If you visit our Virginia office, you'll see this guy in the lobby on the coffee table.
Yes, he's impressive. But to understand why he is in Grotech Ventures lobby, one needs to read the inscription in his skull.
My partner, Joe Zell, found this treasure and brought into the office where we agreed -- it belongs in the lobby. Because in life and this business, there is great danger in getting "ahead" of oneself. We all have something to learn from each and every entrepreneur who comes to speak with us. And while we don't fund everyone, we do hope they benefit from the experience of speaking with us.
We're all former business operators at Grotech Ventures and we've raised venture capital ourselves. And in the process of raising venture capital, we had the frequent experience of meeting some "very, very, smart" VC's. We are committed to being great partners but we don't want to be "those" guys.
This little guy doesn't have a name, however, and he probably should .........
Ok, it won't be terribly scientific or data driven or reliable beyond being a conversational starter, but, here is a method to determine what the CEO position could or should pay at a particular start up. (Blog Note to my current CEO's -- this posting is for entertainment purposes only).
We'll assume that the company is in a major metropolitan area in the United States and that the job in question relates to a recruited CEO. Founder CEO's would get plus or minus 20% of the numbers below. (This could be another blog post entirely but the discrepancy relates to a Founder's large equity position as a basis for lower compensation or irreplaceable status for higher compensation).
So here goes, base number is $100k if you've made at least twice that in a previous job. If one hasn't made twice that prior, taking a CEO job may not be the right next step.
Now, the adjustments, add $10k in annual salary for every million dollars in revenue above $3M if the company is not profitable. If the company is profitable, add $20k in annual salary for every million in revenue about 3 million. Bonus should be around 0 to 15% in an unprofitable company and 20 to 30% in a profitable company (especially if one was at the helm during a transition to profitable operations). One might ask about caps on these amounts, though I would argue that somewhere between $15M to $20M in annualized revenue -- the company is no longer a start up.
If one is doing a good job at growing a company the amount of issues, challenges and successes will grow over time. With that the days and nights become full and the concern arises in the CEO's mind as to the prioritization of the things. And yes, most CEO's can readily assess and order priorities. They also worry more than your average bear because situational analysis skills are critical to success. Worry enables many start up leaders to anticipate what will go wrong and contemplate possible reactions. Yet, the time spent worrying isn't time spent defining responses and decreasing time to react.
Nonetheless because of worry, they don't always react as quickly and as well to things as they would, upon further reflection, wish they had. I argue that time spent worrying is a waste for start up leaders. Why, well, one can't always anticipate what will go wrong. So, my thought is produce action plans, think about responses, reduce reaction time while limiting scenario creation effort. Just make up possible problems and spend time contemplating responses. Short response times with effective plans is the order of the day.
Woulda, Coulda, Shoulda can haunt anyone in any position. This is particularly true for someone who makes many critical decisions. In talking and working with those folks, I find there is more regret about arriving at the right conclusion sooner than the occasional mis-step.
To counter that, I typically ask CEO's to tell me what would be the content of two headlines in tomorrow's paper -- one of which is the best news possible from the company's perspective and the other the worst news possible. You would be surprised how many times the imagined headlines actually make into reality and the paper. In any case, the act of imagining these headlines prompts the CEO to do some critical things. First, the CEO can assess possible steps to progress the best headline and mitigate the effects of the worst headline. Second, the CEO can prepare an action plan in response to the arrival of either headline into the company's future.
The process of preparing for these 2 events shortens the response time while enhancing the quality of the company's response in the moment.
The CEOs I have done this with will often muse about how unlikely they thought either headline was at the time of its creation.
In the recent piece from Fox Business Channel's "Your Money, Your Questions", I talk about the 4 C's of business lending. One needs to show cash flow, credit worthiness, collateral and character to a potential lender. Character is commitment, integrity and delivering on your promises. A lot easier said than done for most people but probably the fundamental component to accessing O.P.M. (Other People's Money) in the real world. And that one delivers on their promises can be more quickly and clearly demonstrated than one's integrity and commitment (in the short term, at least).
For all the people who come into our offices to tell us what they're going to do, few return to show us that is what they've accomplished in a reasonable period of time. When they do so, we are all ears.
Mindshare is a an invitation only for the CEO's of high growth companies in the DC area. I receive a fair amount of inboundinterest about Mindshare and specifically the process bywhich a CEO gets nominated into the program.
CEO participants are selected each January by the members of the Mindshare
Organizing Board (OB) from nominations by OB members and Mindshare alumni. I am a member of the Organizing Board.
