For more than a decade my angel investor and many of our colleagues have been bemoaning what happened to the venture world. Call it the takeover of the walking investment banker.
It started when the name partners wanted to kick back a bit. That made sense, but unfortunately they went to Wall Street for their new people and hired a lot of the hot young turks who were great at manipulating money, but had never really produced anything.
I remember a client telling me how the Board member from his VC investor had a tantrum yelling for the company’s ROI numbers—when the company was six months, working on a revolutionary hardware/software system and the product was still in development. Sheesh.
“The biggest names in the industry are concerned about low returns and are blaming several factors: funds that have grown too large, the M.B.A.’s that have invaded the industry and older partners who have lost touch with what is new in technology.”
For those who don’t understand, typically a partner sits on the board of each startup that the firm funds and this limits the number of companies in which they can invest. In 1990 VCs invested $2.7 billion, at the height of the dot bomb it was $104 billion; it’s dropped back to around $30 billion now.
Because the money must be put to work, too much money is often forced on firms that didn’t need it.
“That often means forcing $3 million into a company that needs $300,000,” according to Ben Horowitz.
Now a number of VC firms, some old players and some new ones have decided to change the game.
“Marc Andreessen, who co-founded Netscape, is announcing on Monday that he and Ben Horowitz, a longtime business associate, have raised $300 million that they intend to invest in technology companies. The venture capital firm, Andreessen Horowitz, will risk small sums, as little as $50,000, on new ideas.”
This is good strategy, far better than pushing millions on a company that needs far less for no other reason than the money needs to be invested and the number of partners is limited.
So what does all this mean to you?
Well, it won’t happen overnight, but it could mean dozens or even hundreds of new, solid startups with doable business plans and backed by patient money.
The kind of companies that grow and flourish because their investors don’t have to have a multi-billion return next week to look like heroes to their investors.
And that’s what made our economy and country strong.
Image credit: Mark Coggins on flickr and agoldfisher on YouTube
These days it’s called ‘engagement’ and smart managers are looking for ways to increase it. They want to incorporate practices and attitudes in their group’s MAP (mindset, attitude, philosophy™) that will improve productivity and increase engagement.
Two such items are
basic business knowledge and
a large dose of pragmatism.
Business 101
Naiveté regarding business frequently leads to non-reality based ideas and attitudes. If people have a fuzzy or rose-colored view of what has to happen for the company to be successful, there’s no way they can contribute effectively.
Worse, this lack of knowledge can make them resistant to the procedural changes necessary to the company’s successful evolution as it grows, shrinks, or changes.
It’s not necessary, or even possible, to provide the in-depth business knowledge that comes from an MBA or 30 years as a successful CEO, but wise managers can provide basic understanding of the actual forces at work within the company, industry and even the economy in general at times such as this.
You want your people to understand
the Business Mission Statement;
customer desire as the driving force behind product development (why build it if they won’t buy it?);
financial controls, what they are and why you need them;
why/how to avoid blue sky approaches and impossible wish lists;
the reasons for requiring excellent documentation;
the importance of quality and manufacturability; and
other business-specific subjects.
Teaching these should be active, not passive; merely posting the information on your intranet won’t get it done. Use brown bag lunches or company-wide webinars, followed by local discussions, to create a positive learning process.
Finally, be sure you encourage people to use what they’ve learned.
Pragmatism
Pragmatism should permeate your MAP, the groups and the company culture. It should be like stain as opposed to paint—not just covering the surface, but also sinking in.
By practicing pragmatism as well as preaching it, you encourage a reality-based culture where
setbacks are easier to deal with because they are recognized and acted on quickly;
employees speak up because they are assured that the messenger will not be shot;
rose-colored glasses are obvious;
growth and change of the culture without corrupting it is encouraged; and
“not-invented-here” syndrome is veer batten.
Pragmatism works best as a part of a MAP that everybody is encouraged to embrace.
It helps to create a company in which not only can everybody see what the Emperor is wearing, but also have no compunction about discussing it.
Richard is still in Houston, but he thought that this case study detailing the unique problem facing a company with no competition and a radically new product would be of interest to you.
A Case Study of Customer Mapping
With the massive shifts in the economy, your customers are moving. Your sales and distribution channels are moving. Do you know where your customers and channels are now; where they are going tomorrow? Do you have a new product that is so that it is not just a matter of competing, but of evangelizing?
Giftventures, Inc. was facing many of these problems. Recently I worked with them to map their customers and channels.
Challenge—Find the Customers
The target market for Giftventure is parents with children in the 4-12 age range. The product is clearly a discretionary consumer product, a significant sales challenge in this environment. In addition, Giftventure is a new concept, which requires some explanation and investigation by the parent before making a purchase. How can an emerging company, with little cash to invest, gain recognition and traction with a discretionary product in a crowded consumer market?
Giftventure needed a compelling, proven go-to-market strategy in order to complete its initial fundraising, so this exploration had to be thorough, fast, and low-cost.
The results had to be conclusive and compelling, so Giftventure could focus its scarce resources in the channel that would produce large results, quickly.
To do that they needed to identify a channel that would produce large results, quickly.
The three keys:
In starting a new product or service line, and especially in starting a new venture, you do not know where your “sweet spot” lies in the market. Don’t rely on opinions–embrace your ignorance. You must test.
Be thorough. It can also be fast. Plan a comprehensive market exploration to test many possible channels, even in spite of your internal biases.
