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How to set a Wildfire

It’s January, which means it’s “east coast schools visit Silicon Valley” season. Harvard Business School, in particular, does a great job at connecting students with alumni entrepreneurs out here. A week or so ago, I attended one of these HBS events featuring ‘08 alum Victoria Ransom, co-founder of the social media marketing pioneer Wildfire. Victoria started Wildfire during our Summer@Highland program in ‘07, and recently sold her company to Google for an undisclosed (but most likely very favorable) price. Victoria had a couple pieces of advice for the audience, which I’ll share here.

Just say “no” to customization.
Customization leads to low margins, due to a higher level of service and added distraction for the development team. While some companies may charge separately for services, adding a services component in most businesses reduces the ability to scale quickly, even if revenues are higher.

Victoria took the position that Wildfire would build tools for its customers to manage social media marketing campaigns, but would not customize its tools beyond the core feature set. Such behavior should be saved for digital agencies, not tech companies. This decision was a contentious one, since Wildfire was often approached by companies with big marketing budgets demanding special attention. Yet, it enabled Wildfire to have great margins, the evidence for which is how little venture capital it raised to get to a similar scale as its competition.

Use a commission-based sales model with a low base.
Setting a low base salary for her inside sales force created several benefits for Wildfire. First off, sales costs scaled in line with revenue, so the business stayed capital efficient. Second, a high commission structure relative to base attracted a different type of sales person: younger, hard-working, more driven to succeed. Finally, because high commission structures are attractive to those earlier in their careers, the pool of people to hire was significantly larger.

The caveat here is that a great sales machine, which takes inexperienced young people as an input, requires world-class training. As such, Wildfire hosted regular sales bootcamps and promoted its own star salespeople into managers to run them.

Enable every employee to be a recruiter.
In the competitive Silicon Valley hiring market, relying on paid recruiters is an arms race, where the company with more money and more recruiters wins. Wildfire took a different approach. A key metric watched by management was employee churn (excluding those let go for performance reasons). They noticed that low employee churn correlated with a high degree of job referrals from the employee base. No surprise: happy employees tell their friends to come work at their company.

Today, roughly 50% of Wildfire’s new hires come through employee referral. When you’re running a business that scales with a sales machine, that organic hiring ability is a real competitive advantage.

What irks me about Avis-Zipcar

I started using Zipcar at MIT during my grad school days in late 2005. Living in a dorm on campus for $900/month and getting paid next to nothing, I certainly couldn’t afford to park a car, much less own one. Zipcar seemed like a great way to have access to a car, without the associated overhead. There were a number of cars just down the street, so it was convenient. Plus, Zipcar was the only car rental company that wouldn’t slam me with an “under 25” fee. If anything, Zipcar was cheaper for the 21-25 crowd because of significant student discounts. And the experience (pre-smartphone days, mind you) of swiping an RFID card, getting in a car, and driving off was simply delightful.

I had rented cars before when I was with my parents, and not much has changed with that process. I don’t use Avis frequently, but from what I remember it’s not much different than Hertz. I use Hertz all the time, usually gritting my teeth. I’ve written before that renting a car is one of the sleeziest mainstream consumer experiences: the inability to hold the reservation you made, the ridiculous upsell to insurance you don’t need, the poor service when all you want to do is fall asleep after a 6 hour bicoastal flight, the insanely bad GPS systems that cost as much as gas in some cases.

Post acquisition by Avis, I hope that Zipcar doesn’t go the way of its conventional car rental brethren. Zipcar succeeded early on because it delighted customers with a value proposition they couldn’t find elsewhere. My worry is that, as long- and short-term rental blend together as a category, the service will start to deteriorate. The temptation will be too strong to apply traditional upsell techniques to Zipcar customers, and that’s when they’ll start to leave in droves.

So tred lightly, Avis. You could really screw this one up.  

Back in the saddle

You may have noticed this blog has been a bit sparse lately, if not totally barren. The change from my weekly-ish posting to nothing at all was somewhat intentional. With a cross country move just completed, I forced myself to focus on getting in the swing of things out here in CA. No time to blog unfortunately.

It’s been in a crazy end of 2012 to say the least. I am involved in several, early stage investments now, all of which are tackling big problems with technology. At this point, however, I can only talk about one of them: thredUP. I will do so in a future post.

