In the era of Skype, web conferencing tools and collaboration software conventional wisdom says that distributed startup teams can be just as effective as those that are in person.

Conventional wisdom is wrong.  Or more precisely the people espousing the benefits of distributed startups teams are often distributed and therefore self rationalizing it.  Been there.

The reality is that a certain magic that happens when you’re in person is critical in a startup.  You attend five customer meetings together over a two-week period and after each meeting you replay the results in the office about what it meant.  The CEO weighs in with his perspectives, the head of product management disputes his conclusions and the marketing VP has a different take.

We spend hours of seemingly “wasted” time just in these informal chats simply shooting the shit.  With all the recent obsessions about “pivots” most people don’t realize that the more powerful pivots are the unnoticeable ones we make every day through these exchanges.  The conversations bleed into the sales messages the next time, they wend their way into software designs and form the plan of attach against competition.

These incremental adjustments are made between people who see each other daily and are so below the surface of even our consciousness that distributed teams can’t see what they’re missing.  In a world where 90% of communications is non-verbal imagine what is lost on conference calls.

And from all the office chatter come norms and beliefs.  The sales rep that brings back news from the front line that is shared with the office adds to our collective knowledge about customer needs, product design flaws or partnership opportunities.  And that rep doesn’t just send an email to his boss – he has coffee with the head of customer service.  He downs cold ones with the head of biz dev.  He gossips with the office manager who tells 3 software developers.

And it doesn’t stop there.  The best companies are built on common beliefs and culture – a common sense of purpose.  Those cultural normals are established through human connections: the night we all stayed late to get that release out the door, the day we celebrated our funding round or the day we landed our first big account.  The culture is forged through office parties, poker, paintball or film nights.  And slowly, over the years, those crazy stories about Danny passed out in the company bathroom after the Summer party get replaced by weddings, births and family picnics.  We become more than dispassionate colleagues – we’ve been in the trenches together and survived.

I’ve seen it go full cycle.  There is a core that exists in human connectedness that no amount of technology can replace.  Just watch companies that grow rapidly in even a single physical address and start to span multiple floors and you’ll know what I mean. The culture starts to change and companies need to work harder to keep up the physical connections – even within the same building.

I’m not arguing that 100% of a team need to be in a single location although that would be ideal.  Here are my personal biases:

1. CEO, VP Products and CTO must all be in the physical location. If they’re not I won’t fund.  Because the formation of a business is so dependent on “product / market fit” these are the critical roles for me.  Also, founders who pitch me when they themselves live in separate locations don’t get very far with me.  I’ve heard the line a million times, “one of us will move after we’re funded.”  I know, I know.  But if your business is super important to you then have the hard discussion up front and one of you should consider moving.

2. I don’t like distributed development teams in early stage businesses. This is a topic that comes up often in Los Angeles because many CEOs are tempted to hire their tech teams in the Bay Area.  I think this splits up critical resources and builds separate cultures in two locations.  I often advise these CEOs to make the tough choices early in the company’s history – either move up North or build your tech team in LA.  There are pluses and minus for both cases.  Yes, I know some Herculean CEO’s that commute every week and make everything alright.  But I still believe that they would be better off whole.

3. I prefer the first sales hires to be in the home office. I understand the need to have geographic coverage.  If you’re a West Coast company you need people on the East Coast.  If you’re a UK company you’ll eventually need some local sales talent in Germany and France.  When your first few sales reps are in your home office there is a clear tradeoff that you’ll spend more on travel and your sales team will feel like ping-pong balls but I feel this is a better trade off than a sales team that is out of the loop.  As your company develops you’ll obviously need to hire sales talent in multiple locations.

4. I’m fine with key developers being in a remote location. If you have the core of your team together but a few key developers live in Oregon, Ohio or New Mexico and don’t want to move to a big, expensive city I’m fine with that but make it a small minority.  In a perfect world they’d be in your home office but this is one area where I feel remote tools can help bridge gaps.  As long as you have a great product management function and the remote people have established norms of being good independent workers these situations usually work well.  Make sure that you spend the money to have them work in the home office for a few days each quarter.  Even if they feel it gives them some less productive time it will pay huge dividends down the line in human connectedness.

5. What about call centers? It’s true that call centers often employ tons of employees who are often lower cost per person than your development team or other staff members and therefore it’s often effective to have call centers in lower-cost cities away from your home office.  But in the early phases of your company you’re not likely to scale up the call center so until that time comes I’d have them at the home office.

6. What about outsourcing? For me outsourcing in a pure startup is the kiss of death.  I’m against it in almost all situations.  I believe that startup tech companies need to develop a technical DNA and this doesn’t happen when you outsource.  Outsourcing early often happens when you have non-technical founders who don’t know how to get code out the door.  For me one of the tell tale signs of a real entrepreneur is that they know how to network well enough to find technical talent to join them.  If they can’t, I doubt it will become a big, important technical company.

7. What about offshoring? First, many people confuse outsourcing and offshoring.  Outsourcing is when somebody else builds your software.  Offshoring is when you have your own team build it but your own team is located a separate location where wages are significantly cheaper.  This is sometimes done in a cheaper part of your country but is more often done in a developing country rich with technical talent and smart people such as the Ukraine, China, India, Bulgaria and the like.

I prefer that early stage companies not offshore development.  In the world of agile development I believe that rapid output of code and the ability to constantly make changes trumps having a few extra bodies at a cheaper rate.  I’ve lived this directly through both outsourcing and later offshoring parts of our development at my first company and was proven wrong by our chief architect, Ryan Lissack, who argued that at our stage of development we were better off with a smaller, locally-based team.   When you’ve got offshore people you end up needing longer specs and less changes so it begins to feel like waterfall development.

Will I make exceptions?  Yeah, in some cases.  But where I make exceptions I expect the VP Engineering and the Chief Architect to all be located in the home office.  I expect the VP Engineering to be from the same culture and speak the same native tongue as the offshore location.

I have another exception.  There are times where you’re building a non-core piece of software in which you don’t have the in-house skills and likely don’t need them in the short-to-mid-term.  My example is that at my second company we build an exclusively SaaS platform except that we needed to build hooks into some Microsoft Office applications.  We put the spec out on RFP on a contracting site and received bids from skilled people all over the world.  So I’m not opposed to using oDesk in the early stages of your company (to the contrary – I’m a big fan of oDesk).  Just don’t use them early in your startup phase for your core development or for the majority of your coding.

In summary: I know that it’s trendy to espouse the virtues of distributed teams.  I also know that many of you reading this will work for such an organization and may be remote yourself.  I’m not saying your companies can’t / won’t succeed.  I’m just saying that I believe distributed teams for the key management members are suboptimal and less productive in the long run.  If that’s you – acknowledge it and pay attention to what you can do to lessen the inefficiencies and culture drift.

Or better yet – where possible – do something about it.

We all like to think of startups as “non hierarchic” organizations and to some extent that should be true.  I’m not a big believer in too much hierarchy.  A good early-stage CEO needs to be accessible, to be accountable for producing results and should be establishing the cultural norms of the company through direct leadership at all levels.

But issues do arise as your company grows.  I never built a Google-sized business but I did build an organization from scratch that grew to 120 employees in 5 countries before we sold it.  And having sold two companies I worked inside much larger companies that acquired us and observed even bigger company structures.

As your organization grows and you hire senior staff where you are no longer managing every employee directly the issue of how to manage people that are not your “direct” reports arises.  This applies to both founders and to VC’s that work with them.

I see two common mistakes in companies (not just in startups, in fact).

1. Dipping:
As a decision maker you rely on information being passed to you by the people who report to you.  You’ll get sales information from your VP of Sales, marketing information from your VP Marketing, tech information from your CTO and so on.  But as a CEO you can’t rely solely on this information.  You need to “dip” down into your organization and learn directly from employees at all levels and with all skills.

It’s not just a Reaganesque “trust, but verify” issue although that’s certainly part of it.  As a leader you need to have an intuitive sense of your business that can only be formed by hearing directly from staff in every corner of your businesses.  Think of it kind of like running a national chain of restaurants and occasionally stopping in to wait tables to have a more intuitive sense for your processes, work conditions and the quality of your products.

An obvious example would be in sales.  As a CEO you never stop needing to go on sales calls (or to work the phones in telesales or customer support) and ceasing to do this as your company grows because you’re focusing on investors, recruiting, PR or whatever is a mistake.  By going on sales calls you pick up directly the feedback of what customers want and also what they’re telling you about competition.  You’re also learning directly about the skills of your sales staff by observing them in action.  It might tell you that you need better sales training or to hone your key selling messages.  They will tell you directly which features they think are necessary to win more deals (take this information as data points rather than conclusions).

