Tony Scott, Ben Smith: So They’ve Offered You The CEO’s Job. Here’s What You Need To Know Before Jumping With Joy | peHUBpeHUB

Posted on April 16, 2012 by Ben T. Smith, IV

Tony Scott, Ben Smith: So They’ve Offered You The CEO’s Job. Here’s What You Need To Know Before Jumping With Joy

So you’re in the running for the CEO’s job at a startup. Already a creeping sense of uncertainty has set in as you prepare for the next interview. What do you need to know about the company? What rocks do you need to peek under?

Senior executive changes are happening with increasing frequency in today’s vibrant technology market. Seasoned managers move from one early-stage company to another, and from established companies and venture firms into the startup world. Some of the savviest new-gen Web companies recruit directly from brand name consumer and media outfits.

If you’re in line for a CEO’s gig or another senior leadership role at a pre-IPO company, you’ve got a lot to think about. Asking the right questions is critical to make sure you’re not jumping into a boiling cauldron of hot oil. Here are several suggestions from successful – and not so successful – executive appointments we’ve been part of.

Remember the company and board have been trying to put the best shine on the emerging business. Now you have the upper hand. If you don’t ask the tough questions and require full disclosure of current initiatives and strategies, as well as those in the planning stages, the only person you can blame later is yourself.

We suggest sitting down with every board member and with members of the team. Assess their motivation, dedication and willingness to spend more than just 9 to 5 at their jobs. You need to feel at home and confident about the path ahead.

Here are several specific suggestions:

  • First, any prospective CEO candidate should ask for the most recent board decks.We suggest looking at the ones from the last year at a minimum. Once you’ve reviewed them, you might insist on a walk-through of the two most recent presentations, perhaps as they were shown to the board.
  • Second, It is important to ask about the last people who left the company.This includes directors and non-management-level employees – both those who left voluntarily and who were terminated. Ask why they left or were terminated, and the impact of their leaving.
  • Do your own due diligence on departures. Look on LinkedIn for people who were associated with the company. You may find core team members who are no longer there, even after you’ve been assured none have left. This is an obvious red flag. You need to know why this wasn’t disclosed. Keeping information like this under wraps to a potential new CEO is highly questionable behavior. We have been amazed by founders who claim no executive turnover when a quick LinkedIn search uncovers three former CFOs.
  • Talk to users, partners and customers.Find a way to subtly get access to people who know the business. Talk to them to understand how they feel about the company’s value proposition and leadership team. With Internet companies, customer feedback is always in the data. So get access to Omniture, or a similar account, and have someone walk you through the data. In the last few years, we have all seen companies position their consumer traction as great when in fact organic traffic is off, daily or month average user numbers tell of an engagement problem and revenue success is driven off advertising optimization, not user growth.
  • Ask about the severance agreements with senior members of the team.You want to know how expensive it will be to make changes and whether your own package will cause resentment. Seek information on bonuses to the senior team members and to rank-and-file.
  • Find out about the founders.What are their roles, what are their ownership positions, do you have the ability to change what they do? One of the most dangerous situations is when a founder of an early stage company has been moved aside as CEO against his or her will and is still at the company in a senior executive role. It is a common axiom in the venture business that better returns come when founders stick through to exit. So this change is not a minor risk. What’s more, the natural instinct of team members will be to discuss issues with the founder, and the natural instinct of the founder will be to continue to meddle in external and internal issues. Disputes where team members go around the CEO to founders can easily become political struggles that destroy morale and even entire companies.
  • CEO candidates need to assess the board.Find out from direct conversations with each board member about their commitment to the company. You need to gauge your ability as a new CEO to add or change independent board members. You need to understand the relationship between board members and the founders. Go beyond the board and talk to investors who are not on the board.
  • It is crucial to understand a company’s financial position, both operationally and from capitalization standpoint. Be sure to understand the cap chart and the preference stack. There have been plenty of examples in the past, though not as many recently, where the preferences of investors would make almost any exit worthless for the senior team and the team as a whole. Now may be your best and only chance to negotiate a better package for you, your executive team and the rest of the staff. No one wants to work at a startup where the only potential for a positive outcome is a Google– or Facebook-like exit.
  • Review the pitches to partners. Understand past exit discussions and how the company was positioned in those discussions. This will give you some of the best insights on exit potential and, more importantly, on the board’s view of exits.
  • Finally, find out what a day looks like at the company. Go to lunch with a random group of employees. Go for drinks after work. You’ll find out what people are really thinking. Make sure to show up at the company offices before 9 a.m. and after 5 p.m. Are people there? Are they working happily? Are they motivated? Are they fun?

You may think you’ve found the world’s most wonderful opportunity. But you need to make sure. Remember, you’re investing your time and you can never get that back.

(Tony Scott (top photo) is the president of ChampionScott Partners and has recruited board directors, CEOs and executives to over 100 startups. He can be found at http://www.championscott.com. Ben T. Smith, IV (second photo) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. Both were former partners at A.T. Kearney. Ben is available on Twitter @bentsmithfour and btsiv.com.)

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Grace Chan, Ben Smith: Building An Online Community Is Hard Work | peHUBpeHUB

Posted on April 2, 2012 by Ben T. Smith, IV

Grace Chan, Ben Smith: Building An Online Community Is Hard Work

Ben T Smith IVWe have seen it all. We’ve seen entrepreneurs set out to build loyal communities for newly minted products only to forget that they are more than just sales assets.

