February 24, 2011
Fred Wilson wrote a post the other day that was inspired by a real live conversation he had over breakfast with my friend and sometimes-mentor Alan Patricof. They had been back and forth in the blogosphere on the issue of the IPO markets, and had differing points of view on this very important issue for our industry. In an all-too-uncommon move these days, they decided to sit down and talk about it. A real live, in-person conversation. My money says they each learned 10x from that discussion than they would have by continuing the discussion electronically.
I love the internet. Its very existence is the reason I have this job that I love. I spend more time online, one way or another, than any other activity in my life outside of sleeping. And like many, there’s a lot of days where the web hours easily beat out the z’s. Increasingly, services like Twitter and Quora are opening up ever-more powerful and efficient ways to communicate and learn, upping those hours ever further. But like many of us, I can get way too dependent on my web-based life. It’s important to remember to get out from behind my browser and my inbox and actually talk to people once in awhile, as Fred and Alan did.
I’m reminded of this frequently, yet perplexed by my and others’ need to continually relearn this lesson. For example, in a simple, ten minute phone conversation last weekend I diffused an extremely awkward, sticky disagreement amongst the principals and lawyers involved in a deal I’m negotiating right now. The dialogue (and I use that term very loosely) had gotten to a totally unproductive stalemate, with each side pissed off at the other as emails and documents passed back and forth through the ether. The documents flew, yet nobody was actually talking. In ten minutes of human-to-human interaction, complete with those unique features of real conversation like the ability to hear tone of voice, probe for clarity, and allow for thought and follow-up, we realized we had been “talking” completely past each other. A total waste of time (and legal expense). We got on the phone, restored respect and trust, and found common ground in no time.
I ran into a very successful and widely respected VC as I was doing a breakfast meeting a few weeks ago. My companion said “hey, [Joe], I left you a voicemail the other day, you didn’t get back to me.” To which [Joe] replied “yeah, I’m sorry. . .my phone’s broken. . .it just works for email and the web, the voice part’s been broken for awhile.” Of course it hadn’t. And of course Joe was joking. . .sort of. But I’m sure he was partly serious, too.
Like Joe, I sometimes feel like I wish my phone was broken, too. I hardly ever answer it anymore unless it’s one of my partners, the CEO of one of our companies, or a family member. On the whole, I suspect that actually does make me more efficient – there are a lot of things that can be more quickly handled in a few back and forth sentences over email rather than through a phone call and its attendant obligatory small talk. But it’s a pretty self-centered way of interacting with the world, as well as frequently creating some collateral damage. So I’m trying to be a little more mindful these days of those times when something really is better suited for a real conversation.
What are the rules of thumb for that? I’m not sure yet, but I do know that, like that situation last weekend, if it’s a complex, nuanced, and in any way adversarial situation, email just doesn’t cut it. Even though we may think that email’s better because we can take the time to carefully construct an argument and lay it out for someone in a way that they have no ability to interject until you’re done, more often than not those emails are only going to end up pissing the audience off. To develop trust in a dialogue like that, it has to truly be a dialogue – there has to be give-and-take, you have to be willing to listen, and you have to genuinely show empathy. All of them hard to do over email. (Ask me to tell you sometime about my friend who tried to manage 100% via email his relationship with the contractor building his new home. Yikes!)
It’s stuff like this that makes me value my relationship with Alan Patricof so much. The guy’s been in the venture business for 40 years, and I think he’s evolved beautifully, finding a balance of old and new that works perfectly for him. He’s on email and Twitter constantly, he’s blogging, and he’s out mixing it up with entrepreneurs. But he doesn’t hide behind his computer. If he wants to talk to me about something important, he picks up the phone. And if it’s really important, he asks me to breakfast or lunch. In those meetings I consistently get more out of the core discussion while also picking up a few bonus pearls of wisdom in the process.
Those pearls don’t travel well when they need to be converted into 0’s and 1’s. So I’ll continue to think about picking up the phone more often, and hope the folks I collaborate with will, too.
February 8, 2011
A couple of weeks ago I put a lot of work into due diligence on a deal that I was really excited about at first glance. Two super-talented young entrepreneurs who had developed an incredibly innovative solution to a pervasive challenge that brand marketers face. They had invented a new market, and while there were a million questions, at first glance I thought there was a real chance that this could be an important and highly valuable company.
But through the process of getting to know the company and the team, they made a number of missteps that left me questioning whether or not they had the discipline and focus to be successful in the gut-wrenching challenge that is building and scaling something out of nothing.
What did they do? In short, they ran a sloppy process. They forgot to send me follow-up material a couple times. A couple times they rescheduled calls at the last minute. They scheduled what should’ve been two focused, deep-dive conversations for times when they knew they’d be driving to the airport to catch a flight and thus unable to dig into a spreadsheet.
Each incident was something that in isolation I would easily look past – after all, they’re hard charging entrepreneurs who are trying to keep a hundred balls in the air. But in the aggregate, a series of pink flags added up to a red flag that overwhelmed an otherwise really interesting opportunity. I passed on the deal.
One of the most widely understood mantras of entrepreneurial success is Always Be Selling (or Closing, as Alec Baldwin so elegantly reminded us in Glengarry Glen Ross, above). Yet for some reason, it’s also one of the most poorly and incompletely followed mantras. Too many entrepreneurs seem to think that it only applies to interactions with customers and prospects.
In short, It doesn’t. If you’re going to succeed at building an important, high growth startup, you’ve got to be selling everywhere, to everyone, in virtually every minute of your day. Investors, prospective employees, random people you meet in bars. You never know who you meet that might have the ability to impact your business. But I want to focus on why it matters when talking to investors, because I think a lot of entrepreneurs underestimate the importance of the process part of fundraising.
Evaluating companies and their potential is a very hard thing to do, especially when deal dynamics are such that it has to happen on a compressed timeline. I, like most investors, look for clues anywhere I can get them. Online chatter about competitive dynamics and the market’s response to the product, offhand comments from employees that hint at the founder or CEO’s ability to manage the business, pricing and receivables patterns that hint at the depth of relationships with customers, etc.
In a diligence process, perhaps the most important thing I have to evaluate is the CEO’s ability to sell. If I invest, and he can’t close sales, partnerships, or key employee hires, we’re all in trouble. Being a startup CEO is a non-stop sales job. An effective CEO must have innate instincts and skills around storytelling and listening combined with incredible diligence and persistence.
So how do I evaluate that? Sure, I talk to existing customers, I watch what happens to your sales pipeline over the course of our discussions, etc. But the single biggest data point I get is how well you sell me.
What could be a better indicator than that? When a company is raising money, there are few, if any, more important tasks on the CEO’s to do list than that sales job. So if the CEO can’t tell me a compelling story, doesn’t listen to and understand my interests and biases as an investor, and/or isn’t running a tight, disciplined process, I have to start questioning either (a) her prioritization or (b) her skills at managing a sales process. Failure on either will lead to missed opportunities down the road. If your instincts don’t kick in and have you running a venture fundraising process like a real pro would run a major prospect sales effort or C-level recruitment process, then I’m left with no choice but to conclude that you might be ineffective in those efforts, too.
Some entrepreneurs get really irritated, misreading this and believing that VCs expect the fundraising process to involve a lot of kowtowing and ring kissing. While there may be some of my peers who treat the process that way, I suspect those entrepreneurs are for the most part missing the point.
We don’t actually want our butts kissed – we just fully expect that you will kiss the butts of your key prospective customers and employees, and kiss them hard. And one of the best ways to learn how good a kisser you are is to see how it feels when you kiss us.