I have also taken the reigns of our Summer@Highland program, which we will be launching formally over the coming month. We are very excited to roll out our sixth annual program to help university students build companies over the summer. More to come on that as well.

Finally, let me add again that I appreciate all the support of the regular readers of this blog. Do me a favor and tweet, share, or subscribe to spread the word. Here’s to a productive 2013!

P.S. I wrote this post in the Tumblr app on my iPhone 5. Mobile first, baby!

Some notes on culture

Culture is one of those traditionally hazy business concepts that everyone thinks is important, yet no one can define. Or, if they can define it, the definition sheds almost no light on what to do tactically to build culture in a company.

This morning, I sat in on a brief panel discussion that had a few choice nuggets on culture. Combined with a few of my own observations, this represents a decent subset of what I deem to be tactical when it comes to setting culture in a startup organization:

Culture is how people decide what to do in the absence of explicit instruction.
When you have 4 founders around a dinner table, it’s relatively easy to discuss difficult topics and come to a decision point. When you have 400 employees, that’s impossible. Eventually, someone in your company is going to make a critical decision without consulting you, and you want her to do so in a way that represents your company’s values. The goal is that she knows which decision to make because she refers to strong, pervasive cultural norms.

Your employees learn culture in the first few months, and then it sticks.
Should I forward this email with cat pictures to the list-serv? Should I invite my manager to this meeting? People ask themselves these questions a lot when they start a new job. They find the right answer by looking towards their colleagues. After that point, they assume that’s “the way things are done” and go on autopilot.

As such, the main cultural decisions (“No, we don’t send out time wasting emails” or “Only invite your manager if a resource allocation decision needs to be made”) are decided in the first few months after you hire an employee, so it’s important to enforce them early and often.

Put all decisions in the context of the mission. This reinforces culture.
Any time you make a decision that has some exposure in the company, tie your justification explicitly to the mission of the company. Use these opportunities to communicate and reinforce the message, and in doing so you will show practical applications of the company’s culture. 

Culture means nothing if it doesn’t influence hiring, promotions, and terminations.
Reed Hastings likes to point out that the values of Enron were Integrity, Communication, Respect, and Excellence. Were these traits really valued? Of course not. A culture is only authentic if managers take action (read: hire, promote, or fire) on the basis of that culture. A lot of people should have been fired at Enron if those were the true values of the company.

All hands meetings are 100% necessary and should be made at least weekly.
Github holds a “all hands” meeting each week it calls “Beer O’Clock” where it does at least 3 things. First, the CEO introduces each new hire and describes what she is working on. This helps the employees find one and other in the organization and set the expectation of an eventual work product from that person.

Second, he talks about what was shipped that week, and occasionally does a demo. That shows employees that shipping product is a key value of the company.

Finally, he talks about the general state of the company and reinforces his philosophy on what he is building, again taking the time explicitly reinforce culture.

Develop metrics for culture, like everything else.
A good culture is attractive. People want their friends to work at their company if they love their company and its culture. Make it easy for employees to bring their friends into the fold, and then track how often they do this. It’s a great example of a metric that shows positive cultural growth.

Another good one is how often you, the CEO, get called out for violating the company’s values. The comfort an employee must have to do this shows how pervasive culture must be.

Never compete on compensation with larger companies.
If you’re the highest bidder, as a startup, you’re probably not sending the right message to a new candidate. The message you are sending is that your culture is about extracting financial value, which may not be the one you want to promote.

Furthermore, you should assume that everyone will eventually know what everyone else makes. Paying people in similar roles drastically different salaries due to different hiring situations can engender resentment.

Don’t define culture in negatives.
Google is famous for “Don’t be evil.” Atlassian has “Don’t f*&% the customer.” These look great on T-shirts, but when it comes down to action it doesn’t help with edge cases. What about sort’ve being evil? Or sort’ve f*&%ing the customer? I mean, charging them more for additional services if they don’t notice isn’t really evil, is it?

Instead, define culture in positives. Atlassian has another core value that I like better: “Be the change you seek.” That tells me that, when I can’t get others to do something in the organization, it’s my responsibility to get it done myself. 

Finally, whatever culture you create, optimize it for happiness. 
Happy employees stay at your company, and they often bring others into the fold.

If you have other suggestions, please leave them in the comment section below!

Building a biodiverse startup team

An early PayPal employee revealed to me recently that one of the key success factors early on for the company was hiring only friends or close acquaintances of the founding team. Some clear advantages of this approach are:

• Each candidate is already vetted.
• Compensation will probably be more reasonable since the relationship is proprietary.
• The close rate is naturally going to be higher.

