It’s Time For The Entrepreneurs And Tech To Get Comfortable With Diversity

The tech industry struggles with diversity. Many people in Tech espouse viewpoints or engage in behaviors indicating they prefer the Caucasian and Asian male-dominated status quo. Recent evidence for this includes numerous reports of male venture capitalists harassing female entrepreneurs and a notorious memo written by a male Google engineer arguing that women are less capable in technical positions than men. [Google soon fired the engineer for violating its code of conduct.] The entrepreneurial sector as a whole receives less scrutiny than Silicon Valley, but I suspect that these issues arise in entrepreneurial companies outside of the tech sector too.

It’s time for entrepreneurs and techies to get comfortable with diversity, for two big reasons. First, there is significant evidence that diversity is a good thing for firm performance, particularly as firms scale and evolve. For example, a McKinsey study of larger firms showed that firms with diverse management teams, on the basis of either gender or ethnicity, achieve better financial performance that firms that lack diversity.

A paper published in Harvard Business Review sheds light on how this works. Teams with diverse membership function better: their decisions are more fact-based, they process facts more carefully and they are more innovative.

Start-ups are often founded by a group of like-minded people and their initial success is based on the shared vision, close-knit execution and sheer guts and determination of this team. At the beginning, you hire only the people who buy into your passion for the business and can get you to market quickly. That may not result in diversity. As the business scales and the market evolves, however, a start-up has to adapt to new facts and circumstances. The objectivity and innovation boost that diverse teams provide increases the speed and accuracy of adaptation, which can be a big factor for long term success.

James Damore, the author of the Google memo, argued that women have characteristics that make them less suitable for the tech industry. Others have made similar arguments in the past. These arguments overlook the value of diversity for team performance. It’s not about individual characteristics. The key factor is the dynamics and resulting performance of teams.

Second, as companies grow into important institutions, they need a constructive relationship with the society in which they work. An “outlaw” or “whatever it takes” ethic can be powerful in the early days, but it does not work when a company achieves scale and attracts the attention of media, social activists and regulators. U.S. society is diverse and global markets are more diverse. They demand that leading institutions reflect the diversity of the society, or face increasing harassment and headwinds. Google has suffered criticism for its lack of diversity and has made a commitment to increase diversity. Google CEO Sundar Pichai’s response to Damore’s memo shows how important this has become: he cut short a family vacation to fly home and deal with the situation the memo created.

Uber is a good example of a company hitting this point in its growth. Early on Uber had to break rules to show the world, particularly city governments, how much citizens would demand its service once they could experience it. Uber needed an extremely brash, “do whatever it takes” culture to make that happen. Now Uber is the world’s most valuable private company and operates globally. Its actions and internal culture receive intensive scrutiny from media and social activists and it is far too big to fly under regulatory radar. This has caused a series of crises leading to the removal of Uber’s co-founder and CEO Travis Kalanick, who was unable to lead the needed change credibly.

Small entrepreneurial companies don’t receive scrutiny like an Uber, but they can suffer if at odds with the values of their community. In my home town, a specialty food shop prospered at first. The entrepreneur was an excellent cook and created an attractive retail experience. After a while, however, the community learned that he frequently harassed his female employees. The shop is gone now while other similar shops prosper.

Simply put, diversity is a vital ingredient of long term success, and entrepreneurial companies need to embrace diversity as they scale. If they do their chance of continued prosperity is greater, and life at work will be more interesting, too. Vive la différence.

First posted @ blogs.forbes.com/toddhixon on September 7, 2017.


It’s Time For The Entrepreneurs And Tech To Get Comfortable With Diversity was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Keep Investor Support When Your Business Is In Crisis

Almost every start-up has near-death experiences: times when the business is not delivering, money is short, and employees are wavering. Entrepreneurs often call on investors to give them sea room in which to fix problems and rebuild momentum. Great leaders use the tools described below to rebuild investor confidence and win another chance to succeed.

These “moments of truth” test investors’ confidence in the business, its leadership, and their own judgment. Investors’ decisions are based on a combination of logic and emotion. They will look at the company’s data carefully and re-examine the investment case: is the market developing, do customers value our product as much as expected, has another company taken the lead, can a big win still happen?