We have seen self-directed, self-driven developer communities outlast the products they grew up around, such as the one for Delphi, which survived Borland’s decision to sell the development tool in 2008. These communities support, extend and champion products more than any company ever could.

We’ve seen products built to enable active communities, like Stack Overflow for software queries or LinkedIn for business professionals.

Picture-sharing sites, such as Flickr, enable communities to do things they never could do efficiently before. Communities like these always seem to beat out better, more user-focused products. Flickr, for example, and Instagram crushed technically more sophisticated products, including Bellamax.

Community sites, such as Facebook and even MySpace, made short work of better personal website tools, like Homestead.

Communities can be among a company’s most potent marketing assets, yet among the most difficult to manage. People say they want one without knowing how to build it, exactly why it is valuable or the lengths they need to go to protect it.

Our early efforts at Spoke led us to invest in algorithms to encourage community development, while Jim Fowler at Jigsaw build a community to grow his dataset. With a $142 million exit to Salesforce.com under its belt, it is hard to argue with the value Jigsaw created through community building.

Later at MerchantCircle, we often saw people try to duplicate what we were building. Industry analysts and investors constantly were surprised when they dropped by to find a small team of 40 people running MerchantCircle. That was because we were not really building our community; merchants from all over the country were building it. We were simply building tools and searching for ways to enable people to do what they had always wanted to do. In doing so, we were able to connect local consumers to these merchants.

Grace Chan MerchantCircleAt MerchantCircle, we made a conscious decision to do a few things to support our community:

  • We put in place a community team with people who were advocates for the merchants and who were their passionate supporters. Robyn Hannah, our head of community, spent late hours coaching merchants on much more than just how to use the service. In doing so she inspired the community.
  • We put in place a commitment that every time we pushed out new products we included 10 things merchants requested. We gave merchants with the product ideas credit in the eyes of the rest of the community.
  • We established roles for leaders of the community. We listened to them closely and had them out to meet with the engineering team a few times a year.
  • We tried to put the merchants first in any decision, made them the center of our discussions and highlighted active merchants with credit that went throughout the community.

As an entrepreneur setting out to build a community, remember that you can build a product to enable a community or you can build a community to embrace a product. Both are powerful and tough-to-build assets. Once you have decided which way to go, here are five things to consider.

  • The community is always right. It wants to accomplish something, whether it is Delphi or VMware developers who work to build great software or craft hobbyists on Etsy. What the community wants to accomplish is what matters.
  • Communities need leaders. As long as we can remember, David “I” Intersimone has led the Delphi community. He has been the advocate for the community through about eight CEOs assigned to “run” the Delphi product. David has always had one goal: supporting the community and the leaders that emerged.
  • Communities are assets. They cannot be treated like things to be mined every quarter. They have to be nurtured and protected. This means making tough tradeoffs to protect them from quarterly goals.
  • Community members are not always right. As the community grows, early community members will fight change, bad actors will abuse the community and people will seek to control rather than lead community members.
  • Communities cannot be copied readily. No matter how great your new product is, you will have a hard time convincing community members to jump ship from an old product and the community they helped build, as long as the product is still being supported.

At MerchantCircle, we tried to build a community of local merchants. In some cases we knew what we were doing and in many cases we messed up. In the end, the community was the core of what we kept coming back to.

As you build your community, remember you are building it for them, not for you.

(Grace Chan (pictured above) has worked in product and marketing at MerchantCircle, Yahoo!, and HotJobs.  Ben T. Smith, IV (pictured top) is a serial entrepreneur, investor, and advisor to technology and media companies. He the co-founder of MerchantCircle.com and Spoke.com, and a former partner at A.T. Kearney. Ben is available on btsiv.com)

via Grace Chan, Ben Smith: Building An Online Community Is Hard Work | peHUBpeHUB.

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Victor Belfor, Ben Smith: We’ll Trade 100 Employees For One A-Player | peHUB

Posted on March 18, 2012 by Ben T. Smith, IV

Victor Belfor

Mark Zuckerberg famously commented that a great engineer is worth a 100 average engineers (something every developer knows deep in her heart). He was talking about A-players, and in our opinion the worst thing any startup can do is accept less than the best and brightest.

Think of Jony Ive at Apple (Sir Jonathan as of December). Compare his impact to that of an average designer.

Supporting rapid growth at a company requires the rapid growth of human capital. New engineers and product managers come on board to build out a company’s product. Service and support staffs expand the customer base. Settling for B-players is the same as inviting mediocrity.

Entrepreneur turned Dallas Mavericks’ owner Mark Cuban once said a company should hire A-players in only core positions and pay market rates for anything non-core. We disagree. This may be true for a fully scaled company. But at the early stage, a company may not even realize what its true core is.

One good example of this is Groupon. Groupon started to focus on the daily-deal market, but when the company experienced early success, the space became very competitive. New competitor LivingSocial, even eBay and Amazon, offered daily deals. What separates Groupon from the pack and what has become its core competency is its powerful sales machine. This wasn’t anticipated at first. There should be no room in a company’s early development for B-players.

What is an A-Player?