The main disadvantage of this approach is that it doesn’t naturally scale beyond the social network of the founding team. At some point, even though the marginal employee brings on new connections, the number of net new connections will experience diminishing returns. I call this a lack of “biodiversity” on a team. At some point, you need to bring in an outsider to provide a shock to the system, which can make it more resilient and open up new networks.

The big question is when to do this. I’d argue as late as possible. Keep the team small and familiar until you simply can not do so anymore.

Unfortunately, I’m seeing lots of companies giving up too soon. And when they do give up, the floodgates open. Professional recruiters (both inside and outside the company), LinkedIn, GitHub, and other sources of leads are necessary at a certain point. But these can become a hard habit to kick once the recruiting machine is up and running.

If you’re going to reach out cold, at least focus on a few core people that matter deeply in your industry, and get those folks on board. Make sure their social network is non-redundant to that of your team. Then, empower their new hires to begin the cycle of hiring their friends and close acquaintances.

Thinking of each new hire as bringing on net new connections is a far better way to approach recruiting and will help push out the need for a cold-call recruiting engine until much later in your company’s life.

Rebuilding my RSS feed

A little over 4 years ago (sometime during business school), my good friend Rylan Hamilton told me to set up an RSS feed to follow a few sectors that I was interested in for job opportunities. This piece of advice became my #1 tactical recommendation in the years that followed for all job applicants. (You’d be surprised how many people don’t know that reading every day about your sector makes you a more qualified applicant. Go figure.)

Lately though, my RSS has become bloated and inefficient, so I spent a few hours over the weekend rebuilding it. A few folks have asked me what I follow, so here’s the list in completeness.

NOTE: I’ve hyperlinked a few of my less well-known favorites that you all should check out. If you have some non-redundant additions to the below, please leave them in the comment section. Thanks!

Tech & Internet

• Andrew Chen’s blog
• BostInnovation
• Hacker News
• PandoDaily
• TechCrunch
• VentureBeat

Product & Design

• Ask E.T.
• Six Revisions
• Bokardo
• Little Big Details
• Presentation Zen
• Oneextrapixel
• Wireframe Showcase
• Design Staff
• Inspect Element
• pinch/zoom
• tripwire magazine

Marketing

• Marketing Pilgrim
• Startup Marketing Blog
• The KISSMetrics Marketing Blog

Robots & The Future

• KurzweilAI
• MAKE Magazine
• MIT News - Robotics / artificial intelligence
• Science Daily: Robot News
• Singularity Hub

Other (highlights only)

• HACK Education
• Earth2Tech
• Letters of Note
• Steve Blank
• A VC
• Ben Horowitz’ Blog
• Demo Memo
• Visualizing Economics

Crank turners

I had lunch yesterday with a friend who runs product at a giant consumer tech company. We talked a bit about my impressions of Silicon Valley and the temporariness of some of the startups we’ve both come across. His response was that the sole reason his company was successful early on was that they “had 10 really smart people in the same organization, working on the same problem, for 3-4 years.”

Imagine how difficult that would be now, with talent as fluid and competitive as it is in Silicon Valley. Many of those smart people are tempted to build an incremental feature on top of something another team spent years focused on. Sometimes that strategy works, and when it does, it reinforces the cycle that this is the best thing for smart people to do: build incrementally and move onto the next thing.

The American author David Foster Wallace critiqued this approach in the world of literature in a 2005 interview, when he called these people ”crank turners.” I think the analogy is somewhat apt to the startup world:

But when you talk about Nabokov and Coover, you’re talking about real geniuses, the writers who weathered real shock and invented this stuff in contemporary fiction. But after the pioneers always come the crank turners, the little gray people who take the machines others have built and just turn the crank, and little pellets of metafiction come out the other end. The crank-turners capitalize for a while on sheer fashion, and they get their plaudits and grants and buy their IRAs and retire to the Hamptons well out of range of the eventual blast radius.

There are some interesting parallels between postmodern crank-turners and what’s happened since post-structural theory took off here in the U.S., why there’s such a big backlash against post-structuralism going on now. It’s the crank-turners fault. I think the crank-turners replaced the critic as the real angel of death as far as literary movements are concerned, now. You get some bona fide artists who come along and really divide by zero and weather some serious shit-storms of shock and ridicule in order to promulgate some really important ideas. Once they triumph, though, and their ideas become legitimate and accepted, the crank-turners and wannabes come running to the machine, and out pour the gray pellets and now the whole thing’s become a hollow form, just another institution of fashion.