I also liked to sit in on sales pipeline meetings.  I didn’t lead the calls – our VP of Sales or country managers did – but I listened in to hear about deal specific dynamics so when it came time for forecasting between the VP of Sales and myself I had direct knowledge of the deals from having heard the sales reps talk about their individual pipelines.

Similarly I liked to keep myself apprised of the technical decisions we were making.  I had long ago ceded the knowledge and responsibility for making the detailed technical recommendations about platforms, databases, hosting solutions, etc.  But I knew that to be a good decision maker I needed first hand knowledge rather than just a summary from my CTO.  So I would go to lunch with our senior architect and ask 50 questions about the differences between Postgres, MySQL and Oracle databases.

At my first company we went with Oracle because it had better handling of “clustering” at the time where we could have multiple instances of databases that we could keep synchronized.  By the time of my second company MySQL was a much more robust solution and worked well when you had to read a lot of information but was less performant on “write” activities.  As a content management system we had lots of write activities and went with Postgres.

I helped make this decision by “triangulating” between our DBA, lead technical architect and our VP of Engineering (who had a better grasp of the financial costs & development costs of each decision).  I could never have been involved in this decision without “dipping” below my CTO to understand the details.  If my CTO would have given me his update much detail would have been lost in translation.

I provide this level of technical detail because I want to remind CEO’s that you need to own these decisions.  If your company is small then make sure you’re asking CTO’s of other companies how they made their decisions about whether to self host or go with Amazon AWS.  How did they decide whether to use RightScale or to manage AWS themselves?  You might be a business person rather than technical but for key decisions you need information to make the best decisions.

It’s why when I’m evaluating an investment I often ask the CEO lots of detailed questions about all parts of their business.  Attention to detail matters.

2. Skipping
While some leaders make the mistake of not dipping into the organization to get a first-hand feel for work being produced at all levels, even more leaders are guilty of the opposite problem: skipping.

Skipping is when you skip a level of management in directing decisions or employee’s work.  It’s far too common and is more destructive than leaders realize.  When you hire a VP of Marketing who has three direct reports and then tell the people reporting to your VP Marketing what to do, you usurp the power and authority of your VP.  It’s both destructive to the more junior employee who doesn’t know whom to take direction from and also to the VP who feels they don’t have the authority to direct their own people.

It can be harder and take more time to coach your VP Marketing to get his staff doing what you think is right than just telling them yourself.  But if you can’t get the results you want from your VP of Marketing or through coaching them then that is a different problem.

Skipping is insidious.  The organization gets used to it and adjusts.  But it sets the wrong culture.  Senior management feels undermined.  Staff never knows whom to listen to.  Decisions get overturned at the last minute by the big boss.  People avoid making the tough decisions because they know the CEO is going to step in at the last minute and change everything anyways.  And you build an organization of under-empowered people.

Let information flow up but direct your staff and execute through hierarchy.

And Finally, a word about VC …
We VCs need to be as conscious of dipping & skipping as management teams are.

A quick example.  One of the first boards that I ever got involved with where I wasn’t the CEO was with a company in which I hadn’t invested but was brought on board to look deeper into operational issues.  I spent a ton of time with the CEO and VP Finance understanding the businesses, its customers and its operational challenges.

Had I stopped there I would have felt great about things, which is what I think happened to the board members / investors who had been involved before me.  Information flowed up within the organization and the CEO always packaged things nicely for the board and investors.

Investor decision-making was based almost exclusively on board packs and financial information produced by these two.  When they heard from the VP of Sales it was during a board meeting where that person was presenting in front of her boss – not exactly the environment for you to get unfettered information.

In addition to attending board meetings I spent time with the CTO trying to understand the technical challenges he was trying to solve.  I then spent time with the VP Product Management to understand his functional roadmap and his perception of what customers wanted.  I then did a pipeline review with the VP of Sales.  I went through the customer service processes with that VP and asked her what problems our customers were having.  I developed a totally different understanding of the business and one that would NEVER have come up through a board meeting.

• our product wasn’t modularized so new features took too long to implement and regression test
• we didn’t have remote monitoring so when our product had problems in the field we didn’t even know we had outages.  We certainly didn’t have a NOC
• our internal tools for managing the content in our system were under invested in so it took more people to make changes to our system than it should have.  They didn’t have visualization tools so when they made changes they couldn’t easily see how they looked in the system.  This led to a lot of human error
• On sales it turned out that our power was limited to below “C” level so where I was hearing forecasts of customer sales I knew instinctively we were further behind than the CEO thought we were

The bottom line is that the investors had never had these conversations.  Management knew the issues, investors did not.  So when I heard investors speak about what was going wrong with the company I felt like they were talking about a totally different businesses.  They were self rationalizing things that weren’t accurate.

If VC’s don’t “dip” into their organization I don’t know how they can really be effective at the board level because there is no way of having an honest debate with the CEO.  As a founder I believe you want investors to help and if you want them to help you need to empower them with direct knowledge rather than protect this information or these relationships.  This obviously depends on having the right VCs.

I also make visits to senior level customers of portfolio companies with which I’m involved.  I like to do this so I can be helpful to them because there are certain meetings I can have that are harder for the company to have (sometimes due to politics).  But I also like these meetings in the same way I did when I was CEO.  It gives me an intuitive feel for whether our products are resonating with customers or partners and how they perceive our management team.  This is invaluable in helping the management team.  Again, I can’t imagine being a VC and NOT doing this.  Many VCs do reference calls before they invest and then stop customer contact altogether after they’ve made the investment.  Strange.

But I work hard not to “skip” below the CEO or founders.  I try not to direct staff even if I feel that they need to focus on something other than what they are doing.  I try to bring that information to the CEO / founders and give them my observations.  If I “skipped” then I would imagine that most CEO’s wouldn’t want me near their teams.  No leader wants his/her investor directing staff what do to.

Dip.  Don’t skip.

I’ve had this conversation so many times it’s painful.  A friend calls me up from “you name it” city: Boston, New York, Chicago, San Francisco and says, “I’m thinking about moving to Los Angeles (or SF, NY, etc) and I’d love to start interviewing.  Let me know if you hear of anything interesting.”

I guess when I hear things like this I revert back to my shock jock instincts and say, “Don’t bother.  If you’re committed to living in New York then move there.  Otherwise you’re not serious and you’ll never get the right job so don’t bother.”  Definitely gets shock value.  At least I have their attention.

Why do I give this blunt advice?

Lots of reasons.  Let’s start with the obvious.  Finding the best jobs takes a lot of commitment to taking many different networking meetings with executives, recruiters, entrepreneurs, VC’s, investment bankers, etc.  The best jobs (as you know) are found through personal connections.  The best jobs are the ones that have not already been put on a job board.  The best jobs are the ones that certainly haven’t gone out to an executive recruiter.  The reason these are the “best” jobs for you is that once it goes to an executive recruiter there will be a stack of 100 prospective recruits, 20 amazingly qualified resumes that will have phone or in-person interviews with the recruiter of which the company will meet 5-6.  So unless your last job is a mirror image of your next then good luck with those odds.

So it takes “spade work” to find the right job.  And that ain’t gonna happen from your LinkedIn messages to buddies you haven’t spoken to in 3 years.  It’s not even going to happen from your 3-day exploratory trips every 6-8 weeks.  It takes a sustained effort to get the right job.  Sure, you can land “a” job, just not “the” job.

And there are other reasons.

If you REALLY think you’re committed to Los Angeles – then just move there.  Make a life decision.  None of this wishy-washy hedging your bets.  I’ve heard every excuse – believe me.  ”Well I don’t want to move to LA only to find out that I get a job in San Fran and now I have to move twice.  I mean I’d love to live in LA but what I really want is the perfect job wherever that is.”  Yawn.  OK, so you’re going to sub optimize your job opportunities in both LA and SF?  That’s a great strategy.

Now, I will give a carve out for young execs who really don’t care about geography and are junior enough that the perfect company or job doesn’t always matter.  You can look remotely.  But if you’re more senior fuggetaboutit.  I recently spoke with a 40 year old who was thinking about moving back to LA.  Really charming guy with great experience.  And he had some complicating factors that didn’t make it easy to just move here.  But here is what he told me, “I know that eventually I want to live back in LA.  100%.  That’s where my family is.”

So my feedback was, “Then taking a job in NY right now is really life dumb.  You might find a great job but it might keep you in NYC for the next 7-10 years if it goes really well.  At least 3-5.  Why do that if you KNOW you want to move back to LA.  Choose life.  Carpe diem.”