At the same time they will experience an up-welling of feelings that have decisive impact. When I’ve been in this situation, here is how I have felt:

  • Frustrated because promised results have not been achieved, for the nth time,
  • Blind-sided and embarrassed if I just learned that the state of the business is much worse than I knew, and much worse than I told my partners,
  • Let down and angry if someone I trusted has been hiding the severity of the problem or is failing to take responsibility,
  • Disillusioned that the vision in which I have long believed seems lost,
  • Foolish, because it now looks like I should have stopped supporting this business a while back, and I know that supporting failing businesses too long is a mistake for which investors are often criticized, and
  • At the same time, hopeful that a way to fix the business can be found, because failure will hurt the employees; writing off all the money, faith, and relationships tied up in this investment will be very painful; and saving them will be a great relief.

Handling bad news and failure separates great leaders from others. I have watched many entrepreneurs do this very well over the years. Each leader has his or her own style, however, they employ most or all of the following strategies.

Get all the bad news on the table up-front. Partly this is about managing feelings: you want your listeners to get through the depression caused by bad news, and then build their enthusiasm back up. And you need to reestablish credibility by revealing everything your stakeholders need and want to know. Hiding problems at this stage is toxic: as they say in DC, the consequences of the cover-up are always worse than the offense itself. So take the trash out, and then get to work solving problems.

Take your share of the blame, and don’t go after people, even if they deserve it. No one is blameless in a bad situation. If you focus on blaming others it will look like you are trying to hide your own mistakes. This “control the narrative” strategy may work in politics, but it seldom works with a sophisticated business audience.

Think deeply about what caused the problem, and what change can fix it. Your audience has lost faith in yesterday’s strategy. To buy back in, they need to understand why the company will be more successful going forward. That requires a new approach based on facts and well-reasoned plans.

Make believable projections. Investors know they have lost ground from their prior expectations. Lay out a path to a good outcome that stands up to scrutiny. Include some measurable milestones in the near future, so investors can feel they are “putting down money to see another card.” Lofty promises don’t work in these situations; you probably got where you are by over-promising. Reestablishing credibility is job one.

Display competence, confidence, and determination to succeed. Investors need to see how deeply you understand how the business works, where it is going, what needs to happen, and how to get things done. More important, you need to show you believe your turnaround strategy will work and you are committed and determined to push through to success. Speak calmly about the problems: a measured, confident tone is remarkably effective making problems seem manageable.

Show that you have personal skin in the game. When they put more money into a troubled company, investors feel they are putting their flesh on the chopping block. They will have more confidence if you do so too. This can take many forms. Saying you are investing the “opportunity cost of your time” is not very effective: who knows what that really is, and if you are so great, why are the results not better? Actually writing a check is a powerful way to build investor confidence.

Listen and be reasonable, reminding your investors that you’re a good person to work with. People invest in people, specifically people they like and trust. Your investors need to believe in you as much as in the business.

Sell the upside with quiet passion. This is not the time for a jazzy sales pitch. It’s the time to remind investors that the business is bloody but unbowed, and can deliver a version of the vision and pay-off that led them to invest before. Having rebuilt a foundation of confidence, you can put their eyes back on the prize.

At the core, maintaining investor support is about rebuilding your relationship with investors. If the facts of the business situation are too dire, that may not be enough. But most often investors are making a judgment call. If you manage the crisis by building the right relationship with them, there’s a good chance the call will go in your favor.

First posted @ blogs.forbes.com/toddhixon on November 10, 2017.


Keep Investor Support When Your Business Is In Crisis was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Ask Three Questions Before You Jump Into That Hot ICO

A Bitcoin sign in Hong Kong. Photo credit: ANTHONY WALLACE/AFP/Getty Images.

ICOs are the new, new, new hot thing. They are powered by blockchain technology. Entrepreneurs are teeing up offers, money is flowing, and some early investors have made a killing. Should you jump in? Here are three questions of consider before you click to invest.

