeeding and taking the rest of the company down with them.

This dynamic is interesting to explore and reflects the challenges of hiring good people in Silicon Valley but more critically reflects the sense of ownership that the executive management team has over top level hires, and the subsequent desire to not have bad hires exposed for what they are, a failing of process and judgment. It happens, everyone is human and in the final equation it is better to just acknowledge a bad hire and move on rather than stick with someone who will impair the business the longer they stay in place.

A bad executive hire is like a cancer and the treatment for a cancer is to get rid of it, not get rid of it and replace it with something else, just get rid of it. I wrote a post about fear shapes personal behavior that was directly in response to my frustrations in dealing with a colleague who was failing in his role.

What makes a good executive hire? If I had to pick one thing in particular I would say good judgment is what is missing in every executive hire gone bad. People skills, execution capability, cross team collaboration, and many more skills essential for the modern executive can all be learned and adapted to different teams, but good judgment is as much a function of DNA as it is education and discipline. Good judgment trumps all because it brings with it focus, confidence, and optimal outcomes relative to execution effort.

Staff hires are no less critical and again the tendency to stick with people who are not A or even B team quality just to have a body in place reflects the challenge of hiring people in the Valley. However the fact remains that if you have a D team member and your aspiration is to bring them up to a C level, what exactly is your strategy? A and B quality people don’t just contribute disproportionately to the success of the company, they inspire other people of similar quality to join as a result of them being there while D quality people drive away the highest quality people you will attract.

In the spirit of full transparency and disclosure, hiring is something I do not consider a particularly strong point in my favor. My personality tends to attract to people who have similar “strange attractors” in their own character and for better or worse I tend to evaluate people on my gut level reaction to them. This has made me more attuned to my own judgment and forced me to be very strategic and deliberate about hires, at any level. Time will tell if I am getting better at it but without a doubt I am more conscious of the consequences of bad hires and looking beyond resume and personality when considering prospective hires.

I have 7 additional posts to publish over the coming weeks, detailing everything from fundraising to product/competitive strategy to managing your board of directors. Stay tuned.

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The Ascent of Q&A as Community

Q&A communities have become grown in popularity in recent years with consumer and business offerings being developed at a blistering pace and established players emerging with their own offerings.

The Q&A interaction model has existed for years, as long as search engines have been around and this is not a coincidence. Q&A takes advantage of a common behavior that web users exhibit through search engines, they query in the form of a question.

Early generation Q&A sites existed as consumer grade services and an outgrowth of these services are expert based where the person responding to a question is a vetted expert on the subject matter and is compensated for answering. More recently Q&A sites have morphed into a variant of social network where users build profiles and interact with other members and topics by following them and cross posting to Facebook and Twitter.

I am most interested in the generalized Q&A communities, not the expert networks.

Search and Q&A are Different

While no data is publicly available, it is generally accepted that a significant percentage of search queries are in the form of a question, and it is this behavior that has created the opportunity for a raft of Q&A sites to emerge. Search is often Q&A but Q&A is not well suited for search and in an attempt to differentiate from Google several search engines, Bing most significantly, have invested heavily in advertising campaigns that highlights the shortcomings of search for answering questions.

The problem with search for Q&A is the methodology for serving search results. When answering questions, the volume of inbound links to a given web page, the accepted search technique for ranking web sites, does not tell you the site with the best answer; it just tells you the most popular page with relevant information.

Text matching, another useful technique for serving search results, is also inadequate for Q&A because the text in a question is rarely found in the best answer. Similarly, click through analysis on search result links to determine site relevance is ill suited to Q&A because presenting the answer to a question requires no click through to measure.

Source: Ask.com

Finally, the nature of questions presents quite possibly the biggest hurdle for search engines attempting to accommodate questions as well as keyword searches. Any given question can represent degrees of complexity and subjectivity, as well as be time based.

Why Marketers are Taking Notice

Brand companies today are already monitoring Q&A communities as a normal part of their social media monitoring and response systems, it is not unreasonable to speculate that companies will seek greater participation in Q&A communities for the same reason that they are participating in social networks and in customer communities:

1)     Exert brand influence by demonstrating expertise in topic areas. Q&A communities, such as Quora, prominently display company information associated with a user profile and this is a powerful signal in the community as it relates to specific topics.

2)     Gather honest and detailed feedback. Q&A communities that allow for multiple members to interact with a question provide the equivalent of a micro focus group for a company interested in gathering feedback. The nature of Q&A communities has thus far not proven appealing for trolls and bad actors, ensuring that the quality of feedback is high.

3)     Social media integration is a bonus for brands interacting in Q&A communities, cross posting in many cases to Twitter and Facebook.