In his book Good to Great, Jim Collins said the highest expression of leadership is the combination of humility and will. These are traits A-players possess. Their strength of will assures motivation. They never point fingers. The ball stops with them. A-players don’t need to be micro-managed or proactively motivated. They only need to be pointed in the right direction.

Humility is often overlooked and equally important. Humble people do not seek personal credit and gladly give it to those who deserve it. They don’t engage in politics. The simply have no interest. When they voice an opinion, whatever you may think of it, you can always be sure that it is what they believe. They have no ulterior personal motives. Humility assures that a company is not overrun with attention-seeking prima donnas.

Some of the best A-players you will hire have had a failure or two, but accomplished a lot and took risks as part of that failure. A-players aren’t always great leaders. But that doesn’t matter. You want humble people with the will to succeed not only as executives, but as your “doers.” Startups need not just A-level strategy and A-level vision, but A-level execution.

Ben and Ryan

MerchantCircle found an A -player in an unlikely spot: working on his struggling startup and a political campaign in northwest Florida. He was not from Harvard. He was from the University of West Florida. He did not come in as a strategist; he was a support person. He was even told by someone he should go to a big company to learn how to be an A-player, whatever that means. He executed, he listened, he read, he analyzed, and most importantly he learned. Five years later he had risen to head of product for MerchantCircle and drove some of the company’s biggest innovations and in doing so helped set strategy. Ryan Osilla has now helped created Peixe Urbano, one of the fastest growing Internet companies in Brazil.

Attracting A-Players

In Silicon Valley, the job market is very competitive and companies such as Facebook, Google and Zynga pay top dollar. So startups, such as MixRank, have to be clever to keep up. That means using company culture – bright, driven people working together on big things – to set themselves apart.

Last year after graduating from Y Combinator, MixRank co-founders Ilya Lichtenstein and Scott Milliken raised an angel round and set out to expand their team. At first they were unimpressed with the vast majority of the resumes. So they began to reach out into the community using Twitter, Hacker News, technical forums and open-source mailing lists to engage talented, passionate engineers. They wanted independent thinkers with a healthy disrespect for rigid rules and authority. What attracted the “right” candidates wasn’t the money, even though they offered market-based salaries and equity, but rather the vision and culture.

Good engineers like to work on difficult problems that keep them interested and engage their creativity, said Ilya. They are excited about the big data problems that MixRank is tackling and the opportunity to have a significant impact on the technical direction of the company.

Keeping A-Players Happy

In the 1980s, Benjamin Schneider developed the “attraction – selection – attrition” framework and the notion that organizations tend to become homogenous over time because they attract and select people who fit in. Those who don’t fit in tend to leave. The implication is that as long as a company has a somewhat homogenous group of A-players, it will remain a largely A-class organization.

But this is only part of the story. A-players need a pat on the back now and again. What’s interesting is that they only value pats on the back from other A-players. They don’t value the approval unless they respect and admire the person giving it. So developing a critical mass of A-players has an added benefit: the company tends to repel B-players and attract other A-players, reinforcing what it has built. Zappos employed this theory when it famously offered its employees $2,000 to quit under the assumption that A-players aren’t motivated by money and only B-players would take the deal.

The bottom line is this: B-players tend to be more vain and less secure. They want to be admired, regardless by whom, to make themselves feel superior. So B-players often attract other B-players and more commonly C-Players, who look up to them. In other words, A-players beget even more thoroughly A-companies and B-players eventually beget C companies.

A few things to consider:

  • A-players are not just from big name companies. They come from failed startups as well.
  • A-players don’t only come from the top schools. But they can learn just as quickly.
  • A-players are motivated by winning and being around other A-players.
  • A-players are not always the smartest, but they want to win and know that learning and execution are two of the key factors to making that happen.
  • A-players leave, but generally don’t want to. Find ways to keep them if they are aligned with your direction. If they are not aligned with the direction, they can kill you.
  • A-players are not always motivated by recognition and financial rewards, but give them both. Then other A-players will come.

By now, we’re sure you get the point. Don’t let down your hiring standards and your company will be better off for it.

(Victor Belfor (pictured top) is an entrepreneur and investor and currently runs strategic alliances at RingCentral. He can be found on Twitter @vbelfor. Ben T. Smith IV (pictured above with Ryan Osilla) is a serial entrepreneur and investor and the co-founder of MerchantCircle and Spoke. He is available on Twitter @bentsmithfour)

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Maximilian Schroeck, Ben Smith: Unlocking Value From A Portfolio’s Walking Dead | | peHUBpeHUB

Posted on February 6, 2012 by Ben T. Smith, IV

We have all seen it. A startup has initial success with an innovative business concept, an early product, a first or second round of capital and a spurt of revenue growth. Then suddenly, its momentum stalls.

More than 50% of all venture-backed companies in the past decade with $10 million in sales never made it to $20 million. The problem is as acute now as it has ever been and the bar for exits high.

Few of these walking dead are highlights of the Monday morning venture partners’ meeting. It is the “hot” firms or the “sinking ships” that get all the attention, not the stalled companies with money in the bank and the ability to support themselves on $10 million in revenue. After all, stalls are temporary, right?