Candidates are normally:
First time CEOs of exciting technology and life science
companies with less than $10mm in sales,
People who are considered by the
members to be the most likely to benefit from and contribute to the
program’s year-long, instructional program, and
People who are known to at least two alums and/or organizing board
members.
If
you meet this general requirement, please send me a resume and ask either myself, another OB member or alumni to nominate you for the upcoming
class.
Investing in new ventures is sometimes characterized as the triumph of hope over experience given the high failure rate of fledging ventures. The recruitment of a capable, proven CEO or the desire to do so in lieu of an unproven, founder CEO is better characterized as the opposite -- the triumph of experience over hope -- at least in many investors minds.
So whether it is an unproven CEO, first timer, founder, etc. or a proven, start up CEO, the question of salary is fraught with complexity beyond what are market conditions (a little more on market momentarily).
That complexity arises from the nature of gap to be filled. What does the company need from its CEO? How much can it afford to pay? How much can one reasonably pay the CEO when it isn't profitable? How much does equity figure in the compensation equation? Questions that are all pertinent and particular to the situation at hand.
The VentureOne organization tracks and reports on CEO salary data.
The linked article shows CEO salaries of IT start-ups averaging $275k. Most local head hunters in the DC area might describe that as market rate for start-ups with greater than $5M in annual revenues. For the true start-up without significant revenues, I would suspect the number would be much lower.
Another interesting perspective on this topic is shared by investor, Peter Thiel, who shared his perspective at this year's TechCrunch conference that lower CEO pay correlates positively with company prospects.
His thesis holds water in my opinion as the CEO that is dependent upon equity appreciation can only "win" one way and that way is completely aligned with investors' interest.
Again, every situation is different. But one should be fully aware that getting to the right answer for start-up CEO compensation is not clear cut.
It is tough to find the right people at the right time. Especially when you're offering a job in a start up which may span two, three or four traditional job descriptions, i.e. the position is the marketing department including responsibilities for marketing communications, product management, public and investor relations, and brand marketing, or the position is sales engineer, technical support and product developer. And while it is clear that you need flexible, multi-faceted people in these situations, it isn't as obvious that there is one critical personality trait for employee success in the start up environment.
That critical trait is good judgment. In my experience, people with bad judgment are able to arrive at the wrong conclusion 100% of the time. It is their gift. They can take any number of varying inputs and apply bad judgment to arrive at the wrong answer. In a start up where new situations, dilemmas and challenges arise daily -- many of which have no precedent since everything that is going on is new to everybody, the application of good judgment may be the only reasonable shot at success.
People with good judgment aren't correct, on the hand, a 100% of the time. But perfection isn't the point. The point is that the start up CEO will face a lot of uncharted territory in growing an enterprise and the presence of good judgment in the assembled team is a priceless asset.
I would choose an Art History major with superior judgment over a Business Management major without any day. And I have done so.
How do you assess judgment? I ask questions in the interview process where we relive various scenarios from the prospective employee's previous situations. Why did you choose the college you did? What do you think could have been done better by the last management team you worked with? How do you decide between two seemingly indistinguishable choices?
Hire people from their resumes, former positions or education and you'll get a group that is likely more qualified to do a good job than capable of doing a good job.
The magic of litigation is really the suspension of belief that anyone other than the lawyers will win in the end. For the start up CEO, the case as defendant or plaintiff begins with sturdy handshakes and resolute commitments to pursue or defend with great vigor. What begins with "you have a strong case here" ends months or years later with "you're going to get your butt kicked".
Forget the thousands, tens of thousands or hundreds of thousands spent to date, the lawyer will explain that "now that I have the full details of the case, which clearly I couldn't have known earlier as I didn't have the full facts, it is clear that you're unlikely to prevail." For the first time CEO or the CEO new to litigation, this can be a uniquely clarifying moment. Is this a true assessment, a cautionary statement or clever way to transfer all the risk of failure at trial unto the CEO?
Sure, it depends on the situation. But, I would argue, it tends to be at least two of the three and frequently all three. The attorney may feel you're likely to get your butt kicked and you should be warned. And, wonderfully, for the attorney if you accept this explanation -- you have all the risk of failure. If the case succeeds, well then, it had to be the attorney brilliant execution at trial. If it fails, you were warned now -- weren't you?
So what do you do? Especially as defendant where you didn't initiate anything? You need to find CEO's who have been through the drill. They will tell you about keeping your own perspective and limiting the legal thrusts and parries that usually have no impact on anything other than the bill at the end of the month. They will tell you to trust your gut and that most of the stuff that seems like crap actually is crap. And, they will tell you, that litigation is as American as apple pie. Pay attention because no matter how this turns out or how much you will seek to avoid it, you'll back to this process again and you don't want to "get your butt kicked".