And there are more practical reasons.  Anybody who has any operational experience and common sense will never want to hire you anyways.  Why?  If you have operational experience then you’ve likely already been burned by somebody else just like yourself wanting to get hired for a remote job.  Here’s a few flavors:

- “I’m going to move to LA but my kids are in school.  As soon as the school year ends they’re going to move out.”  Code for, “I’m going to see how I like the job for 6 months.  I can’t drag my family to LA and then have to drag them back again if I don’t like the job.”  Fair enough.  I can understand the logic.  But I want people that I KNOW are committed to living in the city I’m hiring.  If I’m interviewing and your resume doesn’t say “California” on it somewhere I’ll always ask, “did you grow up in CA?  Do you have family here?  Why would you want to live in LA?”  No plausible motive = no job.  And if I can find an equivalent candidate already living here you can be sure you’re on the bottom of that stack.

- “I’m going to move my family to LA but I need to sell the house first.  I can’t afford to take a loss on it.  So I’ll commute for the first 6-12 months.”  Code for, “OK, I really DO have to sell my house but I also have a great excuse to hedge my bets and see whether I really like the company.  Yeah, I know I could probably rent the house out – but why should I do that?  I don’t mind commuting.”  Long distance, long-term commuting usually = unhappy family life = unhappy employee = less productive employee = unhappy you.

- “My wife is finishing up her masters at University of Chicago.  So I can’t move until she finishes.”  Again, understandable.  If she’s not up for transferring to UCLA – that’s fine.  Call me in 2 years when she’s been graduated.

But wait, there’s more!

Moving when you have a family is a big, fat hassle.  If your husband is going to relo with you to Boston then there are many hassles.  He’ll need to find a job.  You’ll need to find a nanny.  You’ll have to figure out where your kids will need to go to school.  You won’t know the other parents so you’ll have to put in a huge effort.  You won’t know which parts of town to live in and you’ll be in temporary accommodations for a couple of months while you search for your permanent spot.

Your wife doesn’t work?  You sure are going to enjoy those nights you have to stay in the office until 10pm and then come home to your wife who has no friends locally and is bored.  And that business trip to SF for a week to meet customers?  Fun.

How do I “know” all this?  I’ve been burned at least 3 times by people who were moving.  I’ve moved enough to know how distracting the first few months are.  I tell people all the time and, like many of you, they kind of doubt me.  I met a company who was raising money and was going to relo the CEO from the US to the UK and they wanted me to invest.  He and his young family had never lived abroad.  NFW.  I said to them, literally, “Your wife won’t be able to work there easily – no papers.  She’ll enjoy the first 2 months of exploring around and then you’re dead.  She’ll be bored and unhappy.  You’ll be under pressure every night to get home early.  After a year if she hasn’t been able to work she’ll be angling for you to move back to the States.”  And guess what?  Obvious, huh.  It happened exactly this way with this company.

Some things are so predictable.

If you’re deeply committed to living in a city you’ll move there.  If you really care about having the “perfect” job (not everybody does) then being in-market increases your probability 100x.  Choose life.  Choose your location.  Move there.  Get settled in.  Take the time to know the city.  Get your partner bedded down and comfortable with the place without the stress of your new work hours.  And then set out to shake every hand and kiss every baby in town until you’ve networked yourself into the idea role.

Good luck.

UPDATE: Just since the comment is coming up repeatedly in the comments section – I specially carved out “young people” from my argument.  Most young people are infinitely mobile.  Also, I need to carve out mid-level developers.  They tend to be fairly mobile.  Finally, I should carve out international people.  I talk about that in the comments.

So that leaves senior execs: Directors, VP, CEO types.  This is the group I’m mostly talking about.

Often when startups who have raised venture capital need another round of financing they will turn to their existing investors to give them money before raising from outsiders.  This happens when the company has been making steady progress but hasn’t built enough “proof” to raise its next round of financing from external investors.

The traditional way that this type of financing is offered is what is known as “convertible debt.”  This means that the investment does not have a valuation placed on it.  It starts as a debt instrument (e.g. a loan) that is later converted to equity at the time of the next financing.  If no financing happened then this “note” may not be converted and thus would be senior to the equity of the company in the case of a bankruptcy or asset sale.

If a round of funding does happen then this debt is converted into equity at the price that a new external investor pays with a “bonus” to the inside investor for having taken the risk of the loan.  This bonus is often in the form of either a discount (e.g. the loan converts at 15-20% discout to the new money coming in) or your investor will get “warrant coverage” which is similar to an employee stock option in that it gives the investor the right but not the obligation to invest in your company in the future at a defined priced.

There is a primary reason that inside investors give companies convertible debt rather than just giving you the money as equity.  VC’s money comes from mostly institutional investors called LPs (limited partners).  They trust the judgment of the VCs to source, finance, help manage and then create some sort of exit for the investments that they make.  They also trust VC’s to determine the right price to pay for the company securities that they buy.

But when a VC is already an investor in a company and when they can’t raise external money it would set off a potential “red flag” with LPs.  ”Why weren’t they able to raise external capital?”  Or more importantly, “How do I know you’re paying the right price to invest in the company?  Maybe the market views this as not worth the price you paid?  Or maybe you’re biased and just investing because you’ve ‘fallen in love’ with the company and lost your objectivity.”  Whatever the case, VC’s usually don’t want to be seen to be driving price on a deal in which they’ve already invested.

So by offering convertible debt you can avoid a price discussion in the same way that angel investors sometimes do in order to win competitive early-stage deals.  The industry jargon for convertible debt is a “bridge loan”  or “bridge financing.”  It’s called a bridge loan because it’s meant to provide enough capital to bridge you from your last round of funding until your next round of funding.  Basically it is supposed to give you enough runway to prove some milestones and make it easier for your to raise money from an outside source.

But I used to jokingly refer to bridge loans as “pier” loans.  You know, because they give you a bit of runway but somehow it never seems like enough money to get you to the other side of the river.  I understand the mentality of why investors do this.  They want to give you enough money so that they don’t have a bankruptcy on their hands but not so much that if you eventually struggle to raise money they have lost even more money.  Basically they get the chance to see how you perform “on a short leash” and if they feel you’re doing well they can just keep extending the length of the pier 1-2 months at a time.

For me Pier Loans fall under the category of “penny wise, pound foolish.”  What VCs who have never been entrepreneurs and have therefore never been on the receiving end of small bridge loans don’t realize is that they skew the behavior of startup management teams in ways that can be self destructive.  You can only really know this for sure if you’ve been in these shoes.  You get the bridge in place so you breathe a sigh of relief that you’re going to live to fight another day but suddenly you because overly cautious.  You don’t want to be staring at a payroll that you don’t know if you’ll make again.  You don’t want to have a perpetual tin cup in your hands begging for scraps to exist.

So startup CEO’s in this position make compromises that don’t necessarily benefit the long-term potential of the company.  They might not replace an engineer or two that quits.  They might put the kibosh on company travel and not attend some key meetings or conferences.  They might decide to delay new product features or upgrading technology infrastructure.  They likely are extending payments to debtors way beyond that expected payment terms and start damaging supplier relations.  And equally damning is that the culture inside the company drifts insidiously from confidence to cautiousness.  From pragmatic risk taking to risk aversion.  And startup CEO’s can often suppress the anxiety that goes along with the funding uncertainty – even to themselves.  But no doubt their bodies feel the stress.  And it adds up.

So my view is that VCs and entrepreneurs need to make tougher choices.  The sh** or get off the proverbial pot judgment calls and the answer isn’t always “let’s fund.”  I had a friend recently call me who had been offered a pier from his VC.  He had raised about $500,000 in seed funding that lasted a long time.  He got a good degree of user adoption but clearly hadn’t proven his model.  He talked to his investors about a $250,000 bridge loan (7-8 months of runway).  Initially they acquiesced but when it came time to funding they only offered him $100,000.  This is literally what I said to him (almost verbatim)

“Honestly, [name], I wouldn’t take the money.  You’ve been busting your arse on this opportunity for the past 18 months.  You’ve kept a really low burn rate and paid yourself  a very small salary.  That’s the risk you’ve accepted and the commitment you’ve made.  I’ve seen the progress you’ve made but you clearly haven’t knocked it out of the ball park.  If you think you can still get a good return for your investor you should respectfully request that the minimum amount you’ll take is $250,000.