ICO stands for “initial coin offering”, referring to the first public sale of a “cryoptocurrency” (a currency based on information technology), like Bitcoin. Companies starting businesses based on blockchain technology typically create a cryptocurrency as part of their business model. They can raise money by selling the currency itself, rather than issuing debt or stock. A colleague recently remarked, “A year ago no one was talking about ICOs, and now they are a big factor in venture capital.” He points out that 37 ICOs have raised about $2 billion in 2017 to date, probably more than has been raised in seed venture capital. Fortune’s Term Sheet newsletter reports that big name investors like Andreessen Horowitz and Bain Capital Ventures are investing in ICOs.

Bitcoin and Ethereum have appreciated sharply over the last year.

Why are ICOs so exciting? It’s all about the money, both literally and figuratively. First, there has been a strong price run-up in the most successful cryptocurrencies: digital currencies based on encryption technology such as the blockchain. The chart above shows the price history for two of these: Bitcoin and Ethereum. Currency holders have made handsome returns. Plus, currencies are liquid by design, so investment cycles can be shorter and [in principle] investors can cash out at will.

And ICOs have compelling advantages for entrepreneurs. They are non-dilutive: the entrepreneurs sell a currency they have created and keep 100% of the equity in their company. They are lightly-regulated: structured properly, cryptocurrencies have [so far] avoided regulation by the SEC as securities. Some cryptocurrency issuers are soliciting buyers with email blasts. And cryptocurrency investors have none of the governance rights and protective provisions of shareholders.

Since the ICO investment goes into the cryptocurrency, not the company, you should ask: how do cryptocurrencies make money? This is a new field and there is a lot to learn still. Cyptocurrency promoters argue the case as follows. Blockchain start-ups aim to create an “ecosystem”: an economic system in which many participants come together to do business for mutual benefit. Examples of ecosystems include marketplaces (e.g., stock exchanges), information exchanges (e.g., credit bureaus), communications platforms (e.g., email or Facebook), and payment mechanisms (e.g., Fedwire or Bitcoin). The value of these ecosystems increases rapidly with the number of participants (i.e., “network effect”). As a result, in a given domain the ecosystem that grows fastest can become a hugely valuable and powerful natural monopoly (e.g., Facebook). By design, the cryptocurrency is required to access the ecosystem: if you want to do business in the marketplace or trade your information, you have to buy and sell using the cryptocurrency. Hence, the success of the ecosystem will create demand for the cryptocurrency: the greater the number of participants and transaction quantity and value, the more people will want to buy and hold the currency. And, the entrepreneurs usually pledge that the supply of the currency will be fixed or severely limited. So increasing demand should drive up the price of the currency.

Bitcoin itself is a simple example. It was designed primarily as a medium of exchange (a way to pay) that is secure, global, easy to use, and free from control by banks or governments. The compute-intensive Bitcoin “mining” (i.e., creation) process assures that the supply will be constrained. People buy and hold bitcoins to be able to use Bitcoin as a medium of exchange conveniently, which creates demand for Bitcoins. Growth in the volume and value of Bitcoin transactions adds to this demand.

The questions you should ask before making a ICO investment flow directly from the logic of cryptocurrency value creation. I suggest three major areas to drill down.

1. How successful with the ecosystem be? Is the user value strong, the technology powerful, and the time right? This is the fundamental business due diligence analysis for any venture investment.

2. Will the start-up offering the ICO to be the winner in this ecosystem? That breaks down into several questions. Is this the winning team? Team quality is the biggest factor for the success of a venture. Can the team succeed without the support that investors normally provide? In addition to guidance and introduction to customers and resources, investors provide governance by serving on the board of directors, and sometimes that is needed, as recent events at Uber have shown. Can the company raise enough money to win? Winners in big ecosystems often raise billions before their dominance is secure: e.g., Facebook and Uber. ICO fundraising is inherently limited since the company pledges to limit the amount of cryptocurrency it issues. After the ICO, it will need to raise large amounts of money by other means. Does the team have what it takes to do this? Only the winning company in a successful ecosystem is likely to have strong demand for its currency, producing price increases and liquidity for holders.