I recently read and enjoyed Timothy Ferriss' "The 4 Hour Work Week" which I would recommend to anyone considering an entrepreneurial adventure. I can't say that the advice is universally applicable and I do think parts of it are naive, but there are many, many good points for the start up entrepreneur.
Here is a link to the book's site and a chapter listing:
There were many great points in the book but I particularly enjoyed the firing of non-profitable customers. This was something I did in three companies and the effect on profitability and morale was material. On the downside, the author embracing outsourcing to an extreme which I don't think is tenable on any long term basis.
It's not enough that we do our best; sometimes we have to do what's required
Sir Winston Churchill
The often posed question is why do start ups fail? In my experience, the answer is that management is unwilling or unable to make them succeed. And that of those two, the more common is that management is unwilling rather than unable to make the business succeed. I would acknowledge that sometimes that unwillingness may have its roots in a lack of adequate investor support.
But the fundamental truth is that the weakening of investor support can often be sourced to doubts about management's commitment to succeed in spite of the odds. Many a successful entrepreneur can point to an entreprise that succeeded upon their "will power" -- a business that might have otherwise failed if it weren't for the simple refusal of the entrepreneur to accept that outcome.
The power of will is one of the entrepreneurs most intrinsic assets. It can create success out of a situation where success is neither likely or expected, will can be the basis and foundation of any start up's progression. But managment's has to be "all in" because you can fake a lot of things in life but will power isn't one of them.
Amongst investors in start ups, one often hears the sardonic remark that the only assurance one has about the future is that it won't be what is described in the business plan. By the same token, investors will readily acknowledge that their successful investments often occur on something other than the original investment thesis. In those instances, the management team and investors make a decision to depart from the original plan.
Ah yes, Plan B.
How one gets to Plan B is important. That path needs to be fast and factual in my experience. Companies that are slow to adapt and evolve lose the faith of investors, employees and frequently, customers. Being fast goes hand-in-hand with being factual, GE's Jack Welch refers to great management as "seeing things as they are instead of how they are wished to be". Sometimes it just isn't working and the company isn't progressing at the proper rate, the management that is reluctant to see things as they are isn't being factually driven. The facts say the customers aren't buying and/or the salespeople aren't selling -- so maybe it isn't about different customers or salespeople -- maybe it is about the product or market and not the people. Being open minded and facing facts is a powerful combination for keeping investor confidence.
All of which goes to the fundamental point, the Plan A that is held too long is the one that most undermines the chances for and support of Plan B. It is the management team that is honest and forthcoming in its assessments of progress and prospects that is more likely to garner strong Plan B support. The team that clings to Plan A is the team that frequently doesn't get a shot with Plan B.
One of the greater challenges of the CEO is the translation of revenue challenges into plans, commitments and expenses. It doesn't help that both your good salespeople and the bad salespeople are both lying about their sales numbers. So aside from the ultimate results, what is the difference between good and bad salespeople's projections?
The difference between a good salesperson and a bad one is usually that the good one knows that he/she is misrepresenting the projected number and by how much. The bad salesperson typically doesn't know that the real number that is likely given their efforts, pipeline and skills. So, both the numbers from the good and the bad salesperson are mis-representations. What's a start up CEO to do?
Seek specifics, be realistic, consider the process and dissect the facts.
Seek specifics: This is just about the customer, conversation and meetings details. It is about the gives and gets. What has the customer given and what has the customer gotten.
Be realistic: Unless you hear that something compelling (other than a government regulatory item like a new law -- which doesn't count or matter usually) is going to move the customer to act. Assume that it is going to take longer than it should to close the deal.
Consider the process: Compare everything you hear to the successful sales processes that have proceeded this one. If you study the way customers adopt and buy your product, you'll be able to synthesize the learnings in a way that individual salespeople are often to slow to internalize into behaviors. Salespeople are not frequently or adequately introspective about process. That's your job.
Dissect the facts: Or more directly put, try to assail the salesperson's assumptions. The salesperson's assumptions, particularly the faulty ones, will drive their results. You need to discern what is known from what it believed and from what is hoped for by the salesperson.
All of which leads the CEO to derive a personal sales forecast which is based upon facts and the reasonably expected outcome of proven process.
This year's Capital Connection is welcoming a broader set of companies to the event. The year's event will be held May 27-28, 2008, at the Baltimore Marriott Waterfront Hotel. Capital Connection has expanded its scope to include the traditional start-up and early-stage companies as well as expansion-stage companies and for the first time also will feature later-stage private growth companies.