Tell them that if they’re not confident enough to put the whole amount in you’d understand.  The business hasn’t been an unmitigated success.  But if they do put in the money you’ll work your butt off to do everything you can to make this company a winner.  If they don’t have the confidence that you can pull this off then you’d be happy to help either shut the company down in an orderly fashion, sell the assets to somebody on the cheap or help transition the company to somebody else to run it.

I told him that if they’re going to drip feed you (at $100k he’d have less than 3 months of cash) it wasn’t worth staying.  His scarcest resource was his youth and the energy he had to put into startup ventures when he has no kids, no mortgage and no major encumbrances.  He had already given things his best effort.”

Frankly, if investors weren’t willing to write the $250,000 check that they had promised it seemed clear to me that he had lost their support or that they weren’t convinced in the future.  These aren’t angel investors or family friends for whom $250k might be a big deal.  These are institutional VCs.  I couldn’t see any reason for him to continue to kill himself in that context.

So there you have it.  Sh** or get off the pot.  Have the conviction to back your companies enough to really give them a chance to prove themselves.  I’m not talking about endless amounts of money but at least funding 6 months gives them 3 months to show progress and 3 months to fund raise.  Better even still if there’s a way to fund 9 months.  It’s legitimate to ask for cost cutting if you think the bridge won’t last long enough at the current burn rate.

But if you’re tempted to offer a pier (or if you’re tempted as a startup to take it) I think you’re better off looking in the mirror and asking yourself the tough questions about why you lack the conviction.  You might have legitimate concerns that warrant not funding the ongoing operations.  But piers are often counter productive.

Canceling meetings is part of modern day life.  I seem to get so over programmed that if I ever want to have a “break-out” unplanned trip somewhere I seem to have to reschedule meetings.  Not fun, but a reality.

And people reschedule meetings with me on a regular basis, too.  If done correctly I never have any problem with it at all.  Done poorly and it really puts a bad taste in my mouth.

When you do need to reschedule a meeting make sure to put yourself in the other person’s shoes.  Give reflection to what inconvenience you may be causing.  Make sure you’re mentally aware of whether they might have made special plans around your meeting.  Basically, don’t be cavalier about rescheduling meetings.

Let me give you an example.  A couple of years ago an entrepreneur had requested a meeting with me to present his business.  A friend that I respect had introduced me and asked me to meet with the guy.  I always try my best to take meetings like this since my friend had clearly committed some political capital to his friend in saying he could help him get a meeting.

The meeting was set for Wednesday, May 8th 2008 at 11am.  A few days before the meeting the CEO asked me to change the meeting to 11:45 because “he was going to be wrapping up a meeting in Pasadena at 11am” and it would take 45 minutes to get to Century City where my offices are.  ”No problem,” I replied.

As the day approached I noticed that there was a conference in LA that I wanted to attend.  The day before the conference I thought about rescheduling this meeting but then thought, “oh, well.  It’s too close to the meeting date.  I’ll honor the commitment I made.”  So I didn’t go to the conference.  At 11:15am (e.g 30 minutes before our meeting) my assistant got a call from his assistant requesting that we reschedule the meeting.  I was furious.  Less than f’ing minutes before the meeting!  Really?

I wrote directly to his assistant asking why he had cancelled and made it clear that I had not attended a conference in town due to my having accepted this meeting.  She responded back that (paraphrasing), “he had gotten stuck at a conference with a very important potential advisor to his company.  It was a big industry luminary and he needed to see whether he could meet with this advisor.”  I can’t name who this advisor was or it would give the company away.  But it is a very big bigwig indeed.

But they were stuck at the SAME freakin’ conference that I had wanted to attend.  And that’s why he stood me up!  HE was asking ME for a meeting to raise money and then canceled me to be at the conference that I wasn’t able to attend because he had asked me to a meeting I didn’t even really want to take in the first place.  Aaaargh.

Being the cheeky bugger that I am, this is the exact email I sent him (courtesy of X1 – I never struggle to find old emails):

“As an entrepreneur myself I COMPLETELY understand that you wouldn’t pass up on the impromptu and opportunistic chance to meet somebody so important to your business.  I would have done the same.  But as a gentleman I would have picked up the phone in advance and personally called the appointment to apologize for cancelling at the last minute – no matter whom I was meeting.  It’s just professional courtesy.  Imagine being in my shoes where somebody cancels 30 minutes before your meeting by having his assistant call your assistant to say he needs to reschedule.   I’m sure you would feel equally aggrieved.”

And I meant it.  I would have totally understood.  Customers do come first.  And this person was so important to his business that he should have stayed.  But to have his assistant call my assistant was chicken shit.

The problem with rescheduling meetings at the last minute is that people plan their calendars around your meeting.  They might schedule what part of town they’ll be in or whether or not they’ll even be in town at all!  Last minute changes inconvenience the person with whom you’re scheduled to meet.  It still happens but always weigh up whom you’re meeting with and understand whether that person is likely to be largely impacted by your changes.

Here is how you cancel a meeting:

1. If you need to reschedule a few days in advance - Whether you do your own scheduling or whether you have an assistant, a polite email to reschedule a meeting with a few days notice is usually acceptable.  I always ask my assistant to be vigilant about knowing whether anybody has planned travel to attend a meeting with me or our firm.  We write that into the calendar entry so that I (and any my partners) know this and would only reschedule if extremely urgent.

2. The day before - This starts to get problematic.  You really need to know with whom your meeting and how big a problem it is to reschedule the day before.  There are some people who live locally to you and you know don’t have calendars full of meetings every day (I actually wish I didn’t.  I want to be on Paul Graham’s “Maker’s Schedule” but as a VC this is quite hard.)  If I KNOW it is somebody with whom I can more easily reschedule then we’ll reach out to them and see whether it’s OK.  We usually try to re-slot them in quickly.  We try to be very accommodating on timing.  Often if they were going to come to my office I’ll offer to go to theirs to make it up for rescheduling so late.  I assume that I owe them one.

And if we need to reschedule the day before it’s usually for a very compelling reason.  It’s often because I have some last minute unplanned travel.  If it really is a problem we’ll often stick by our initial commitment.

3. The day of the meeting- It better be a great freakin’ reason like travel problems, you’re sick or there’s some burning issue you can’t avoid.  And obviously it is far worse if you were the person who had scheduled the meeting.  In this case it warrants a personal email (or better yet a phone call) from you and a Herculean effort to reschedule the meeting.

Recently a team flew to meet me.  They came from New York.  I assume that they also had other meetings in LA but they really wanted to meet me.  I had been introduced by a friend.  Their plane had to land in Las Vegas unexpectedly to refuel.  I had no other open slots to meet them that day and they missed their window.  So I ended up doing a dinner meeting because I know what it’s like when you travel to meet somebody about fund raising and might not get to have the meeting after all.

4. Within an hour of the meeting – The sky better be falling.  You better be eating humble pie.  You better not be the person who was asking for the meeting.  You should grovel.  You should call personally to state your sincerest apologies.  If the meeting is first thing in the morning (e.g. hard to get ahold of the person) don’t even think of it.  They’ve clearly planned their morning around your meeting.

5. If it’s the third reschedule - If you’ve rescheduled once obviously it’s best to try and not reschedule a second time.  If done in advance it’s manageable.  But the third time it starts to get pretty annoying for the recipient.  At a minimum you owe them lunch or do something surprising like sending cupcakes to their offices with an apology note.

6. If multiple people are in the meeting – Do your best not to reschedule when meetings involve multiple people.  I’m not talking about two people from the same company (like co-founders) or two partners at a VC firm.  But when you have a board meeting that has 5 people there or when you’ve scheduled a meeting with 3 or 4 companies.  Board meetings do get rescheduled but when they do it’s best to do it as far in advance as possible.  Last minute changes with multiple people involved just exacerbates the inconveniences to others.

I recently wrote a piece about how Entrepreneurs Should be Respected, Not Loved.  The premise was that some leaders are too enamored with the approbation of their peers than making the tough decisions in the business that are bound to upset some people.

The corollary to this rule is “decision by indecision.”  This is one of my favorite lines to remind entrepreneurs because it is the sort of garden variety mistake that is so common in everyday life.  It is the anthesis of JFDI.  And I use it so often that my wife must be sick of hearing it.  But that’s mostly because it’s so prevalent.  It affects us all in everyday life.  Decisions by indecision are those where having not made up your mind early enough your options are constrained or gone altogether.

Let me give you some obvious examples.