Take a look at some of the critical-theory Ph.D. dissertations being written now. They’re like de Man and Foucault in the mouth of a dull child. Academia and commercial culture have somehow become these gigantic mechanisms of commodification that drain the weight and color out of even the most radical new advances. It’s a surreal inversion of the death-by-neglect that used to kill off prescient art. Now prescient art suffers death-by acceptance.

We love things to death, now. Then we retire to the Hamptons.

Negative feedback: ‘tis harder to give than receive

One of my first experiences in business was working at McKinsey & Co in the summer of 2007. I had just graduated from MIT with an M.S. and had received a full-time offer to join the firm in its business technology practice. I opted instead to attend HBS in the fall, so McKinsey was kind enough to bring me on for the summer as a compromise. I wanted to give the whole consulting thing a try and see if it was a fit for me personally, especially after finding I meshed pretty well with several members of the NYC team. 

Put simply, I didn’t love consulting. The folks at McKinsey are incredibly talented at what they do, and the organization has a strong culture. I learned a lot about how world-class service organizations are run from working there, but I never saw the value to my own career of being a consultant. 

I did take away one important lesson: giving feedback is a heck of a lot harder than receiving it. Feedback is hardwired into the McKinsey culture: you get and give it many times during a typical “engagement.” Even the summer interns get feedback.

I remember my first feedback session, during which my manager sat me down and walked through a couple things I could do better. Eager to please, I had an explanation for each negative observation he brought up. The conversation degraded quickly into an argument.

Eventually, he interjected:

Ok, hold on a second. You have to realize something.

As hard as you think it is to receive negative feedback from me, it’s a heck of a lot harder for me to give it to you. So, if you want this to be constructive, you need to sit there and listen and not be defensive of every point I make.

I get this now, many years later, after having been on both sides of the table repeatedly. Nobody likes making other people feel like they’re doing a bad job. I think that’s why most organizations suck at giving feedback: managers want to avoid putting themselves in an awkward position.

Yet, without difficult conversations, problems fester and go unnoticed by those who are creating them. The best thing you can do is have that conversation often and early, and if employees are self-aware, they will eventually thank you for it.

On the receiving end, the best thing you can do is to shut up and listen hard. If you really disagree with the feedback, then ask clarifying questions in the form of, “So, let me make sure I understand  you correctly. Are you saying…” Just starting off the sentence that way will take the edge off.

Finally, don’t confuse the above with “sugar coating” or common politeness. How humans interact with each other inside a company forms the basis of its culture and can make transparent communication easy or difficult. The managers alone don’t carry the burden of making feedback productive; employees need to do their part as well.

CEO = Chief Triage Officer

Our Summer@Highland teams spent the morning on Wednesday with Keith Rabois, COO of Square. Keith had many choice nuggets of wisdom for our group, and one of the teams was thankfully taking notes. I wasn’t, but I did take to heart a particularly insightful piece of advice Keith had for the young CEOs in the audience.

(Please note: these are not Keith’s direct words, but my interpretation of them. Trolls be forewarned!)

Keith compared the job of a CEO to that of a doctor in the emergency room doing triage. It’s like every problem that comes across your desk has one of these attached to it:

A good CEO is necessarily good at telling whether a problem is one that requires immediate action, or one that will resolve itself. He or she is also good at figuring out how to resolve those issues that are marked “Immediate” or, perish the thought, “Morgue.”

This qualification represents a challenge for young CEOs because, by definition, they have yet to aggregate the years of experience that inform triage decisions. It’s not uncommon for an “Delayed” situation to pass by him or her without noticing. By the time the sickness is revealed, the patient could be on death’s door.

It gets even worse, according to Keith: as a young CEO, your advisors can’t help much. They don’t work at the company, and are not likely to be around when you don’t see something you should. Board members are a bit more involved, and maybe if they’re talking to you on a daily basis they can help you bridge the gap.

At the end of the day, however, a good triage process can only be implemented from inside the company, which either means that (1) you learn how to triage or (2) you hire someone who does. Mistakes in triage are inevitable at the beginning, so the best you can do is be paranoid about making them and correct them quickly when you do.