Concrete Covina

Mine vs. Ours

When you start a start-up and then hopefully, eventually hire employees, it's critical to have a culture of ownership.  Stock options, of course are a key part of creating this reality but it's not the only ingredient.

Another critical part, among others, is instilling the mind-set and the perspective with your fellow employees and especially key hires - that the company isn't just the founders but "theirs" as well. 

This is done by behavior and actions, primarily, through sharing decision making ("being" collaborative") and generally staying clear of encroaching on your team members delagated authority and responsibility.

I believe, therefore that on the spectrum of "mine vs. ours", it's wrong to be too far to the "mine" side of the scale.  This is depicted by the red zone - on the lower left of the axis.

But what of the other end of the spectrum.  Is it possible to go too far?  Is there an "ours" red zone?

You've been in a start-up if...

When building a team to take on the trials of a start-up gig, it's important to find folks who "know" the start-up experience, the ups and downs and highs and lows of riding the start-up roller coaster.

Over time, I've heard people tell me that they DO have this experience. I've looked at their resume and thought I saw they had it.  But upon reflection - I see I made some mistakes here and after giving it more thought came up with a model to help me think out the question "has this person really been part of a start-up?"

So with that - you've been in a start up if...

Revenue phases.  I think all start-ups have phases of revenue (refer to chart 1 below).  Phase 1 is little to no revenue and company activities are mostly focused on product creation and market selection and getting to the point of making the company its first dollar of revenue.  I call this "phase 1" and depending on the company and the business model this phase can last a short period of time or take a couple years.  In the two start-ups that I have personally done - phase 1 lasted about 5 months.  In my opinion, phase 1 lasting longer than 1 year is a bad thing but realize that some company models don't necessarily offer revenue opportunities that fast.  In a way - this is a bias of the kind of business models I am attracted to and those that I am not.  I'm not an entrepreneur that is comfortable with a "fuzzy revenue model" or "fuzzy time to revenue".  Some Internet 2.0 companies have exactly this foundation (we'll figure our revenue out once we figure it out). 

I digress.  Phase 2 of a company is meaningful (not yet material) revenue traction where a company is maturing its relationship with its market and customers.  Revenue growth month over month is meaningful but not yet viral growth.  Customers are coming at your business - but not at a pace where you feel overwhelmed.  A sign you're exiting phase 2 is selling a large deal, and then selling another one.   Phase 3 revenue growth - plotted monthly or quarterly looks like the slope of line in chart  1 depicted below.

You've been in a start-up if you joined prior to the business entering phase 3.  If you entered the business in phase 3 - you HAVE NOT had a start-up experience.  You do not know the stress and ambiguity and pressure and resource-constrained decision making pattern you experience during phase 1 and phase 2.  I dropped the yellow line with the arrow to nail down this time in the life of the start-up. 

Chart 1 --- Revenue Phases

I think though that there are other circumstances to consider.  You've been in a start-up if you were part of the employee base to join the company before its first substantial financing, depicted below in chart 2 and indicated by the yellow line just prior to a Series B financing.  Some companies get to this milestone fast in life and others take a while.  If you joined a start-up after the "substantial round" you entered the business after the time of pressure and ambiguity and resource constrained thinking and don't share this pressure experience the employees that arrived before you have under their belt.

Chart 2 --- Financing Phases

Finally, you've been in a start-up if your employee number is less than some number - lets say 30.  If you were employee number 44 - I'm not sure you qualify to say you've been in start-up.  The reason is that employee count is an indication of resource availability and usually tied to the milestone events described in the two charts above.  You're employee number 52 because the company has closed a substantial round (or about to) and the company is entering phase 3 of its revenue generation life.  The company has to scale in headcount to execute and you're being hired because the trials and pressures of being in phase 1 and only having a series A financing completed are behind the company.