Yet the issue is a huge one given the substantial value locked up in stalled companies. Symphony Technology Group and Trilogy found ways for managing in the enterprise software market by consolidating assets and reenergizing growth. On balance though, it is extremely rare that stalled venture assets deliver a meaningful return. In most cases, stalled technology and media companies quickly bleed out talent as the best brains end up elsewhere. That’s Silicon Valley culture.

People like to pursue the big ideas and follow the big bucks.

This makes recognizing stalls early, identifying their causes and reversing the insidious value destruction a key part of managing any venture portfolio. Unfortunately, many VCs aren’t very good at it. At Spoke, we spent a long time stalled and focused on the wrong metrics. With significant venture money in the bank, Spoke followed an ineffective business model. Sales costs ate up capital for years. A number of the best and brightest left and went on to create billions of market value at Topix, 4info, BrightRoll, Facebook, Guidewire, MerchantCircle and Quantcast.  A bold move earlier would have given Spoke a shot at LinkedIn-type returns.

It is not simple. Venture backed companies stall for many reasons. Often, the underlying reasons are related to:

  • Market timing and business cycles. The post-Lehman financial crisis has taken its toll, particularly in communications-related segments.
  • Capital constraints. Tired investors hold companies back by playing to not lose instead of playing to win. This has become an unfortunate and pervasive reality.
  • Business models. Companies often are slow to change their business models to enable continued, capital-efficient growth. Once through the proverbial “bowling alley”, most company’s need to re-invent themselves operationally.
  • Technology cycles. Innovation never stops, so ignoring fundamental trends and going into “maintenance mode,” or under investing in what really matters, will render companies obsolete, quickly.
  • Ignoring leadership and talent. The good ones will be gone in no time, making a company a hollow shell, unless they are given a mandate to win.

Once you know you have a stall, the worst thing you can do is to simply wait it out or try more of the same, strategically and operationally. The only way to right the ship is through comprehensive and decisive action. Hands-off management or “fly-by” board-level governance will simply perpetuate the problem and destroy value.

Here is how we think about tackling the stall:

  • Understand the issue. Procure feedback from folks who have a strong opinion and are not afraid to state it. Don’t over analyze. Apply the 80/20 rule. Show leadership, commitment and a willingness to change.
  • Renew and redefine the organizations’s focus. Startups need to do one thing exceptional well in order to maintain their energy and create value.
  • Check your team. Quickly get rid of folks married to the “old” ways. Augment where required. Make sure to align interest through stock. This may involve allowing for small secondary stock sales to create some liquidity for management and founders.
  • Reduce spending. Cut 15% more than what you think you should and immediately start hiring new talent. A new vision will allow you to get the best. Do away with any idle, unfocused capacity.
  • Reinvent. Be willing to divorce the company from legacy assets to hone focus. Or conversely, merge with new assets and capabilities to reignite growth. The aim is to capture better long-term exit value, even if it means shaking up the cap table.
  • Commit yourself. If you are not prepared to solve the problem as an investor, get someone in your position who will. A new round or secondary transaction can be the means. It is hard work. It carries risk. Often it requires new faces around the board table.

Obviously, dishing out structural advice is easy. Putting it into practice is often difficult, and we’ve had it wrong more than once. But we feel we got it right recently. The company was a market share leader in a sophisticated media vertical and was stalled due to the level of market share it held in a limited infrastructure segment. When the company pushed for growth, it brought increased customer fragmentation, accounts receivable risk and price erosion.

This is how the stall was addressed:

  • The decision was taken to milk the legacy business and cut back aggressively on resources deployed there. The best resources were focused on developing a platform with broader vertical appeal.
  • The internal efforts were augmented and accelerated by a merger with a company that had a complementary offering and substantial intellectual property.
  • A new bowling alley was defined. The best business development and sales guys were given incentives to form new partnerships more broadly accessing the market. A key was the first major account-win with the new platform.
  • Investors pitched in – some more some less. The board now favors the new money and direction. More capital is under consideration.

It took time, though less than some of the investors had expected. Early results are good. The company increased bookings by more than 30% last year.

So for those of you with walking dead, go fix them, even if it feels risky. If you don’t you are sure to destroy value over time.

(Dr. Maximilian Schroeck (top photo) is a managing partner at Cipio Partners and serves on the boards of various telecommunications, media and technology companies. He is a former Agilent executive. Ben T. Smith IV(second photo) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. Both were former partners at A.T. Kearney. Ben is available on Twitter @bentsmithfour.)

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Crash Dev: Top three reasons NOT to do a local + online startup (and what to do instead)

Posted on February 1, 2012 by Ben T. Smith, IV

This piece by Devore is fascinating and correct.  Having looked at buying the Judy’s Book asset twice, I think they really were a great team with a solid execution, and it still did not work.   The fundamental issues of high cost to acquire customers, high customer churn, low monthly revenue per paying merchant were the fundamental assumptions in our thinking from MerchantCircle from day one.

 Our view was, no sales cost and a freemium model to make the low revenue and high churn less relevant.  Our very first venture discussion laid out, three reasons local sucks based on 50 meetings with people who had tried it in wave one of the internet from sidewalk.com, citysearch and a bunch of other companies.

Merchants won’t pat much each month, they paid a few thousand a year to a monopoly high margin business in the yellow pages companies.

They are expensive to sell to, every small business owner is the king of their kingdom and wants to be sold to like they are the CEO of IBM.