3. Does ecosystem success assure a strong run up in cryptocurrency value? Cryptocurrencies are a good vehicle for speculation, and that probably explains a significant part of the value run-ups we have seen so far. As Fortune Term Sheet put it, “Despite talk of ICOs being scams and/or pump and dump schemes, VCs are warming up to the idea. Why? Profits and liquidity.” Some of the investors in cryptocurrencies are chasing a quick profit. This speculation can turn around in an eye-blink: after the pump comes the dump.

But doesn’t ecosystem success assure strong inherent value? It helps, but the link may be looser than it appears. We’re early in the development of cryptocurrencies and their infrastructure. If you want to pay with a cryptocurrency today, you need to set up a special account and manually move value back and forth to legacy currency (e.g., dollars). That friction gives you a reason to keep a balance in the cryptocurrency. But in a few years the translation in and out of the major cryptocurrencies may be frictionless. For example, recently I spend a couple of months traveling to the four Nordic countries, each of which has a different currency. I thought I would need five kinds of cash in my pocket and frequent trips to the currency exchange bandits. I soon realized you can pay for everything with a credit card in the Nordics, and the bank translates everything to dollars with zero friction. I had no need to hold a balance in foreign currency. The same may happen with Bitcoin and other successful cryptocurrencies: payment technology will make them invisible. This reduces demand to hold the currency, even as the related ecosystem prospers.

The only certainty here is that cryptocurrencies are not the philosopher’s stone: a legendary tool that transmutes lead to gold. I expect that highly valuable ecosystems will be built on blockchain/cryptocurrency technology, and ICO investments offer participation in those ecosystems with shorter holding time and easier liquidity. However, ICO investments combine the substantial risks of seed-stage venture investment with the unproven dynamics of cryptocurrency value and a healthy dose of speculative risk. What could go wrong? This is not for the faint-of-heart or the shallow-of-pocket.

First published @ blogs.forbes.com/toddhixon on October 23, 2017.


Ask Three Questions Before You Jump Into That Hot ICO was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Roll Out A Stay Bonus To Retain Employees And Help Sell Your Company

A startup CEO recently asked me to help him develop a stay bonus program. The need for stay bonuses can emerge when a company is for sale and needs to keep key employees engaged until the sale happens. Buyers want key employees to come with the business, and once a deal is struck they typically offer retention packages. Before the deal is struck, however, key employees start to worry about the future and may disappear, and their loss can kill a potential sale.

This problem can be acute if the company is looking for a buyer because it is struggling to be successful stand-alone. Employees often see this, and concern for job security makes them look for new opportunities. CEOs can use several strategies to retain key employees. Building strong relationships, maintaining dialogue, talking up the benefits of the exit in prospect, giving key employees a lead role in solving company problems, and fostering team loyalty can all help. But sometimes they are not enough.

Risk and reward is usually a big part of a key employee’s decision to stay. The risk is months of unemployment with no benefits if the company fails to sell and shuts down, or missing a good opportunity that the employee sees before the company’s fate is known. The reward is enjoying the benefits of the sale: cashing in options, the retention package from the buyer, and the prospect of success as part of the buyer’s organization. If there is no deal yet on the table, the reward can be nebulous.

The stay bonus aims to make the economic incentive to stay bigger and clearer. How big? It needs to look attractive relative to unemployment risk. Hence it should be a significant number of months of salary: at least 3, and 6 or more to really ring the bell. And you need to think specifically about the needs of each person or group. Software engineers in the Bay Area don’t worry much about long periods of unemployment, but they are probably receiving a lot of job offers. People in other roles, like finance and HR, and people in other geographies worry more about unemployment but also have fewer immediate options. CFOs and heads of HR usually lose their jobs when a company is sold, so they will definitely be thinking about the next job.

A clear, understandable incentive is important. Ideally, it should be: if you stay until the deal closes, you get Y dollars. Give some guidance for how long the process will likely take. If the company is short of cash, the offer is often expressed as a percent of the value of the sale of the company. Then you can illustrate what this comes to in dollars with some realistic scenarios and explain why the company stands a good chance of finding an attractive offer.