If you're considering applying, you'll definitely benefit from an earlier start as it will provide you more time to network in the community as the real value of this event is the entire process rather than the two days of the fair.
The format has changed to support the broadened approach with a mixing of presentations and panels and a great deal more complementary content.
Tuesday, May 27, 2008
1:00 PM
General Registration/Pre-reception
2:00 PM
Opening General Session
3:30 PM
Company Presentations
Company Booths Open
5:30 PM
Opening Reception
8:30 PM
After Party Reception
Wednesday, May 28, 2008
7:00 AM
Registration
7:00 AM
Company Booths Open
7:00 AM
Breakfast
8:30 AM
General Session
10:00 AM
Company Presentations
Company Booths Open
12:00 Noon
Luncheon Panel
2:00 PM
Company Presentations
Company Booths Open
3:30 PM
LP Panel (VCs only) CEO Panel CFO Panel CMO Panel
5:00 PM
Closing Reception and Drawings
A lot of credit goes to the MAVA staff for keeping Capital Connection fresh and making a good thing better.
MAVA has produced the following graphic for potential presenters:
Is Your Company...An east coast based innovator of software, communications, internet-enabled, med-tech, or alternative energy?
Early Stage ?
Later Stage?
Seeking at least $1M in venture financing over the next 12 months and...
Seeking growth capital or contemplating an exit via an acquisition or IPO in the next 12 to 18 months and...
Raising your first or subsequent institutional round of financing and..
Building a syndicate of later-stage private equity investors and...
Rapidly acquiring customers and generating revenue and...
Serving a substantial customer base with demonstrated recurring revenue growth of 25%+ over the last 2 years and...
Financing product development, scaling a business model, building out a senior management team or expanding sales and marketing and...
Cash flow positive, EBITDA positive and...
Seeking to meet with key strategic partners and collaborators?
I coach CEO's who are seeking venture capital to deliver their pitch in the following way.
Tell the complete story in 3 minutes.
Tell it again, with the next layer of detail, in 10 minutes.
Repeat the story a third time, with greater detail, in 35 minutes.
Having told the story three times with increasing levels of detail, stop talking. Ask for questions, comments and insights. This approach provides assurance that the small audience understands the pitch and company story. It also provides an expeditious and efficient starting point for the group to consider and discuss an opportunity.
It shouldn't be surprising to entrepreneurs that the discussions about an opportunity by venture capitalists after a pitch often revolve around what was said and what was meant in the preceeding meeting. "I thought he meant that they would rely more on OEM sales than direct", for example, while someone else argues the opposite impression.
The 3X approach described here eliminates a lot of those misunderstandings. It also provides the CEO with the assurance that a turn down by the VC, if one occurs, is because of a honest disagreement rather than a simple mis-understanding.
The late Katherine Hepburn said that there are two appropriate ways to acquire firewood; "you should cut it yourself or steal it, never buy firewood". As someone who spent the first 15 years of my career in channel development and am often asked about channel strategy, I agree with Katherine completely. You can build your own channel or you can subvert someone else's, but you can't buy a distribution channel.
Ed Sim is a founding member and Managing Director of Dawntreader Ventures which was established in 1998. With $290mm under management, Dawntreader Ventures is an early stage venture capital firm collaborating with entrepreneurs to build the next generation of software, Internet, and digital media companies.
Mindshare is an organization that helps CEOs from the most promising start-ups in the Greater Washington Metropolitan region build long-term sustainable companies.The invitation-only group creates a forum that meets monthly to exchange ideas and discuss current issues facing start-up companies.To date, almost 260 CEOs have graduated from the program, including Phillip Merrick, the founder and CEO of webMethods; Dan Simpkins, the founder and former CEO of Salix Technologies and Rick Kay, the founder and former CEO of OTG Software.
We just completed the 2007 edition and once again, the experience is both memorable and unique. This year's class had over 40 CEO's and to a person they found the experience valuable. For me, it is the best forum for sharing ideas and gaining insights.
Image via CrunchBase![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=ffb4c00f-e01a-49fc-a7d0-348645027edd)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=2d34a9dc-6bb6-4a3b-8796-bea60140abe2)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=38d97b3d-c931-4e57-a458-69759c26a523)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=62ee12d0-784e-439b-8ca5-51606f4e2f38)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=05d14786-086e-42c5-8f42-a10a55dd12e3)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=2ceb5bd2-4fe0-4018-815e-c35e5375711c)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=590dc6dc-12db-4fd9-9daa-7c174dfa83fe)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=3024bf20-fb46-4e33-be54-036452a00d16)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=68ceb483-e965-45ee-99ad-7fc267977b39)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=615aeafc-4355-412a-86a4-280d50986e2a)