They churn.  Even if you have a perfect product, they go out of business.  They go out of business a lot.

We said let’s attack these head on, build a free community for merchants with a zero cost of acquisition and see what happened.

We did pretty well at getting to zero cost of acquisition by the end, because we focused on it every day.

On the other hand, if I look at Groupon, they took the exact opposite model, very high revenue and margin from Merchants and very high sales cost and super high churn and it worked out pretty well.

This is one of the most insightful comments in Chris’s piece.  What we called the local density problem at MerchantCircle.

In local, it doesn’t matter how many uniques, views or registered customers you have across your entire product. Unless you can deliver new customers with pinpoint accuracy — down to the category + neighborhood level — you don’t have a business.

In a lot of ways, Groupon’s success also challenged on of these three fundamental issues of high cost to acquire customers, high customer churn, low monthly revenue per paying merchant.  They said, forget churn.   Let’s go after businesses with a very large transaction, spend the money on sales and forget churn. In fact, they in some ways are built for the fact that 25% of businesses fail quickly…then new ones come along and they want a bunch of new customers to fill capacity….and the new ones need Groupon.  Groupon spends a lot on sales, gets a lot of money, and ignores churn…

On a side note, I have had 20, no 50 new internet companies come to me looking for some secret for user acquisition…here it is, here our secret:

pick a metric that matters  in your business model and spend every waking moment thinking about experiments to tackle that metric

For MerchantCircle, our focus on Merchant Acquisition at zero cost.  We felt like if we did this, the challenges of local could be overcome and a merchant network was an asset we could protect.  So we woke up every morning working through as one of my team would say, 67 Dumb Ideas Ben had. They were mostly dumb, except for a few that an incredible team with focus made not dumb.

Distribution is not all that matters, but it is all that matters. 

via Crash Dev: Top three reasons NOT to do a local + online startup (and what to do instead).

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Getting Shit Done

The key to success in business is execution, whether you run a sprawling multinational or a 12-person startup. So measuring how your company stacks up against the best and brightest in your space is crucial.

If you are a seed or early stage company executive, you know the following: Sooner is better than better. This phrase, which we stole from some Netscape friends, is at the heart of making your startup tick. At MerchantCircle, we had our own short hand for it: GSD, or Get Sh*t Done.

We injected GSD in emails, posted it around the office and ended conversations with a simple “GSD.” It was our way of emphasizing the need to get things done fast, but with a bit of color.

To make sure you have the right environment for getting things done, several benchmarks are useful. Ask yourself whether your team is made up of self-starters, especially those who self start beyond your expectations and who work till they drop. Is your team unafraid of risk, but careful not to take foolish risk? When the competition turns up the heat, will they push harder? Knowing which of your managers and employees really reach these bars is invaluable.

Beyond that, you must make sure each member burns with the same fire of accomplishment. They need to realize deep down that stuff has to get done…immediately.

Walk into just about any startup and you feel the energy and entrepreneurial spirit. Buzzwords, technology jargon, debates over company goals all oscillate among executives, marketing directors and engineers. Employees focus with a heads-down mentality, divided by individual tasks, bound together by the sense of community good. People know their efforts can dramatically impact the future growth of the company.

But taking an idea and building it into a profitable company is not easy. Our team at MerchantCircle was a close-knit group of 40 and it stuck together without a lot turnover. There was no time for top down slogans or corporate cheerleading. The bonds that grew just sort of happened, and they focused on that creature of necessity: task completion. We found that in the end, startups are not all about network economics, the cost of acquisition, liquidation preferences, or their mobile app strategy. Startups are about GSD.

At MerchantCircle, we learned these tips:

1)  Teamwork: Most successful startups are built around high performance teams that complete work in a shorter amount of time with better results. Build your startup with people who can shed their ego, solve problems and exceed what is reasonable to expect. The MerchantCircle team had people with different temperaments, talents and convictions. It didn’t matter.

2) Commitment: Committed team players care about their work and the company’s success. They show up every day, leave their baggage at the door, never take shortcuts and look for the course that will yield the greatest return for the long tail.

3) Adaptability: Look for resilient people who bounce back and adapt to adversity. Find people who easily adjust to change, who aren’t discouraged by setbacks. In a startup environment you need people that can switch gears on a whim, let go, who can take charge and adapt to opportunities that are in the best interests of the company.

4) Speed: Startups today must focus on delivering instant gratification, since this is what people expect online. The cost of failure is low, the value of learning is high. The sooner you get something done, the faster you can learn from it.

When hiring, look for people who have passion and aren’t job hoppers. Passionate individuals are easy to distinguish since they love their jobs and tend to take more pride in their projects. They generally have positive outlooks and high energy levels,

Then give them complete control and ownership of their jobs. Be sure to hand over the responsibility for execution. Open your lines of communication between the marketing and engineering teams. At MerchantCircle, service reps would immediately evaluate bugs, write up detailed tickets with the help of engineers if needed, and prioritize the ticket based on the company’s product roadmap.

This front line decision-making really mattered. The company looked over the cliff many times. It was the get things done mentality that allowed us not to fall. In the end, startups are all about GSD.

(David Gwynn (pictured top) is currently a program manager for Reply.com and previously worked at MerchantCircle.com He can be found on Twitter @dgwynn). Ben T. Smith IV (pictured mid article) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. He can be found on Twitter @bentsmithfour)  This was originally written for PEhub.