In addition to brand to customer interactions on Q&A communities and in some cases the ability to populate web assets with widgetized content, brands also have the ability to do something in Q&A communities that they cannot do in any other forum, which is the ability to support an entire product category through a Q&A community.

I already do a form of category support now on Quora, replying to questions concerning social media, customer communities, and community support. This is a powerful market facing activity that projects industry expertise and builds confidence in the company brand.

It is foreseeable that Q&A sites will sell sponsorship of topics to brand companies much in the same way that Google sells search keywords today. With the strong SEO that sites like Quora exhibit the value of keywords on the site would be considerable and they could in fact implement the same auction methodology that pervades search making it a natural extension for online advertising initiatives.

Will Q&A Encroach on Customer Community Platforms

The short answer to this question is that there are too many variables to project what the point of intersection between Q&A and customer communities will be, however it does seem plausible to forecast that there will be a convergence in these two closely aligned sectors over time.

Business.com released a research study in December 2009 (which I apologize for not being able to locate online now) that revealed surprising closeness in the perception of broad based communities vs. Q&A sites. With 1,200 people surveyed across a spectrum of functional roles, the participation rate in online communities and Q&A sites was virtually identical at 51% and 49% respectively. This study is one data point and to be clear it reflects how business users view each type of community for professional use, however the fact that little sunlight separates the perception of each reveals that the definition of community is very pliable.

Q&A and customer community platforms are complimentary for the time being and for a small cross section of customer community platforms there exists an opportunity to build out a Q&A community that weaves in and out of customer communities.

3 Classes of Q&A Companies

The first generation of Q&A services were consumer based and highly generalized in nature, allowing for virtually any question to be asked and, hopefully, answered. These sites are often advertising monetized therefore the primary objective is traffic with quality of answer a distant second.

Interestingly, the generalized consumer grade service remains a primary offering for many “answer sites” and is even being re-imagined by newer entrants with large user communities, Facebook Questions being the most recent example.

The other end of the spectrum is the curated expert community, such as Mahalo Answers, where the objective is both traffic and quality. In the case of Mahalo a virtual currency is used as a form of compensation which incentivizes quality contributions. This approach takes advantage of a primary weakness in search engines, an inability to provide quality answers for open ended questions.

More recently Quora has emerged with a compelling model that takes advantage of a primary social network characteristic related to social graphs. Quora, and LinkedIn Answers, both rely on the likelylihood that a member’s social graph will have collective insight on topics that the member finds interesting. By following topics and people, as well as posting Q&A content in a newsfeed the Q&A community drives the participation and quality dimension.

Facebook Questions

This recent service from Facebook has not disrupted the market because it is poorly surfaced and to my knowledge not even available to all users. It’s unclear what Facebook’s commitment is to Questions but the ability to drive their own organic search at the expense of 3rd party search engines is interesting to consider.

Questions is also not integrated with Official Pages and that hinders brand companies ability to get behind this initiative in parallel with their Fan management and online advertising initiatives.

LinkedIn Answers

LinkedIn has been building Answers since 2006 and the service was conceived to focus on business intelligence rather than general purpose Q&A. The quality of content on Answers is impressive and the categorization options they present as part of the posting process clearly indicate a bias to specific categories of business topics.

LinkedIn does offer category (topic) sponsorships to advertisers.

Quora

This is perhaps the most watched Q&A community and for good reason, the quality of content is very high and the network behaviors for following of people and topics as well as sharing of content to Facebook and Twitter are pronounced.

The user experience of Quora reflects a strong understanding of how people use networks and the social signaling that drives participation. I’m not aware of their revenue focused initiatives but it’s not hard to imagine what they are.

It’s interesting to note that Quora may be entering the phase where they are legitimately mainstream… as indicated by the degree which Silicon Valley pundits turn on them. I have a few complaints about Quora, like the hyper aggressive manner by which they connect via follow topics and people to me, but in general I’m a fan of this service because I discover great content on it.

Sponge

This is a white label Q&A community that represents a specialized form of customer community. From a product standpoint Sponge is most like Get Satisfaction but that also means their challenges in building community are well defined. Sponge will attempt to position themselves as “Quora for the enterprise” is my bet.

Opzi

Like Sponge, Opzi is a white label Q&A community for business customers… another “Quora for the enterprise”. Their challenges and threat status are identical to that of Sponge.

Market Opportunity

This is a real market opportunity, that much is clear, because of the way it forks search behaviors, enables co-creation of content, and has well understood revenue models that can be played. The explosion of companies in this space also foretells a future collapse as consolidation shrinks down the viable options and forces other companies to become highly niched in their delivery. This isn’t a bad thing, it’s a focusing phase that all successful categories go through but in this case I would speculate that we are at least 18 months out before that begins to happen.