Minimize the terms and conditions: they reduce the gut impact of the offer. Simple terms that I have used are: employees have to stay until the close to receive the bonus, and half of the bonus is contingent on them accepting an offer from the buyer (only if the buyer makes a reasonable offer) and staying with the new employer for a modest period: usually six months to a year. The first condition is inherent in the logic of a stay bonus (no bonus if you don’t stay). The second condition reflects the reality of selling a business: the buyer will not go forward if s/he can’t retain most of the key employees, so the stay bonus program needs to support that, not undermine it by giving key employees too much hot money on the day of the close.

Investors sometimes bridle when a stay bonus is suggested. It transfers value in the sale from investors to employees, and it often comes up at the point where the team equity incentives are long-established and investors, who have put in a great deal of money, already expect to lose money on the investment. How can management ask for more? What happened to “a deal is a deal”?

Stay bonuses are expedient. The management team always has the option to walk away. Investors agree to a stay bonus because they believe the it gives them the best chance at the best outcome from their investment. That said, if a CEO uses this tactic too aggressively, it will become part of his or her reputation and that matters when s/he looks for a new opportunity.

Here’s hoping you never need to use this. I’ve only seen it done a few times. When you’re driving to close a deal in a tough situation, however, the stay bonus is a handy tool in the tool box.

First published @ blogs.forbes.com/toddhixon on October 9, 2017.


Roll Out A Stay Bonus To Retain Employees And Help Sell Your Company was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Think Twice About Using A Banker When It’s Time To Sell Your Business

Investment bankers and business brokers are often retained to help sell a small business. In 20 years of early stage investing, I’ve seen them in action quite a few times. In many cases I came to the conclusion that we would have done as well or better without the banker. Here are guidelines to decide whether a banker will help, or not.

Bankers are not magicians, and they cost significant money: usually a monthly non-refundable retainer plus a percentage of the sale value if the company is sold, subject to a substantial minimum fee. They take several months to get up to speed. They effectively tell the world that the company is for sale. And I have seen them work away for 12–18 months and come up with nothing better than a fire-sale offer. The bankers with the strongest reputations are able to take only those assignments that, going in, promise a high probability of sale at a good value.

When big companies buy small companies, the transaction usually happens because the small company (the “target”) extends the acquirer’s capabilities: it brings a new product, new technology, valuable people, or (less often) access to new markets. Or, as a friend who moved into the big tech company world told me, sometimes targets are acquired because they are a threat to the acquirer’s business, and the acquirer wants to eliminate the threat (which is why the target sometimes quietly disappears).

The decision to acquire is usually driven by a line manager running a business related to the target. He will see the business fit first and understand it best. He has a budget for expense and capital and will need to bear any costs the acquisition creates. And line managers are usually the most powerful and respected people in a company. Corporate development people play a supporting role for the most part. They help manage the acquisition and integration process and bring specialized skills and contacts. They see the deal in the big corporate picture and have a quality control role. They work to know what the line managers are looking for and filter inbound deal flow. They are seldom the people who put their flesh on the chopping block and demand that a deal gets done.

Hence, the decision driver is most likely part of your market ecosystem: you already know her or him, or would if you network your industry sufficiently. In fact, the mostly likely acquirers are already your customer or a business partner of some kind: perhaps you sell complimentary products to the same customer. The next most likely group is direct competitors from whom you are taking business. Or perhaps suppliers who feel a need to acquire downstream capability.

The conversation with these buyers is an extension of your existing business relationship, and you can start that conversation at will, with care, of course. A banker does not really help here: s/he probably does not have a relationship with the line manager so the first call goes to the corp dev people, who are not fully up to speed on the fit between their company and your business and who are working on a big pile of other potential deals.

And, if no one in your ecosystem is interested, then it’s likely you need to develop the business further before you can achieve a good exit to them. A banker has no way to change this.