Posted on January 29, 2012 by Ben T. Smith, IV | 2 Comments

After seeing where I put my blog content change, I have decided to start posting my blog content to my own blog.   This should be an interesting process.

Posted on January 29, 2012 by Ben T. Smith, IV | Comments Off on I have now entered the blog world

Tom Klaff, Ben Smith: A New Spin On Corporate Venture Capital; How Big Businesses Can Encourage Innovation | peHUB

Posted on January 12, 2012 by Ben T. Smith, IV

Corporate venture capital comes and goes in waves.

In good times, money flows easily into startups. When times turn bad, most corporate investors disappear, and the waves they create crash violently on the shore.

It doesn’t have to be this way. Corporations have the resources and potential to make venture a long-term strategic asset. The breadth of tools at their disposal – talented people, technology and business relationships – may be even put them at an advantage over traditional venture capitalists. What they lack is a map to the hidden gold mine.

In our view, finding the right direction requires a new model for corporate venture. First, it needs to evolve beyond the business cycle. Corporate venture arms must be in the business of funding strategic startups through the ups and downs. They can’t afford to turn off the spigot when bottom line pressures grow and cut adrift the seedlings they help plant. Program size must be rationalized for good times and bad.

Second, efforts must look inward as well as outward and recognize that internal corporate resources can be even more important than contributed capital. Corporate investors need to embody the notion that under the right circumstances spinouts can be a valuable alternative or complement to funding Silicon Valley’s latest fledgling startup. These spinouts can work independently or in concert with outside entrepreneurs. But they must have the freedom to experiment, even if that means cannibalizing a core corporate product. After all, if you don’t, someone else will.

This may sound quite radical. It may ruffle feathers. But you would certainly think twice if your competitor started doing the same.

Getting Started

When the desire for a venture program strikes, there are many guides to turn to for direction. Intel Capital is the gold standard for structuring a large, successful corporate-sponsored venture arm. Disney with Steamboat is a success story.

And Google Ventures is promising, if still new and unproven.

Don’t be afraid to turn your best assets loose, your ideas, people, technology and businesses relationships. Consider partnering with academia. Let a hundred seeds germinate. Find the ones worth planting.

Industry and academia harbor vast mines of innovation and their new ideas will push our economies and societies forward. Measured in untapped value, roughly $3.7 trillion of intangible assets and ideas lay dormant in industry and academia. Several times that sum in opportunity costs are lost not commercializing these intangible assets.

The Problem

Unfortunately, industry and academia often lack the entrepreneurial DNA, including the appetite for risk, the cultural heritage and the skill to convert initiatives into profit-generating new ventures. If it was easy, then a company such as Blockbuster would have found a way to marginalize Netflix and its better way of delivering DVDs. We are sure Blockbuster executives had the idea for Netflix, but few would risk their careers to cannibalize their core market.

That is exactly the mindset corporate chieftains need to cast aside it they want their companies to be limber and relevant in today’s fast moving global economy.

The Solution

The answer needs to include a new way of thinking. To us this means spinouts. Spinouts enable corporations to keep their strategic hand in the game of innovation in a stealthy way while staying focused on their core business and competencies. These entities can share risk with entrepreneurs through partnerships. And corporations always have the option to pull them in house and make them a line of business.

What they represent is a low cost opportunity to apply new solutions in the market before anyone else, enabling first-to-market advantage and enjoying the ability to increase strategic revenue streams or reduce operating expenditures.

Academia and non-profits benefit from spinouts as well, so incentives are already in place for joint development. At both universities and non-profits, commercial operations often conflict with non-profit and academic charters. What’s more, royalty revenue streams often have terrible ROIs. Academia and non-profits historically realize a less than 2% return on their innovation. Spinouts afford an opportunity to generate liquidity on research.

Making It Work

Entrepreneurship is hard and rare. Only 0.34 percent of the U.S. workforce is entrepreneurial. In order to effectively mine ideas and innovation from industry and academia, conditions must be set to reduce friction. Here are ten things to consider in making your program work:

  • Research the Concept: One-off solutions are not the goal. Know that the problem you solve is endemic in an industry or industries. Know which companies would buy the venture before you start.
  • Structure the License: Spin the idea out of the company.
  • Create the Culture: Define and create your start-up culture.
  • Recruit Talent: Build an entrepreneurial team or outsource this function to a committed partner who knows how to commercialize ideas.
  • Validate Early: If the Company becomes the first customer, great! If not, find the first customer to test the product or service.
  • Be Flexible: Build a commercialization plan (product development, customer acquisition, business plan and three year pro-forma) and know it will change.
  • Be Lean: Figure out how much optimal capital is required to get to cash flow positive quickly and from which budget it can be sourced.
  • Test the Business Plan: The product and service will never be perfect so test early and often with a customer.
  • Fund the Venture: Capitalize the venture.
  • Build and Share Infrastructure: Build advisory boards early and leverage administrative functions among partners.
  • Go Like Hell.

This is not going to be easy. In fact it may be harder than setting up a traditional corporate fund. But the opportunity to change industries is an exciting target.