In a company with 15 employees - the C level executives roll-up their sleeves and help out with some of the tactics of the business.  In a company with 50 employees - the admin function of the business wants a mail-box system to distribute mail to the employees instead of walking it around to peoples desks.  The point I'm making is with employee count - comes scale and ability to execute the business function of the business.  This is a material release of the pressure that comes with a start-up where you have fewer employees than the company leadership would like.  If you show up at the company - and there's a mail-box distribution system near the front door - chances are you are an employee hired after that point in time where you can say that you have been in a start-up (depicted below by that yellow line again)

Chart 3 --- Employee Count

Look - this is not a science, this is just my opinion.  If I just wrote a rant that took your start-up experience and told you that it doesn't qualify as real start-up experience... my answer is I'm certain that is a percentage of you out there whose experience does really qualify but yet it defies my sorting above.  If that's the case - my hat is off to you - you're 2 to 3 sigmas to the right of the mean!

Post or not to Post

Post or not to post - what a question!  It's a dilemma for sure...

Over time - posting has been therapuetic in a way and lately, I've had the urge to blog for just that reason:  escape to that zone of getting whatever off my chest offers by way of writing it, and venting it, and ranting it, and posting it:  then sending it into cyberspace...   

And occasionally, as a Board member, or CEO/Founder of a start-up, or advisor to start-ups - I experience a growing urge to post some topic, some theme, some issue for that end.  But in acting - stop - and end up not acting.  ...for all the reasons that you can not or should not --- act. 

For example - I recently attended VC in the Rockies... (brilliant job Chris Onan - Seriously - that was impressive...)

And I sat in the audience listening to a ccompany presentation.  This company is getting decent buzz but in my opinion lacks revenue-generating substance the way a 7-11 $0.69 glazed donut lacks good-morning nutritional value. 

Worse - a few of my close friends are involved and invested in this company.  And - critically thinking - sit there talking to myself - uh-oh - this is about as exciting as hearing Al Gore declaring his 2008 run.  I say to myself - I should blog this - what a read this would be! 

I could rant this and rip this and turn-it-over critique this...

and then remember...

...you can't blog it all.

Recruiting a Director & Spiders

Brad Feld and I put up another post in our Corporate Governance series.  It's here and called "Recruiting a New Director".

For about a year now I've been giving a lot of thought to the idea of a tailored LinkedIn-like service that is specifically and only for corporate directors (private and public companies).  To get a feel for what this might look like - feel like - I loaded WikidPad on my computer a couple weekends ago and built a wiki/database of public companies and their directors. 

In about 3 hours of googling, and copying and pasting - I had a wiki instance that included 58 companies and 252 names - all interconnected, all interlinked. 

What jumps out at you as you do this exercise is the notion that some of the names you find - are individuals that sit on more than a couple companies boards.  Slowly but surely - I found some folks that had 4, 5, even 6 board seats.   I called these people "spiders" and using WikidPad, started tracking these folks - tagged as such. 

Keeping in mind that this database I was building wasn't  necessarily 100% accurate and up to date - here's a thought that jumped out at me:

Sam Nunn, the former Senator from Georgia is  a "spider" - he currently sits on 4 boards:  Coca Cola, General Electric, Dell, and Chevron.   His co-board member on Dell is Michael Miles (who sits on 6 boards and therefore another "spider").  Michael Miles' MorganStanley co-board member is Erskine Bowles (who sits on 2 boards - Morgan and General Motors).

Wanna bet that if a board seat at GM opens up - Sam Nunn's name is likely to come up?

Three Phases

Todd Vernon and I were laughing the other day about the phases founder entrepreneurs go through after they've raised a round of capital.

Because raising a round (Angel or Institutional) is an exicting event and while you're often told not to celebrate it (often by your investors and for  good reason) - it's hard not to feel good about having this milestone behind you.

This phase - is depicted below - with the face on the left.  Happy happy.

After some amount of time though - the euphoria of closing a round elapses and you enter a second phase - where you feel good about your company and your idea and your prospects.  The more seasoned an entrepreneur you are the faster you leave phase 1 and enter phase 2.  Phase 2 is the face in the middle. 

Phase 3 is when you realize that you've spent a lot of the capital you've raised and you realize that 1) you need to generate revenue, 2) you need to raise another round, and 3) the round needs to be at a higher pre-money then the post money of your last round.  Phase 3 is accurately depicted by the face on the right.

I'm going to ask my wife to make a t-shirt of this graphic.