There are several situations where bankers can be a big help:

  • If there are likely buyers outside your ecosystem, the banker is better equipped to find them. This includes purely financial buyers (e.g., private equity funds that are not yet invested in your industry) and international buyers wanting to expand their footprint into your country, especially if they are from countries like China where the rules of business can be quite different. Bear in mind that financial buyers are usually looking for a low price. On the other hand, I’ve seen a banker add a lot of value by leveraging his firm’s global resources to find several potential Asian buyers and then tenaciously driving the process until the transaction closed.
  • If you have a credible offer in hand and want to drum up competing offers, bankers are well equipped to reach all the logical buyers quickly, and the fact that there is an offer on the table will speed you through the usual filtering process and cause the corp dev people to quickly run the deal past their line managers. Bankers are also good at creating a bidding process if there are multiple interested buyers.
  • If your goal is to sell your business to another entrepreneur who could come from outside your market, a business broker may know interested buyers that you don’t see.
  • A banker will help with structuring and negotiating the sale. If this is most of the help you need, however, there are much less expensive resources: good lawyers, consultants who specialize in this work, or experienced board members who can put in the time.

You might ask: “why do companies hire bankers so often?” They can be valuable, as outlined above. And, there are two other drivers. Small company CEOs are very busy and often feel that they don’t have the bandwidth to drive a sale process. And, hiring a banker feels like a way to make something happen: the banker promises (with wiggle room) to get the business sold within the timeframe of her or his process. CEOs and boards of directors often opt for a banker to buy this insurance and kick the moment of truth down the road.

Weigh the choice of hiring a banker carefully. Qualify the likely acquirers in your industry first. If that yields one or more expressions of real interest, consider whether you need a banker to finish the process. If there is little interest, consider whether a banker is likely to find an attractive offer from another party. Above all, be as honest and realistic as possible. The stakes are very high: you need to avoid chasing false hope, sell to the right party at the right time, and find the best realistic option for your company.

First posted @ blogs.forbes.com/toddhixon on September 18, 2017.


Think Twice About Using A Banker When It’s Time To Sell Your Business was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

The Founder/Investor Partnership Is Complex; Here’s How To Make It Work

Uber Co-founder and CEO Travis Kalanick during happier times. (Photo credit MONEY SHARMA/AFP/Getty Images)

The news that Benchmark Capital is suing former Uber CEO Travis Kalanick, alleging fraud, puts a spotlight on the complex relationships between founders and early investors. The venture ecosystem tries to keep founders and investors working in concert, but the alignment of interests is less than perfect, and the mind-sets of investors and founders can be profoundly different.

I’ve been a founder and worked with many others. Founders stand out from other leaders. First, they see themselves the creators of their business, and this is usually fair. They saw the market opportunity, designed the product, worked out how to win customers with attractive economics, hired the key team members one by one when there was a good story but little money, raised all the early money by selling the dream to investors, and rode through all of the near-death crises in the early days. They often feel that no one else truly understands their businesses.

This can lead to problems if the founders fail to realize how much they need to learn: e.g., about business strategies and models, competitors, and how to run a now-large organization. It can be hard to give founders advice, and they can feel a strong need to retain control of the business they created and uniquely understand. The Google founders were wise to hand the reigns to Eric Schmidt when the company entered its explosive growth stage. And, co-founder Larry Page had the opportunity to resume the CEO role later, when the business was well-structured and he had more experience.

Founders take risk at a level few of us do. They often say to me: “You have a portfolio to bring you success, I have this one company”. They are extraordinarily motivated to make their companies successful. This can take them further into the gray zone of business than investors can stomach, as happened with Travis Kalanick.

Founders often personify the business. In the early days the founder is the chief salesman, fund-raiser, and spokesman for the business, and of course the “key man” in the investment documents. They can come to think that the founder and the business are one, and what is good for the founder is good for the business. This can lead to arrogance (Kalanick publicly scolding an Uber driver) and misuse of company assets.

Founders are competitive with other founders, especially in hot-house locations like Silicon Valley. They keep score on the basis of how big their team is, how much money they have raised, how high their valuation is, and how “hot” their company is perceived to be. Founder competition was part of the drive for unicorn valuations, now shown to be hollow in many cases.

And, many founders are often extraordinarily intense people, with minds always going Mach 3 and work and travel schedules that would grind a SEAL down. They are deep in the details of every part of the business. They can be tough, uncaring, and dictatorial with employees (e.g., Steve Jobs).