• You’re thinking about hiring an employee but you sit on the fence too long.  You make too many reference calls or want to see three more candidates before you decide.  They then decide to accept a job somewhere else or equally as likely they subtly lose confidence in the decision to join you.  Even if it is subconscious people get a sense that they’re not “the chosen one” and start to second guess joining you.  Recruiting is an emotional decision.  When you have the right candidate dithering can cost you.  It is a “decision by indecision” because the decision gets made for you.
• You’re a VC.  Your’e thinking about investing in a company.  Your gut tells you that the team is great and that they’ve built something really valuable if they can get a bit more traction.  But you’re concerned about market acceptance or market size.  So you make four more reference calls.  You ask them to hit another milestone.  You bring them back for a third partners meeting.  In a world where they have no other options or they REALLY want to work with you, you’re fine but that’s not always the case.  The entrepreneurs subconsciously know you’re not convinced.  They begin to spend time on other options.
• You’re a software company.  You can’t make the tough decision about whether you’re going to target enterprise clients or SMBs.  You hedge your bets by building some features they’ll both care about.  Your lack of focus means your product is good for both but great for neither.  Decision by indecision.  And you don’t even know it.  That’s the problem.
• Working with a channel partner that isn’t performing?  Afraid to “upset the apple cart” by pulling your resources back from that partner and spending time elsewhere? Or having the tough conversations with their senior leadership to say why you can’t continue to allocate resource?  Decision.
• Should we delay raising money even though we might take more dilution because we haven’t hit our milestones?  Decision.
• You don’t register for a conference by the “early bird” date because you weren’t sure if you wanted to go.  Decision.

In each of these cases there is no right or wrong answer about which path you should take.  But I’m a big believer in making EXPLICIT decisions.  Have a point-of-view and take the actual hard road of saying, “here is what I’ve decided.”  Maybe it’s to hire the employee or maybe it’s to explicitly pass.  Or maybe it’s even to spend more time referencing them but then be explicit that this decision may lead to losing the option to hire the employee.  That’s an acceptable decision.  You’ve decided to take on more risk in the hiring process in exchange for having more data points because you’re not yet convinced.

To me the sin is having the decision implicitly made for you.  The weakness is not having conviction.  And as I stated previously in this post, decisiveness is one of the most important characteristics of an entrepreneur.  You won’t always be right.  But if you’re right 70% of the time and correct when you make mistakes you’ll always be better off making the early calls.  Avoid deciding through indecision.  Don’t let outcomes happen to you by default.

I’ve been thinking a lot about what it takes to be a great leader and seem to be having this conversation a lot lately about Facebook, Yahoo!, Zynga and others.  I wrote several of the characteristics when I did the Top 10 (11) Attributes of an Entrepreneur.  One thing that I’ve realized over the years is that to be an effective leader you can’t aspire to be loved by everybody.  I think people with this affliction have a hard time being great leaders.  They dither on decision-making.  They fudge on org charts to appease people.  Clarity of purpose in leadership matters.

Think of the decisions we face as countries globally.  How much do we cut back public services to shrink our national debts?  How much do we bail out companies that were culpable of helping create our woes and what moral hazards does this create?  How much health care is the right amount to provide?  Who should be allowed to immigrate into our countries and on which basis?  How does the United States deal with 12-13 million illegal immigrants that are already in our country and came here illegally?  My point is that any decision you “actively” make will affect people.  Doing nothing is avoiding real leadership.  It’s kicking tough decisions down the line for somebody else to deal with in the future.  And for every day we put off decisions things get worse.

Companies are the same.  Tough decisions don’t always make you friends.  By default if it’s a “tough” decision some people will think you made the wrong one.  And when it means a change in somebody’s power, money or stature – or canceling a project that somebody has poured 18 months of their lives into – you’re not going to be popular.  Bad leaders want to be loved too much and their companies (or countries) suffer.

Take Jerry Yang, the co-founder of Yahoo!  I never worked at Yahoo! and I only met Jerry once.  But his role as “Chief Yahoo!” and his personality type seemed to be as the guy who built a wonderful, warm and fuzzy culture of purple at this new-fangled Internet kinda company.  That suited him when he wasn’t CEO.  But his tenure as CEO (and frankly the whole culture of Yahoo! pre Carol Bartz) seemed to be one of fudging decisions.  Not making hard choices in terms of organizational structure or product direction.  This led to the famous “Peanut Butter Manifesto” by Brad Garlinghouse.

I wasn’t in Jerry’s shoes so it’s easy to “Monday morning quarterback.”  So let me in stead paraphrase nearly EVERY single ex Yahoo! person I’ve ever spoken to on the subject.  ”We had such a great company.  In the early days it was such a great company to work for.  Everybody returned our calls.  We were innovating.  Google was n-o-t-h-i-n-g!  We were the game in town.  But we failed to adapt.  Other people got strong.  In the same way that AOL dithered and allowed us to become the Internet darlings we, too, avoided the big, company changing decisions.  And over time our best talent left.  They couldn’t take it anymore.  And eventually I got tired of us being the industry punching bag.  Of not taking tough decisions.  So I left, too.  It was a shame.  I really loved Yahoo! in the early days.”

The way “being loved” manifests itself is that as a CEO you build a great team beneath you each with great ideas and big career ambitions.  And yet you still have scarce resources.  Your sales team is pounding the table because engineering won’t ship new features fast enough.  Engineering is pissed off because they need to do some technical infrastructure improvements and the sales team is always pushing them to deliver too many features.  ”Sell what we have!!”  And you want us to work yet another weekend while you’re playing golf with clients and getting fat bonuses?  Marketing wants the sales teams to use the materials they’ve produced.  Biz Dev is pissed off because they can’t sign deals when they can’t get commitments from product management to agree to product integration plans.  Your product team is pissed off because they’re making $120,000 / year and some hot-shot 25 year-olds just made millions from the acquisition of XYZ company that we could have built here!

I see the CEO role of a growth company as often consisting of being “chief psychologist.”  You end up spending a lot of time listening to your staff, listening to customers, understanding human behavior / motivations, reviewing financial plans or GANTT charts and then having to make tough decisions because the one factor we ALL suffer from is limited resources.  Yes, even Google has to make these tough decisions about where to allocate staff and money.

By definition tough decisions produce winners and losers.  It’s your job to make those tough calls with the limited information you have and to soften the blow to the side that didn’t get their way.  If engineering got the shaft because “we need 3 more weekends from you to get this release out the door” … then there better be a solution to make this up to them and to explain your decision.  If you’re not going to release the features a large customer is expecting you’d better be prepared to call that customer yourself and take the bullets in stead of your VP of Sales.

In my experience it takes a really self-confident and resilient individual to make all of these tough judgment calls on a daily basis.  But over time if you make the tough calls with no fudges, if you’re fair and don’t play favoritism, if you explain your rationale publicly and clearly, if you help soften the blow to the side that doesn’t get their way … people will respect you.  And it is far better to be respected as a leader than loved.  In the end everybody will thank you much more for having had the courage – as long as your decisions were more often right than wrong.

Do you have a senior executive on your team that isn’t working very hard or producing results?  Afraid to make the hard decision to let this person go?  You think your team doesn’t notice over time that you can’t move non-performing people along?  People resent “dead wood” because when everybody else is working their asses off they hate seeing people who aren’t digging in.  Letting go somebody you like or who’s nice is never easy.  And I don’t say to do it lightly.  But if they’re non performing, they’re non performing.  There’s no place for that in a startup.  And in public companies we used to mockingly rename their titles to CVO … Chief Vesting Officer.  I often found that when people finally let some dead wood go and you explain it to the company most people thank you.

When I think about “respect” I think about Mark Zuckerberg.  I know a lot of people fear him right now and the popular thing to do is rag on Mark.  People fear his intentions and they’re pissed off at the changes Facebook has made to its privacy settings or channel arrangements.  In this post I don’t want to address those topics – I’m not a Facebook Fanboy.  But I do want to address Mark’s decision-making.  I believe it’s what makes Facebook, Facebook.  He has made decision after decision that was unpopular at the time – I’m betting even within his own organization many decisions were unpopular.  But he hasn’t fudged the tough calls.  He clearly isn’t obsessed with being “loved.”

Back in 2006 Facebook made a conscious decision to encourage the platform ecosystem even if it meant creating large businesses like Zynga (Slide & RockYou were the initial big players) that could make a lot of money off of Facebook.  MySpace dithered.  They felt that they didn’t want to create more Photobucket or YouTube successes.  ”Why should these guys get uber rich off of our backs?”  Facebook took the long view.

When Twitter rose to prominence Mark made “the stream” the focal point of the user experience.  This pissed off application developers because it became harder to find apps.  This pissed off many users who were used to interacting with apps and easily finding people’s photos, etc.  But Facebook made a call that the stream was the longer-term core of what people wanted to do inside of Facebook and that he had to combat the growing popularity of Twitter.  I think this decision proved to be correct but history will tell us.  A muddled organization could have never turned on a dime like this.