(Tom Klaff (pictured mid story) is the CEO of EIR, LLC and a serial entrepreneur who has grown and sold five companies including Surety, Reliacast and Collegetown. Ben T. Smith IV (pictured top) is the co-founder of MerchantCircle.com and Spoke.com, and former vice president venture development for EDS. Find them on Twitter @bentsmithfour and @TomKlaff. Both are graduates of Carnegie Mellon’s Tepper School of Management.)

via Tom Klaff, Ben Smith: A New Spin On Corporate Venture Capital; How Big Businesses Can Encourage Innovation | peHUB.

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peHUB » Doug Kilponen, Ben Smith: First They Ignore You, Then They Want To Buy You: Managing The Startup-Big Company Relationship

Posted on January 3, 2012 by Ben T. Smith, IV

Every entrepreneur has met them. Big company executives with big company swagger. They ignore you. They dismiss the business problem you spent your life solving. They think they can crush you.

Then the tables turn. They push for strategic relationships. They want to give you money, frequently at irrationally high valuations. Finally they shell out enough scratch to buy you.

It is no easy task turning big company hesitation into commitment. But several key steps will help you manage this potentially make-it-or-break-it relationship. Through it all, be sure to drill into their heads every step of company progress as sales begin to multiply.

Managing a big company relationship is something we learned first hand at MerchantCircle. Our first executive-level meeting at IAC, with its more than 50 Internet brands including Citysearch, Ask.com, Urbanspoon and ServiceMagic, ended with the disturbing claim that merchant outreach wasn’t that important. Since merchant acquisition was core to MerchantCircle’s strategy, the statement was unsettling and a challenge.

Ben T Smith IV

Ben and Doug at The Disney Studio’s

Within a few years and after a change in leadership, IAC became a MerchantCircle investor and internal boosters pushed for our acquisition.  By then we had business relationships with several IAC operations and developed the start of lifelong relationships with some of the most interesting people on the web: Kara Nortman and Rob Angel at CityGrid; Craig Smith at ServiceMagic; and Peter Horan, former head of IAC Media. Along the way we also had a chance to learn a few things from Barry Diller, IAC’s Chairman, and Tom McInerney, its CFO.

Many founders walk away from big company meetings convinced the executive behind the desk thinks they should abandon their crazy startup idea. If you really were a smart person and knew what Google, or IBM, or BankAmerica knew, you would seek a job just like his or hers!

This is nothing new. Just read the stories of Microsoft’s early dealings with IBM to understand how a corporate battleship believes it can nimbly defeat a software wannabe.

You shouldn’t let this dismissal turn into an ignore-the-big-company strategy. Given the importance of ecosystems such as Google’s, Apple’s, Cisco’s, or Facebook’s, such a move probably won’t work. The right answer lies in persistence and in convincing the larger entity that you’ve had the right answer all along.

We found the stages you will go through with big companies unfold something like this:

  • Your concept is dumb and no one needs it.
  • It’s cool you are doing a new company but so what?
  • This is just a feature and we will just build it ourselves.
  • O.K., you’re on to something, but we don’t know what yet.
  • We want to partner with you but all the terms will be skewed towards us, thank you.
  • If you don’t sell to us, we are going to copy you or buy your competitor.
  • Copying did not work. We want to acquire you or partner as a peer.

Here are some thoughts on how you can turn the experience in your favor:

  • First and foremost, listen to them, learn from them and then ignore them. If you stopped every time someone decided you were nuts, you would not get out of bed.
  • Figure out what assumptions they’ve made that allow them to dismiss you. Then attack the assumptions when you communicate with them. Don’t overlook these rebuttals.
  • Don’t pick a fight with the partner publicly or privately. Remember it is your role to help these poor souls break away from their five-hour staff meetings and actually innovate.  (Of course there are times when you can position yourself well in the market by attacking the big guy. Think Salesforce.com versus Siebel Systems as the most important recent example.)
  • Pick metrics that support your view of the world and communicate them every time you talk to the partner. Tell them what you are going to do, do it, and then tell them what you’ve done. Rinse and repeat. The more they hear of your progress, the more they will figure out that your metrics matter and that you own the results. Then maybe they will need to own you, too.
  • Stay close and build relationships. In the end, you can’t fake it. You really have to care about the people on the other side. Remember that you provide them with value. You are out there learning something every day while they sit in five-hour staff meetings.
  • Stay persistent and make your vision happen. Most large companies can’t think beyond a 12-month budget cycle, or the average executive tenure of three to four years. Like MerchantCircle with IAC, you will probably work through a couple executive teams at the big company. One of them will get it.

If you keep at it and remain persistent, you are going to be there when strategic moves are required. But you need to be at the table through it all.

And, finally, remember to show sympathy for these guys. They may have laughed at you once or a dozen times. But they are the ones stuck in 18 meetings a week and filling out forms in triplicate to order coffee.  You’re doing what you love.

(Ben T. Smith IV (photo left) is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. Doug Kilponen (photo right)  is the former SVP of business development and customer acquisition at MerchantCircle.com. Ben and Doug worked together A.T. Kearney. Ben is available on Twitter @bentsmithfour.)

via peHUB » Doug Kilponen, Ben Smith: First They Ignore You, Then They Want To Buy You: Managing The Startup-Big Company Relationship.