Bottom line, founders are the vital, magical, powerful ingredient that makes their businesses and the venture ecosystem go, and I treasure my founder relationships. But they are not the easiest people to work with. So it’s not surprising that founders and investors can come to grief.

Investors live in a different environment and are often cut from different cloth. Angel investors put their own money on the line, and fund investors (venture capitalists, “VCs”) work in a structure that generally requires them to contribute two to ten percent of the fund’s capital in cash and receive no bonuses until 100% of the fund’s capital is paid back.

And, VCs’ underlying investors judge them mainly on the basis of financial performance: if their results are not better than three-fourths of their peers, they will have difficulty raising capital again. So, investors feel pain when capital is lost. Founders invest mostly their time with a big piece of the upside if the company succeeds. They care about lost capital too, because it causes dilution of their equity interest, but usually not as much as investors do. Founders are almost always willing to raise more money and try again if they still believe in the vision. Investors will usually pull back sooner, judging that risk/reward is no longer favorable.

Investors are often a different breed, especially after the early stage: founders may seem them as stodgy, prissy, and judgmental. They are less risk-seeking than founders, although often still real risk-takers.

They have an analytical perspective, looking across many investments through firm’s history for patterns and lessons learned. In the worst case they can be pedantic and numbers-oriented control types. They often believe that picking the right team is the most important success driver. This makes them fiercely loyal to high-performing entrepreneurs, but they also keep an eye on the key team members and think about whether they are still the best leaders for the company, and what changes are needed.

Founders are athletes on the playing field: great operators with a strong strategic sense. The best seek advice broadly, make prompt decisions, and deliver great results. Investors are coaches: the best know how to give advice and nurture talent, and they know to not try to run the business. Investors who have been founders have an advantage of empathy for and credibility with their founders. But they sometimes take too much control and rely too much on what worked in their start-up.

Investors think a lot about financial markets: who will buy this company or take this stock public? And their main goal is a high return on their investment: they may push for an exit if they think the market is receptive, pricing is good, and investor ROI is as high as it will be for some time. Founders think more about building something truly great (“changing the world”) and the absolute amount of money they will receive. They may want to exit earlier or later: earlier if they receive a big payday from an acquirer who will continue to back their vision, or later to take the long road to an IPO and an independent company the founders will control.

It’s no surprise that the founder-investor relationship can become strained. Founders can minimize the risk by keeping these things in mind.

First, understand your investor’s perspective: s/he has a job to do, just as you do. When things get difficult, put problems on the table as calmly as possible and resist the temptation to assume bad motives: it’s often your stress and frustration talking. Many apparently-bad problems are misunderstandings.

Keep in mind that all board members and company officers, when they took on their roles, assumed a duty to work for the welfare of the company as a whole, called “fiduciary duty.” This is not an exclusive obligation; they have other duties too. But it’s important, because companies have a better chance of thriving when the key people work together. Take this duty seriously, remind others of their duty and hold them accountable, and make this a litmus test for people joining/remaining in the director/officer group, and for which investors you accept. Several times I have seen founders take on a selfish investor because the price was right, and then suffer bad behavior for years through many critical times.

Keep investors informed: get bad news over with as soon as possible. It’s tempting to control information flow, however, problems have much greater impact when they come as surprises, and investors may be able to help when they know about the problem.

When things get difficult, work out what the realistic choices are and get the discussion focused on that. Some rhetoric, venting, and wishful thinking may be necessary until people settle down. But progress usually happens when the group gets focused on the realistic options and starts to engineer the compromises and path forward to get one of them done. Investors are mostly rational people who want to maximize the upside chance and avoid disaster, although they do like to negotiate. You can get them to face facts and make sensible decisions.

I’ve heard that in a good marriage each partner has to do more than half of the relationship work. Business partnerships are much the same. Understanding, communication, focus on the shared upside, and balancing interests will enable you to take advantage of the mostly-positive founder/investor dynamic that underpins the huge success of the U.S. venture ecosystem.

First posted @ blogs.forbes.com/toddhixon on Aug 21, 2017


The Founder/Investor Partnership Is Complex; Here’s How To Make It Work was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

When The Time To Leave A Major Role Comes, Here’s How To Do It Right

A least a few times in life, each of us needs to let go of a role that we have built and cherished for many years. This happens when we finish a major assignment, get pushed out, retire, change careers, or sell a business we have worked long and hard to build.