The effed up on the launch of Beacon – they realized it and killed off Beacon – at least for now.  And more recently they have begun to pressure players like Zynga to use their payments platform and have pushed the security model to be more open.  Both of these decisions are unpopular.  We’ll know in 2-4 years whether or not they were the right call.  But they were each a tough call.  No matter how mad some people become – he is certainly one of the most respected figures in Silicon Valley.  He’s most often compared to Bill Gates.  Who else in their 20′s can you say that about?

My message isn’t to love or hate Mark Zuckerberg.  My message is that the best in companies only comes through making clear and decisive judgement calls in your business.  Embrace not being loved.  Don’t be a dick.  But learn to live with the doubters or the naysayers.  Live with the grumblings of people who don’t agree with you.  Let them air their opinions.  Give them their voice.  Show respect to them by having the tough, internal, town hall style meetings.  But stay the course if you believe in your decisions.  If you’re a good leader and if you make more good calls than bad ones – you’ll be respected.

I haven’t written a blog post in a week.  I travelled for a couple of days for work and decided to get some sleep on those days rather than staying up into the wee hours as I often do when I travel.  I closed one deal (I’ll talk about that soon) and issued one term sheet (I hope to talk about that soon, we’ll see!).  It has also coincided with the kickoff of our Launchpad LA educational series which has taken some of my time.

But what has really killed me is email.  I live in email hell.  And for the last few evenings I decided to get through email rather than blog.  I’m always so completely behind on email.  I have a love / hate relationship with email.  Actually, mostly hate.  Email is a chore.  I’d much rather spend time conversing with people in a lighter weight venue.  I’ve always been a big fan of IM (instant messaging) which is why Twitter has been so appealing to me.  I love the restriction in terms of message size.  And I find that platforms like Twitter, IM and even Facebook carry much less “obligation” to them.  People expect too much when they email you. Your email is your recipients social obligation.

I email people – don’t get me wrong.  It’s just that the whole email system seems to be out of balance.  I’ve written about the topic before when I wrote the post “I emailed a VC but never heard back.”  As in, what do you do now that you’ve written them.  Should you bug them?  Is it normal to not hear back?  Are all VC’s just a-hole’s?  If you’re interested in that topic have a read of my previous post.

It was interesting for me to read Fred Wilson’s email bankruptcy blog post this morning.  I think I’m permanently bankrupt on email with no solution.  I don’t think any GTD method will work.  My volume is simply too big to handle.  It’s like spaghetti – the more I process the more it seems there is.  I’ve talked with a lot of VCs about this and all said the same thing, “we simply don’t get through it all.  There’s no way to.”  Actually, there is a way.  If I never spent time with my wife & kids, which I’m not willing to do.

When I read Fred’s post it resonated for two reasons: 1. He ends up spending personal time trying to get through email.  This is my life, too.  And probably yours.  We all want to be responsive  people.  2. He makes in clear in his responses in the comments section that he wants to review the email directly himself where many people recommended an assistant read through it.  I think we both feel we want to be accessible to people.  Not all VC’s feel this way in my experience.  Some love the filter.  In my mind that’s OK for some people.  It preserves more of their scarce time to deal with the people and companies with whom they want to interact.  I’m on the side of wanting to be more accessible.  It’s who I am.

But here’s the problem:

1. Anyone and everyone can email you.  When email nomenclatures are obvious you’d be surprised how many people feel entitled to just email you.  It’s not just the spammers or marketers trying to sell you products or services.  I understand that.  But it’s the person at undergrad who has a project in entrepreneurship and just wants your quick comments on their project.  Really.  I get those more often than you think.  And when I have time I try to write back.  Often I just can’t.  It’s the alum from University of Chicago who realizes I got my MBA there and feels a sense of kinship.  It’s the entrepreneur who’s buddy is a lawyer who wants an intro to you and who doesn’t think about whether it makes sense to ask you whether you want an intro before sending it.  It’s all of these things accumulated that adds up to such a huge mass.  And that’s in addition to portfolio companies, colleagues at work and legitimate deals you’re working on.  It’s just too much cumulatively.

2. The sheer volume / math doesn’t work. If you think of it this way.  Let’s assume I get 200 emails today.  Let’s say I can delete 100 as unsolicited with just 5 seconds work / email.  Then 30 are ones I can read quickly and delete or store (I only use one folder – “storage”) with no actions.  Each of these takes 1 minute.  Let’s say 30 are these sort of “unsolicited” emails that have some expected action associated with them.  Let’s call these “optional” and if I get time they take 2 minutes each to read and respond.  And then there are 30 “real” emails for which I really should read, process and come up with a sensible response.  Let’s call these 3 minute emails.  And the last 10 are the “big effort” emails.  They’re from lawyers or CEO’s requiring analysis before a response.  Let’s call these 10 minutes on average.

So that’s:

Marketing / conference invitations – 100 x 5 seconds = That’s still > 8 minutes.  Let’s say I read the text on 2 of them so round up to 10 minutes for “marketing junk” email

30 x 1 minute = 30 minutes for “read and store” email

30 x 3 minutes = 1 hour, 30 minutes of “real” email

10 x 10 minutes = 1 hour, 40 minutes of “big effort” email

30 x 2 minutes = 1 hour of “optional” email

==> 3 hours, 40 minutes of email / day plus 1 hour of “optional” email.  Let’s call it 4 hours.  Who has 4 hours / day to process email?  Let’s assume that I’m super efficient and can process these in 2 hours?  Many days I have a breakfast meeting, back-to-back meetings all day and then an evening event.  Or I’m at BOD meetings or conferences.  I can normally “just about” manage my emails until I pile up 2 days traveling and then I have a crazy email traffic jam.  If it’s more than 3 weeks old it’s unlikely that I’ll ever see it unless I search on it later (which is why I’ve started using X1 a lot more).

3. People who email you expect a response. Let’s face it.  In the old days if you wrote people a physical letter, first it was a big effort to actually write and send the letter.  So many things were filtered out.  But second I think there wasn’t an expectation that people would write you back.  Now everybody expects a response.  Based on the email math problem this just isn’t realistic for many people.

4. I WANT to be responsive and open. I really do want to get back to everybody who writes to me.  Sometimes I find myself trying to help the college student with a quick response.  Sometimes I do offer that University of Chicago person some quick advice.  So it really pains me that some people write me and I don’t write back.  I don’t want to be “that guy” who doesn’t respond to emails so people think that I think I’m above it all.  I’m not.  I sometimes dread going to conferences where I know people will walk up to me and say, “I send you an email a few weeks ago” and I’m struggling to remember it.  I have at least read or skimmed most of them.  But not always.

5. Social networks exacerbate the problem. People now write me on Facebook, Twitter and LinkedIn.  Luckily I haven’t signed up to Formspring and don’t spend time on Quora.  I actually tell some people to write me on Twitter.  Given that it’s constrained to 140 characters it’s easier to process.  But there isn’t a permanent record or any way to “mark something as read” so some stuff falls through the cracks.

6. Blog comments. Why don’t you just blog less or not respond to everyone’s comments? I do get that sometimes from people.  If I did that then I’d be letting email make me hostage to other people’s agendas.  I enjoy the creative outlet of blogging and being able to build relationships with people in a lightweight way that often lead to in person meetings or phone calls down the line where appropriate.

Anyway, so for now I have to live with occasionally not living up to other people’s expectations.  And to telling people to bug me multiple times if I haven’t responded to an email that they deemed as important.  If that’s you – I apologize now, in advance.  I’m willing to accept that I’ll never be a black belt in email.

Running the “Agile” Board

Most early stage startups having monthly board meetings. I normally recommend 8 meetings per year. It makes no sense to meet in August or December due to travel schedules of most investors. You can do calls if need be. And I often recommend that board meetings be every 5 or 6 weeks rather than 4 to give enough elapsed time for stuff to actually happen between meetings. Quarterly is too few for an early stage business.

But that isn’t what this post is about. This post is about what happens BETWEEN board meetings.  And most companies don’t do enough between board meetings.  Doing nothing between board meetings to me is like running the “waterfall software development process.”  We all know that modern software companies run on the “agile” development process by having short release cycles and frequent communications.  Boards will thrive on this, too.

For the record, this is not a secret, coded messages to companies for which I am on the board! A prominent startup CEO in NYC wrote me a private message telling me that this was an issue he was struggling with. He has high-profile board members and was wondering what do communicate to them between meetings. This is written for him and for anybody else grappling with the same question.

