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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.

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.

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.

When startups compete, no one wins

Two types of competitors exist for startups: big companies and other startups.

It’s a good strategy for small companies to frame their vision around beating a big company. Salesforce was the anti-Oracle. Apple was the anti-IBM. WePay has been known to punk PayPal on occasion. Why? First off, everyone likes to bet on the underdog. But second, drawing into your territory a big company with significant market mindshare will garner you tons of free awareness. Every time a blogger or reporter mentions that big company, ideally, you get a mention as well if you’re a credible threat to them. Finally, there’s something to be said for having a common enemy to rally folks around a cause (although that certainly shouldn’t define the ethos of your company).

A worse strategy is to actively position yourself against a startup your own size. As one investor I bumped into today put it, “it’s not like I’m Pepsi and you’re Coke. It’s like I’m Joe’s Sugary Soda Water of Wichita and you’re Bob’s Delicious Drinky Juice of Boise.” Simply put, no one has ever heard of either of you…so stop bickering! 

In fact, a better strategy is to team up with your competitors and make a noise that’s collectively larger. Or, even better, team up on the really big guy and, as previously mentioned, start to ride on its mindshare in the market.

Startups have a heck of a lot more to gain by cooperating than competing, especially early on. If you must pick an enemy, make it a big one.

3 ways to stand out at a conference (and 2 ways not to)

I spent the last couple days at Pier 94 in NYC, attending TechCrunch Disrupt NY. The last time I was at Pier 94 was for a modern art show, so it was a bit strange seeing a bunch of developers hanging out where hipster painters and sculptors stood only a few months before. Truly a unique NY moment of quasi-deja vu.

With (I’m guessing) ~60 companies on display, it was hard for me to cover all the ground I wanted and, conversely, hard for the companies to flag down the right investors as they sauntered by.

Some companies were great at attracting the right type of attention. Some were not. I wrote down 3 things the best ones did, and 2 things I wouldn’t recommend repeating:

DO: Run a contest.
Everyone loves free stuff. Fact. Moreover, contests are a great way to draw someone in. I walked by a booth, and a founder asked, “Excuse me, but how many contacts do you have in your phone?” 

Innocent enough question. “I don’t know. A lot.”

His reply: “Well, if you look it up, I’ll put it in our database, and the person with the most contacts wins an iPad.”

We spent the next few minutes figuring out how many contacts I have in my phone (4,470 it turns out), not talking about his business. After we were done, however, the conversation flowed very naturally into what he was working on, which turned out to be in the contact management space.

I thought this was a clever ruse. Hopefully I’ll win something as a result. :-)

DO: Have 3-4 people at the booth at all times.
You should always have one person free at your booth to greet passers by. This is hard to do if you only have 1-2 people because they both will get occupied, leaving new visitors the choice of awkwardly standing by waiting to talk to you, or simply walking away. Having 3-4 people will almost always result in your having a free body to manage the flow of new visitors to your booth and make sure all are welcome.

DO: Get the biggest LCD screen you can find and run your demo on a loop.
The first thing I do when I enter a conference with a lot of demo tables is walk the floor looking for something that catches my eye. I am in pure pattern recognition mode, and my goal is to get a lay of the land, in order to prioritize my time. Your marketing materials have about 5-10 seconds to catch my attention on this loop, so they need to clearly demonstrate what you do.

You’d be surprised how often companies fail at this. I’d recommend just putting a giant LCD screen on your table that shows a screencast of your product’s user flow on a 1-2 min loop. Don’t assume that people can hear an audio overlay either. You need to communicate the gist of what your product does purely with visuals.

DO NOT: Chase people down.
One entrepreneur literally chased me down as I was walking by briskly, and he immediately started pitching me. When you do this, it makes you look desperate. The key to putting on a good show at these conferences is to get the audience to come to you. Think “anglerfish,” not “shark.”

DO NOT: Hire a mime, contortionist, or wear a body suit.
Oh yes. See, this will get you a lot of attention, but it’s the wrong type of attention. If you’re going to make a splash at a conference, do something clever and related to the messaging of your startup.

I usually point to WePay’s phenomenal stunt at the PayPal X conference a little while ago, where they dropped a 600 lbs block of ice at the entrance with frozen dollar bills inside.

The message? “PayPal freezes your accounts.” Brilliant.

3 ways to land a job in VC

It’s that time of year when I get about 2-3 weekly requests to meet for “coffee” with current students or recent grads who want to get into venture capital. I’ve found myself giving the same advice time and time again (as have others), so I decided to write a quick post with a few words of guidance.

#1. Build an orthogonal network.
The value of a junior person at a venture firm is that he/she often has an orthogonal (meaning, in this case, non-redundant) network, compared to the aggregate of the firm. Unless a partner is looking for someone to simply execute on his/her own deal flow (which can be the case), that partner is really looking for someone who can bring in net new deals.

What that means is that you need to start building an orthogonal network immediately. Think about your unique advantage: where you grew up, where you studied, where you worked, how old you are, etc. As Malcolm Gladwell says in Outliers, “Who we are can not be separated from where we’re from.” Use where you’re from to your advantage.

#2. Build an expertise and develop an opinion.
The wonderful thing about technology is that something new is always popping up that no one fully understands. We backed a CEO who told me a little while ago that someone applied to his company with “4 years of iOS development experience,” to which he responded: “Either you’re lying, or you’re Steve Jobs.” iOS had only existed for 3 years at that point.

Start following all the blogs in your industry of interest and get to know all the key players. Talk to entrepreneurs in that space (use the old “I’m a student” excuse) and ask them who they compete with and how they see the market evolving. Develop an insight that is 50% gleaned from the market and 50% your own.

#3. Come bearing gifts.
Like the Greeks, if you want to open the gates of Troy, it’s helpful to come bearing gifts. The currency of the venture industry is introductions to exciting entrepreneurs. Take the results of #1 and #2 and generate a source of warm leads for a couple VCs you want to work with.

I guarantee that an offer to introduce an entrepreneur will get a higher hit rate in terms of VCs returning your call. 60% of the time, it works every time.

So, happy job hunting. And if you land a job in the venture industry, let me know. I’d enjoy welcoming you to the fold.