Only actual market results, supported by wide outreach and in-depth contact with potential customers, can direct you to the sweet spot for your product.
The winning combination is always to
Test many market channels.
Test wide and deep.
Let actual results lead you to your sweet spot.
To read a detailed explanation of Giftventure’s customer mapping download the PDF.
I was talking with Tom Wohlmut and, in the course of the conversation, he passed on a great line that I’d like to share with you.
“Give a fool a tool and you’ll still have a fool.”
A sage comment, frequently forgotten in our tech-happy world.
But how does this wisdom impact you, as a manager?
To start with, it warns that you can’t fix an underperforming person or group by showering them with outside tools, whether technology, social media or another silver bullet du jour.
And you can’t fix everybody.
If, in fact, you truly hired a fool, or what’s passing for one, then you have a responsibility to yourself, your group, and the person you hired to unhire him before too much damage is done.
However, the majority of fools really aren’t fools; they’re lost souls looking for a path to productivity and personal satisfaction.
Most people want to do their work well and they want to feel good about what they do.
It’s not simple or easy or always fun, but that’s your real job as a manager
It’s not just your responsibility, but your honor, to guide them to the path out of fooldom and into becoming an appreciated member of a powerful team.
It’s also one of the most satisfying experiences you can have.
Executive compensation is in the limelight these days—not that it’s ever out. People have always been fascinated by the lavish paychecks of high profile players, whether business leaders or Hollywood icons.
The list of executives paid for non-performance in 2006 pales in comparison to CEO pay in 2008.
We’re all taught the value of hard work, exceeding goals, giving our all, but some have found a better way—a loving Board.
Non-performance bonus money isn’t new; in 2007 Coke had a $2.9 billion noncash charge in the fourth quarter, so they cut 3500 workers and their execs missed their performance bonus targets, but the Board stepped in, giving “…millions of dollars in “discretionary cash awards.”
And no matter how good a leader is, does any performance warrant an average of $144,573 a day for 13 years?
The explanation (excuse?) for these giant pay packages is the same one that kids have been using for generations—peer pressure.
Boards claim they can’t hire the best (AKA biggest name; best negotiator) without these outsize pay packages, but there are hundreds of skilled executives that could be had for less and who would probably do more.
For all the public outcry against outrageous pay there is none against the directors who don’t just approve it, but spend their effort outbidding the other Board.
When are they going to show some real leadership instead of whining and complaining about government interference?
And when will the washed and unwashed start putting the blame where it really belongs?
Little girls are made of “sugar and spice and everything nice;” little boys are made of “snakes and snails, and puppy dog tails;” and many (not all) “leaders” are made of ego and greed and the skill to mislead.
Think of all the times you’ve used it as your argument of choice—or had it used on you.
The problem, Gloria Steinem tells us, is that “Logic is in the eye of the logician.”
That makes logic a moving target and subject to the whims of MAP, which means that “Logic is the art of going wrong with confidence,” according to Joseph Wood Krutch
Ambrose Bierce offers a wonderful definition, “Logic: The art of thinking and reasoning in strict accordance with the limitations and incapacities of the human misunderstanding.”
Boy is that true.
John Locke tells us that “Logic is the anatomy of thought,” while Leonard Nimoy believes that “Logic is the beginning of wisdom, not the end.”
But it was Dale Carnegie hit the nail on the head when he said, “When dealing with people, remember you are not dealing with creatures of logic, but with creatures of emotion, creatures bristling with prejudice, and motivated by pride and vanity.”
And Tryon Edwards warns us that “Prejudices are rarely overcome by argument; not being founded in reason they cannot be destroyed by logic,” because, as Anon tells us, “The best defense against logic is ignorance.”
Which goes a long way to explaining why no one on Wall Street or the SEC listened to Warren Buffet or Harry Markopolos respectively.
If you’re looking for a good resource; one that will stimulate your mind as it provides useful information with enough feedback to see a wide range of thought on whatever the subject is, then Harvard’s Working Knowledge has a lot to offer—and not just from it’s own staff.
Here’s a small sample, but it’s worth checking out and signing up for the specific subjects in which you’re interested.
First is Peter Bregman, a global management consultant, who talks about using stories to change corporate culture.
Next are professors Joshua Margolis and Andrew Molinsky in an interview about the effect of “necessary evils”, such as layoffs, on those who have to perform them as opposed to those on the receiving end.
Finally, Here’s a link to my very favorite researcher, professor emeritus Jim Heskett, who asks questions and develops amazing conversations with his followers. His current question is Are You Ready to Manage in an Irrational World?The forum is open until July 29, stop by and add your thoughts. You can find his previous discussions here.
Entrepreneurs face difficulties that are hard for most people to imagine, let alone understand. You can find anonymous help and connections that do understand at 7 cups of tea.
Crises never end.
$10 really does make a difference and you’ll never miss it,
It started when the name partners wanted to kick back a bit. That made sense, but unfortunately they went to Wall Street for their new people and hired a lot of the hot young turks who were great at manipulating money, but had never really produced anything.
A Case Study of Customer Mapping
“Give a fool a tool and you’ll still have a fool.”
Little girls are made of “sugar and spice and everything nice;” little boys are made of “snakes and snails, and puppy dog tails;” and many (not all) “leaders” are made of ego and greed and the skill to mislead.
Think of all the times you’ve used it as your argument of choice—or had it used on you.
Here’s a small sample, but it’s worth checking out and signing up for the specific subjects in which you’re interested.