First, let’s look at the “normal” board meeting. I ran board meetings as a startup CEO for more than 8 years. I didn’t love most of them. I found that too often it was an update meeting for investors rather than a meeting for my company to get value. I’ve written before about how to turn this equation around and run more effective board meetings. If you want to prevent board meetings simply becoming investor update meetings? If so, you need to do a better job of communicating between meetings so that they always feel well informed.

For starters, don’t assume that everything I say here is what your investors want between meetings. I suspect many of them do but the best rule for any communications is to agree expectations. Make sure to ask them what they want.

VC’s Want to Help!

To understand what most VC’s want between board meetings I think it’s useful to start with a quote from Mark Solon‘s blog for which I’m in complete agreement (along with agreeing with his entire post, which was brave, honest and accurate)

“The overwhelming majority of VCs I’ve worked with get up in the morning and think about how they’re going to help their portfolio companies that day.”

That’s it. Most VC’s want to help. Most don’t immediately know how. They mostly understand your company, your customers, your competitors and your market but never as precisely as you do.  So help your VC’s help you.  Here’s how:

Intros

So taking Mark Solon’s comments into context, this is what most VCs want to help with most of the time.  VCs know lots of people.  They network with other VC’s, other startups CEOs, larger industry players, journalists, potential executives looking for their next jobs, service providers such as venture debt providers, etc.

And let’s be honest, other than money and coaching most VC’s add little value to your company strategy.  I’m not trying to demean VC’s – I think it’s just reality.  And deep down they know this.  Yet they WANT to help.  So the best way they can do this is by introducing you to people who can help you succeed.

But often they don’t know the right people and therefore you often get a string of introductions of which some are awesome and some are unfocused.  The unfocused ones add obligations to you.  They don’t do this on purpose.  The best way to get the Glengarry leads is to tell them whom you want to meet.  Here’s what I recommend:

• Create a Google spreadsheet listing your top customer prospects, biz dev prospects and other companies you would like to meet.
• Have a column for “want to meet now, in 3 months, in 6 months, etc.”.  Listing the future “meets” will help them understand your future roadmap / thinking but will help avoid getting dropped into an exec meeting from which you’re not ready
• Have a column for board members / investors to put their names against whom they know.  This will help because no investor wants to be the one without their name against anybody.  VC’s compete amongst each other to show that they aren’t the ones not adding value (a nice double negative, but true! )
• Have a space where you say, “please add other useful intros you feel you could make” and encourage them to add more names
• Make sure to politely remind investors to run intro’s by you before sending them out.  We want to help.  We don’t want to be unfocused.  But most VC’s are “intro machines.”  Help them to be well behaved.  Help them to follow your process.  If you’re polite and persistent they will – and they’ll appreciate it.
• Make sure to send a monthly email to all board members / investors with a link to your spreadsheet saying, “I’ve made a few updates.  I’d be grateful if you would quickly check the spreadsheet to see how you could help.”  We will not check proactively without a reminder.  We’re busy.  We want to help.  But we barely get through all our email let alone log into online spreadsheets.
• Make the spreadsheet short and focused.  The longer it is the less likely we’ll read and help.  Feel free to have color coding for each member with companies for which you think they might be able to help with intros.
• Finally, make sure you print out the spreadsheet and quickly walk through it toward the end of your board meeting (it’s not part of the strategic discussion – don’t lead with it).  This is partly to help you get the intro’s you need while you’re all in the room.  It’s party to remind board members that you walk through it each board meeting and they’ll know if their name is never on it.  It will help you to get them to remember to update it between meetings.
• Publicly thank any board member in your board meeting for an intro that led to something spectacular.  I hate to sound dumb, but VC’s are just like any other people and human behavior is predictable.  They work hard to help you succeed.  And the reality is that they’ll never say they want recognition but it’s nice to be recognized when you went out of your way and it paid off for somebody.  That small recognition will help you get a bit more out of your VC’s relative to other boards they sit on.  I know any VC reading this will be wincing and thinking it isn’t true.  It is.  We’re all just grown up big kids who operate the same way we did when we were young.  Recognition is Pavlovian.

Talking about you appropriately in the right settings

The other thing that VC’s need between board meetings is a reminder of all of the key particulars on your company.  They mostly get what you do and whom you compete with but they can’t keep up with the constant changes.  Make sure you have a simple elevator paragraph of what you do.  It’s not a mission statement.  It’s a 3 paragraph statement of what you do.  It’s the kind of thing you’d give to your PR company if you could afford one.

Having these paragraphs in the hands of your investors will help ensure that they position you correctly when they talk to all the important people they see.  If you’ve ever heard a VC introduce you to somebody and describe what you do, you’ll know why you need this.

I also think it’s a good idea to have a competitor matrix that shows your key competitors and how you feel you stack against them +/-.  Unlike the intro Google spreadsheet for introductions, this isn’t something they’ll edit so don’t make them log in to get it.  I would send this out quarterly.  Have a column against each competitor for “recent news” where you have a one paragraph update on your competitors movements.

• Knowing who the competitors are will help the VC with positioning you.  It will help in your board meetings because you shouldn’t spend tons of time talking about this in the board meeting.  You can talk about “what to do about competitor moves” rather than reminding them who your competitors are.
• Don’t send with board pack.  Sending with all the other board materials will ensure that it is read in 30 seconds and not properly digested.

Positioning your progress correctly with their partners

The other big thing investors want to do is know how to talk about you with their partners.  Most partnerships are exactly that – partnerships.  We need to be sure we’re not surprising our partners with negative news and want to share the positive stuff also.  Make sure your investors are crystal clear about the things that their partners are going to ask them.

• Partners will ask about “recent high profile news” that might affect the company.  If Apple announces their OS4 and it affects data gathered from the iPhone and you’re using that data – assume their partners will ask how it affect you.  Or if you’re a mobile ad network and they announce iAd – same thing.  Whenever a big announcement affects you I recommend you send your board / investors a quick email saying, “here’s the iAd announcement and how we currently think it affects us.”  Be honest about what you know / don’t know.  They will be asked by their partners.  They will appreciate your proactively telling them.  They will likely forward your email to their partners.  Make sure when you write it you assume this.  Obviously you’ll write  ”please keep this confidential” but don’t assume it won’t accidentally leak just a little bit.  Be prudent.
• Make sure all board members / investors are clear when you think you’ll run out of cash.  This is the single biggest thing they shouldn’t be surprised about.  Even it it’s 15 months away they need to know when you think you run out and when you think you’ll need to be fund raising.  Constantly remind them of these dates.  They need to plan and they won’t want to surprise their partners.

Showing up at board meetings ready to contribute

If you want your board members to show up at the board meeting ready to contribute then you need to send out board materials 72 hours in advance.  Your board will say 1 day is fine and 2 days are plenty.  They’re not.  People get busy.  Most of them will read your board pack 30 minutes before the board meeting.  So they have no time to think about it, read your numbers closely, have a quick phone call or two with you about things and generally prepare.

If you can get it done the day before why can’t you get it done 3 days before?  Send it early and make sure to continually remind people politely that you expect it to be read entirely before the meeting.  If you want to be super prepped – call each board member for a 10 minute chat 1 day before the board meeting to chat about anything they saw in the board pack.

I know it sounds like overkill.  But if you’re not regularly talking with your board members anyways that’s probably a problem.  And having this pre board meeting really quick chat will make the board meeting more effective.

Update Notes – Your Board “Sprint” Process

I think the best way to keep your board members generally updated is to have a 1-page, bullet point set of notes that you distribute via email every 2 weeks.  It should be inline in the email rather than a document attachment.  It should be MUCH shorter than this post so your board will actually read it rather than skim it.

• I recommend bullet points because it breaks up long text and makes it visually easier to read
• I would break up your section into three categories: major achievements in the past 2 weeks, plans for next 2 weeks, things we could use help with
• Make it clear to board members that it isn’t an obligation that they consume every one of these but that you want to produce so people will feel  a lightweight sense of what your company has been up to
• I know it will seem like overkill.  If you keep it high-level enough it’s not.  It will help you better with planning, it will force you to make some commitments and it will help your board feel informed.
• Think of it this way:  if having your development team work this way through sprints, why not board notes?  Meeting every 6-8 weeks with no interim communication is like the waterfall software development process!

And Finally – work the phones!

A lot of CEO’s ask me for standing “update” phone calls.  Most CEO’s know that I hate the formality of these.  If a board member is on 6 boards imagine how much admin it gives him/ her to have weekly update calls.  But I DO love to speak to the CEO’s all the time.  Often, but impromptu.  Get in the habit of calling board members frequents for quick updates or to ask for quick advice.

