Wednesday, August 16, 2006

Lesson #5 - The Driver - Does he know the way?

Like with any long road trip - you may have many drivers. Some get tired and fall asleep at the wheel, some simply don't know where they are going, and others drive too slow or too fast. Choosing the right driver at the right time is a key part of a successful trip. In the beginning of any venture it is less important to designate one person as the CEO, since you are focused on building a product and and everyone is working day and night and too busy to argue about roles and responsibilities. However, at some point a critical decision needs to be made on who is at the wheel.

Sometimes it is a difficult decision to make because everyone feels the title of CEO means "his way or the highway". But this is not the case. The role of CEO is to focus on execution and maximizing everyone's talent and capabilities. Sometimes a key decision needs to be made, and (yes) the CEO may need to make a tough call - but if the executive team is able to agree on a business plan - these decisions are far and few between. Much like a road trip - if everyone agrees on the destination - the driver has map to follow.

How do you know if you have the right CEO?

This is a tough question. If the company is a startup - the CEO needs to be a good communicator and evangelize the vision of the company. He doesn't have to be the visionary or the "idea" man - but he absolutely must be able to convince someone in 5 minutes or less that your company is the next big thing. Whether you are motivating partners to work late nights, or convincing a potential investor to write a check - the CEO needs to be a great sales person.

If the company is beyond the early years, driving revenue and in operational mode - then the CEO role expands. Some CEO's (rare) have the capability to sell the vision and execute the operational plan. Although "selling the vision" never loses importance, the ability to execute a plan and manage all aspects of a growing and dynamic organization is extremely challenging. Sometimes, a CEO balances their capabilities by hiring a good COO or CFO to help manage operations - but this only delays the inevitable - of having a CEO who can execute.

Here is a simple way to determine if you have the right CEO to help build a new company:

1. Has he been a CEO of a startup before?
2. Has he successfully raised capital in a startup before?
3. Does he speak with conviction and passion?
4. Does he solicit feedback and opinion before making important decisions?
5. Does he roll up his sleeves and work with the team to execute?

When choosing a CEO, set your expectations high, and make sure he is someone you would want to grab a beer with after work, because no matter how inspirational or experienced a CEO is - he needs to be able to bring the team together. Otherwise, he will be driving alone - and at that point - the destination doesn't matter much anymore.

Monday, August 14, 2006

Lesson #4 - Gas Money : Everyone needs to chip in

When you start a new venture, it doesn't take long before you look around the room and ask "How are we going to pay for all this?". For some entrepreneurs (who have had success) they may be able to fund the first leg of the trip, but for most - they need to find a way to get "Gas Money".

Much like a road trip, it would make sense for everyone to chip in equal share for the gas. No free rides, right? Unfortunately, it rarely happens when starting a company. This is where I feel most entrepreneurs make their first critical mistake. The classis example, is three guys get together, form a company and split it three ways - 33% each. They work hard (sweat equity) for a month or two and build a nice business plan, perhaps even put together a rough prototype, and then realize they need some more money. At this point, they all should put out their wallets, and invest equally the seed capital to fund the next phase - but this rarely happens. Usually, it will be one of the guys who gets a second mortgage, or begs friends and family for cash.

Now I understand not everyone can write a check for $10,000 or afford to take the risk associated with a new business - and this is why we call them "employees" not "entrepreneurs". If an individual is not willing to invest real money into the company, then the terms of the relationship MUST change. He or she needs to earn their equity, and not be given 33% of the company, just because they happened to spend a few long nights searching for a domain name. Money is not just "gas" for the business, but it is one thing that keep people motivated and invested in the business.

Ofcourse, dividing up equity in a startup is not an easy task. Its like measuring the value of each person at the table. It can become very personal, and at some level insulting for some. However, this is what partnership is all about. This is the first big test in setting expectations and having everyone understand what they bring to the party.

My solution is simple. Give everyone fair share of the company. Make them earn the equity over time. For example if Jon is given 33%, make him work for 3 years to earn 11% per year. And if Jon invests cash, then set a price on the stock, and let his investment be treated like a venture capitalist investing in the company. This will dilute those shareholders who are not investing with Jon.

So next time, when you pick up a hitchhiker, and you pull over to get gas, and he looks at you and says "I ain't got any cash on me" - either kick him out, or make him wash the van and earn his ride.

Tuesday, August 08, 2006

Quote of the Day

"Business opportunities are like buses, there's always another one coming."

- Richard Branson, founder of Virgin Enterprises

Sunday, August 06, 2006

Lesson #3 - The Road Trip : Plan for rough weather and the occasional falling cow.

Now that you have your team pumped up and your destination plugged into the GPS - its time to start the road trip. Like any trip, there will be road blocks, detours and maybe falling cows - but as long as you keep driving towards the destination - you will never feel lost.

I want to share with you a great "Destination" story. It is a story about two hitchhikers who had their fair share of rough weather. The story begins - Two guys (ages 23 and 24) meet in college. At first they can't stand each other - always arguing - but eventually the mutual respect surfaces once they both realize they share similiar ambitions. They started working together on an ambitious project (nicknamed Backrub). Neither knew exactly how they were going to get to their destination, but there was no doubt in their minds where they were going.

Once that had a working product, they decided to call some potential customers. Each discussion ended the same - "Guys, that's interesting, but not interested right now." Unfortunately, with limited money and busy trying to finish college, both were faced with a big decision. Both decided to leave college and start the company - but they knew they needed cash to continue operations and reach their destination. (Everyone needs gas money).

They started talking to people they knew - looking for prospective investors. After months of searching and coming close to calling it quits, they got an inpromtu meeting with a colleague of their professor. As one of the guys tells the story - "We met him very early one morning on the porch of a faculty member's home in Palo Alto. We gave him a quick demo. He had to run off somewhere, so he said, 'Instead of us discussing all the details, why don't I just write you a check?' It was made out for $100,000."

The rest is history. Those two guys are Larry Page and Sergey Brin, the founders of Google,Inc.. Their company is worth over 100 Billion dollars. Their Destination was simple - create a more powerful search engine, and give users more relevant results. From day one, nothing went as planned, but they knew exactly where they were going.

So remember, despite the lightning storms, the flat tires and the occasional falling cow that hits the hood of the car - nothing that happens in the journey can change the Destination.

Saturday, August 05, 2006

Lesson #2 - The Destination : Get everyone to agree on atleast one thing - the destination

"There are many paths to the top of the mountain, but only one view." -Harry Millner.

Building a company is a journey. Much like hitchhiking from one city to the next, there are many paths, many people along the way - but without a destination - there is no purpose. Everyone has a different opinion on the details of the trip - where to eat, sleep, stop, etc - but in order for the journey to have meaning - everyone needs to agree on the destination.

So many companies start with what is labeled as a "vision" or a "mission statement"... but most of the time the words they use make no sense, sound like something copied off a motivational poster or a weight-loss clinic brochure. A company needs to define a "Destination" before it can really build a plan, a team and achieve success.

The Destination is more than seeking fortune, power and glory - it is a bold statement of where you will be in 1,5 and 10 years.