A short video on building relationships with big companies

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Justin Oberman, Ben Smith: America’s Biggest Startup And Its Lessons For Entrepreneurs | peHUB

Posted on December 22, 2011 by Ben T. Smith, IV

Can you name America’s largest startup? It’s not Facebook or Amazon or even Home Depot. It isn’t even a technology company.

This little known giant is the Transportation Security Administration and its massive scale up offers a roadmap for entrepreneurs eager to turn big ideas into sustainable businesses.

The secret isn’t just a clear mission or a risk-taking culture, though both are important. For us, building an organization at breakneck speed – and returning a jittery public to the skies – meant rapid business model experimentation and imposing a strict methodology for measuring progress each step of the way.

The TSA was created 10 years ago this month following 9/11 and in its first 13 months processed a million job applications, interviewed 125,000 candidates, hired 60,000 people, purchased $1 billion of security equipment and set up security at 450 airports. All this was done under intense Congressional scrutiny – and not without a few hiccups. You can imagine what a shoe bomber does to your business plan three weeks after opening the doors.

Here are several things you should insist on if you want a similar pace at your company:

A clear mission. Our motivation was the 9/11 attacks. They provided unparalleled inspiration. Several team members had experienced personal loss. When Transportation Secretary Norman Mineta launched the agency, its goal was obvious: to secure the nation’s airports – and fast.

Venture-backed companies need to articulate powerful reasons for “being” in a similarly clear and unequivocal manner. If that means posting banners on the wall, so be it. Just make sure the message is as obvious and inspiring to your most junior employee as it is to the CEO. It is your rallying cry.

Support from key outsiders. They might be venture capitalists or angels. They might be advisors. What they do is encourage risk-taking and help set the direction for the core team.

We were lucky to have three people at the top with the ability to kick-start the build and never let up. Secretary Mineta never let us forget the moral imperative, and his deputy Michael P. Jackson worked harder than we did. Department of Transportation Chief of Staff John Flaherty ran not only the rest of the department, but also got us the help we needed.

Top Talent. Our first meeting was no bigger than those of many startups, just three of us: Justin (pictured top) and Ben (pictured below), co-authors of this story, and Kip Hawley, who eventually became TSA head. Our headquarters was Department of Transportation conference room 10246, with just several bulky desktop computers, paper, pens and a calendar with 37 deadlines we were legally mandated to hit in the first year. What benefited us was a diversity of experience that at first we largely overlooked.

Ben brought with him a wealth of Silicon Valley experience building organizations and integrating disparate but complementary teams. He helped recruit executives from Intel, Cisco Systems, Solectron and Disney.

Justin contributed his aviation industry experience, including a feel for how decisions at the TSA would impact the industry. Finally, Kip was a transformational leader. He attracted talent, including experienced security professionals from military and law enforcement, organized methodology and engineered the collaboration between the launch team and TSA’s permanent structure.

Young companies should not under estimate the value top talent brings and should be willing to write bigger checks than they might like for key hires. They also should consider hiring in unexpected places.

A willingness to experiment. Not just experiment, but measure, adjust and then make bets. From day one, we faced challenges for every one of the hundreds of tasks we planned. “Can they scale?” “Can we test them?” Even the newest, most junior members of the team knew every idea would face and had to overcome these challenges.

What we did to make sure airport checkpoints worked was both critical and creative. We sent 20 people to the Baltimore airport for six weeks shortly after kicking off our operations to get our arms around every aspect of running a checkpoint. We hired 20 retired law enforcement folks to help train our trainers and draw up the curriculum. We tested 15 different kinds of shoehorns to see if they would speed the flow of airport lines.

This went on and on and still drives TSA experimentation today. There should be no lack of system refinement and innovative experimentation at any startup. It is the fuel for growth and often the most difficult part of innovation. Give your project teams the opportunity to experiment with new approaches that you can compare alongside what you might consider a more proven method. Think of it as A/B testing.

Monitor key tasks against overall goals. The persistence to monitor and adjust as needed, while ignoring the noise that distracts you, can’t be over emphasized. Congress had estimated 3,000 screeners were needed for scanning checked bags. The real number was 10 times that amount. When we realized the mismatch, we formed a new team, put together a new budget request and recalibrated our weekly hiring plan.

No startup is a linear exercise. The quicker founders build regular operational goals-oriented reviews into their routines, the better off they will be.

In the end, the best endorsement of the TSA experience is that many of us have gone on to form and manage startups of our own. The alumni list is too long to print here, but a few are: Ben Smith, MerchantCircle; Justin Oberman, Short Hop; Michael P. Jackson, Firebreak Partners; Hans Miller, B4 You Board; Kent Olson, Memory Hive; Andrew Taylor, Freerain Systems; and Vikas Sood, Media6Degrees

Few people are willing to defend the TSA with its legacy of airport pat-downs and long lines. But most don’t realize it was just a massive startup innovating on the fly, like any seed venture with big dreams.

(Justin P. Oberman is a security consultant, a former TSA assistant administrator and an entrepreneur with the aviation startup Short Hop. Ben T. Smith IV is a serial entrepreneur, investor and the co-founder of MerchantCircle.com and Spoke.com. They are available on Twitter @bentsmithfour and @justinpoberman.)

via Justin Oberman, Ben Smith: America’s Biggest Startup And Its Lessons For Entrepreneurs | peHUB.

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