Resist the temptation to talk for a long time.  If you get in the habit of calling and getting off within 10 minutes then your call will always be welcome.  Not everybody works this way.  And some people are fine with standing meetings and following a process.  Me, not so much.  So make sure to ask your board members what they want.  I suspect many would say, “we don’t need to speak on the phone all the time.”  But trust me, it’s like vitamins – it’s good for them.  And you.  So make it happen.

That way board meetings will be there to talk about what REALLY matters since you’ve gotten all of the routine kibitzing out of the way.

UPDATE: Having had great feedback on the topic from Babak Nivi and Brad Feld I wrote a short update to The Agile Board.

Oh, boy.  Here we go again.  Another post on job hopping.  This will be my final word on the topic.  I promise.  My goal here is to move the debate forward, add my POV but not inflame things any further.  Inflaming was never my goal. Let’s see if I can achieve that.

My WORD of the day is “loyalty.”  It’s one of the angles that people who were angered by my original post the most found so offensive.  I think because I implied too hard that job hoppers were disloyal.  So rather than focus on that angle I’d like to focus on the opposite.  The benefits of being extremely loyal.

My original post was directed at hiring managers.  It said that I didn’t believe it was a good idea to hire job hoppers.  I should have kept it in third person.  I should have chosen less inflammatory words.  I didn’t mean to be so insulting and I didn’t mean for the net to be cast so wide that many people wondered whether I was talking about them when I was speaking of “job hoppers.”  I learned a lot from reading the comments.  Most were constructive – even the ones that were harsh.  I’ve already apologized for my tone so I hope you’ve accepted that.

My view still stands – for many hiring managers a large factor in looking through resumes of somebody who is 30+ and has never worked somewhere for more than 18 months will be the job hopping element.  There is a high probability that the person you’re hiring will leave you within 18 months.  You have at least 6 data points to suggest this.  3 or 4 may be for completely understandable reasons.  Since recruiting is so time consuming and costly it is better to focus on people more likely to stay longer.

For those that disagree – let’s please just agree to disagree.  It’s a subjective topic.  We’ve all had more than enough of our views aired on this one.  Moving on ….

My second post was directed at employees.  I wanted to make it clear that I personally believe it is OK to quit a job in which you’re unhappy.  I believe that it’s OK for young people to learn and try different roles, companies and geographies. If you’ve moved around a bit when you’re early in your career that won’t likely be held against you.   Yes, I know that many employers are bad.  I’ve worked for bad bosses before.  I never implied that startups are all great and job hoppers are all at fault.  I know that there has been downsizing and that has led to some job changes.  Some amount of change is expected.  It’s just that if you’ve had 6 jobs in a row of each 18 months or less the person who is looking to hire you at the next job is naturally going to wonder whether it’s a pattern.  Your job will be to convince them that it’s not a pattern.

So I advised people with a lot of job hopping on their resumes to try and limit the number of them listed.  Getting an interview is the first chance you have to convince the potential employer otherwise.  If you want that advice please click on the link.

I also made in clear that I have NO problem with people who choose to be independent contractors as a career choice.  To the contrary – if you know how to sell your own work, can negotiate good rates, network well, keep consistent work and have a great reputation – it can be very rewarding.  If you’ve done it for a long time then I usually advise hiring managers to hire you as contractors and not full-time employees.

Finally, I made clear that there are ALWAYS exceptions to the rule.  They come in the form of personal references.  No rule is ever absolute no matter how it sounds when one writes a blog.

But one theme really didn’t come through in either of my posts and it’s an important point.  There is a lot of long-term value in loyalty.  And I think this is sometimes missed by those who run to quickly to greener pastures.

The things you learn in tough environments

Most of what I learned about operating startups I learned from the really tough years at my first company from 2001-2003.  That is when no customers wanted to work with Internet startups because we as an industry had burned so many customers.  No employees wanted to join startups – they were all looking for stable jobs.  My company had raised venture capital in April 2001 but we were told that there may never be any more coming.  I was paid less in salary in 2004 than I was paid at the job I quit in 1999 (a job I had held 8+ years).

But in these years I learned how to sell software – necessity is the mother of all invention.  I learned how to better run a product management process.  I learned how to integrate customers into our product development process.  I learned how to better set goals for employees and reward those that performed well.  I learned how to retain employees when stock options were no longer a real currency.  I learned how to get press coverage when we were no longer “hot.”  I learned how to manage costs effectively.  I learned that I had a lot to gain by not being so adversarial with my competitors.

I never built Google.  I’ve acknowledged that many times.  But in our first year of sales (and those were really shitty years to be selling software) we sold $2.1 million, then $5.9m, $7.7m and we ultimately sold when we hit $14 million and had more than $30 million in backlog revenue.  I learned about revenue recognition.  I learned how to establish a technology center in India and how to manage disparate development teams (and this has drive my thoughts also about what does NOT work.).  I learned how to establish sales targets and how to manage a sales pipeline.  I learned how to do a pipeline review with sales people without getting bullshitted to.

Listen, I’m not telling you these experiences are for everybody.  But these are things you could never learn in 18 months.  These are things that my team learned with me by sticking around.  No doubt they have more intimate knowledge of these processes since they actually ran them.  We let everybody “punch above their weight class” in terms of roles & responsibilities.  We all learned.  And eventually many of us also made money.

The relationships you build will be enduring

One of the things that Jason Calacanis talks about in his post on the topic is the value of personal loyalty.  He’s right about this.  The people that I’m closest with in life are: my family, my high-school & college friends and the people that I worked with in my startups.  We were all at each other’s weddings, brit milah / baby namings and unfortunately a funeral.  We were family.  We ARE family.  I would do anything for these people.  I wrote a large check to one of them for a startup with no product and no real plan.  He was there for me when I needed it.  I sent numerous emails for another for a job opportunity and he is now a senior exec at a very prominent startup.  He’s family and he knows it.

We were in the trenches together.  We fought for every customer together.  Hell – we fought against the VC’s together!  And we all worked on the exit together.  Like many of you, I have many friends and close relationships.  But to anybody who has ever been on the startup battlefield with other people who all stuck in it together I think they’ll likely understand where I’m coming from.  Loyalty in times of adversity separates out your true lifetime friends and colleagues.  And to be clear – I was loyal back.  I think leaders who quit in times of adversity and leave the teams to fend for themselves are no better than employees who quit easily and early.  Quitting would have been the easiest thing for me to do.

I’m not saying that means that all people at startups were treated like family.  If somebody at a startup mistreated you then I understand your not sticking around.  And I’ve already stated that I understand sometimes it makes sense to go elsewhere and learn from new companies and new management.  But if the reason your bailing is simply because somebody has offered you a 20% pay increase, I would ask you to consider the following:

Short-term vs. long-term benefits

Yes, you can always earn more by quitting.  I said this all the time to the employees at my companies.  ”I know you can earn more by leaving.  I hope that I can convince you to stay every year by making your resume more valuable in the long-term than the immediate bump to go where the grass is greener.”

Think about me as an example.  I didn’t make retirement money when I sold my first company.  But the firm that funded my first startup was loyal to me for having stuck around in what they knew to be pretty tough times and having suffered much dilution.  They seed funded my second company and even let me buy some IP in exchange for debt to get started.  The people that I brought to my second company all worked at my first company.  I was loyal to this group of people and still am.  I then sold my company to Salesforce.com and did finally make the money I had set out to make the first time.  Our whole team earned good money and every single employee is still employed by Salesforce more than 3 years later.

Each of us could have traded in our jobs at any moment for a pay increase at any time.  I think each and every one of us gained more in the long-run by having stuck with things.  We have all gained both financially and in terms of career progression.

So how did I come to work in the world of venture capital?

That VC who saw me stick through hard times at my first company and get an exit at both companies is the firm where I’m now a partner.  We built a long-term relationship.  I knew my partners for 8 years before joining GRP.  When I called them to say I was thinking about starting a new company they asked if I would consider joining them as a partner.  It is nearly impossible to get a job as a general partner in a VC firm – let alone when you’ve never worked in venture capital.  This came through the long-term commitments that I made years prior.

Again, I’m not trying to rub your nose in it if these aren’t the choices you make.  I’m just trying to convey that sometimes long-term gains come from not making short-term moves that seemingly improve your bottom line and career trajectory.  Make sure that you understand the pro’s / con’s for yourself and at least consider whether there might be longer-term implications for sticking around.

Their is huge value of personal networks in determining your long-term career trajectory.  Mix that into your decision-making pot at the time you make the leap.

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