People often struggle letting go of a major work role. You have probably spent more of your waking hours on your job than any other aspect of life, including family. Work is fundamental to identity: e.g., cocktail introductions quickly turn to the question, “What do you do?” Work provides status, financial security, intellectual stimulation and companionship. It creates an often-comfortable routine. And it simply fills time.

However, change can be a good thing. The skill set, perspective, experience, and energy a new person brings to a company often accelerates progress and cracks long-standing problems. We get stale when we do the same thing for a long time: stuck in our ways, our beliefs, and our feelings about the situation and the people. An old boss, when pitching people to take new roles, liked to say, “People [like plants] need to be “repotted” periodically so they can continue to grow”. A friend has led a marvelously rich life spanning five careers: researcher, entrepreneur, journalist, investor, and now professor.

How do you know when the time to let go has come? Sometimes it’s imposed by events, but often not. Here are the signs. You’ve plateaued in your work and the skills and behaviors needed to get to the next level are not personal growth to which you aspire. Your business is changing fundamentally in a way you can’t embrace. The outlook for next year is doing for the 26th time what you’ve done 25 times before. Most important, as a friend recently put it, when you get up in the morning to go to work, you feel no enthusiasm for the job, and you realize you’ve felt this way for a long time.

If so, the time for change as come. For practical reasons, some delay and preparation may be needed before you pull the trigger. It’s not too soon to design the next era of your career and life, however, and to think through your transition.

Quit while you are ahead. It’s tempting to ride success as long as possible, holding on to the trappings and the income. If you ride it well past the peak, however, you erode the equity you have built, both money and reputation, and the career momentum that can propel you into a new role on favorable terms. In my experience, the smartest people quit near the peak.

Respect the role that you are leaving. If the exit process is antagonistic or disappointing, one can be tempted to scorch some earth. That’s a mistake for multiple reasons, of which the most important is: you’re leaving behind something you built, and you want it to be successful because it’s part of your history and you can be proud of what you accomplished there.

Develop a new opportunity that is something you truly want to do. Then your transition will focus on the potential of the new opportunity, not the benefits of the role you are leaving behind. You probably have a list of things you have always wanted to do. Look for a way to make one of those real.

Go ahead and try something different. You probably have talents and sources of satisfaction you have never explored. I’ve made a couple of big jumps in my career and discovered sources of satisfaction, like running a small business, which had no parallel in my previous experience.

Bear in mind that life is finite. At reunions, my university has a parade of alumni/alumnae through the campus, starting with the earliest class, a few old men riding golf carts, and working back to the young and lusty new graduates. This parade is a time machine that shows us our future: fewer people as the classes get older, and how healthy they look. We’re given a finite and uncertain amount of time. If there are things you really want to do, best to get about them.

Life is never fun when you are stuck in a rut, including a well-paid rut. There is always opportunity for satisfaction in learning new things, meeting new people, and having new experiences. Transition is the time when we embrace this.

First posted @ blogs.forbes.com/toddhixon on August 7, 2017.


When The Time To Leave A Major Role Comes, Here’s How To Do It Right was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Jim Comey’s Final Moment In The Spotlight Teaches Balance Between Duty And Self

Former FBI Director James Comey testifies before the US Senate Select Committee on Intelligence hearing on Capitol Hill in Washington, DC, June 8, 2017. (Photo credit: SAUL LOEB/AFP/Getty Images)

When former FBI Director Jim Comey made his eagerly anticipated appearance before the Senate Intelligence Committee, he did not disappoint. The two hour session focused on politics: why Comey was fired and whether or not President Trump sought to derail the FBI’s investigation into Russian interference in the 2016 election. I want to focus, however, on lessons we can learn from Comey’s appearance about CEO leadership.

I previously posted about Comey as an example of a CEO putting the interests of his organization first, and also as an example of a CEO giving in to temptation to cater to his or her personal agenda. Comey provides examples on both sides. CEOs are powerful, confident, driven people who have had a lot of success. We should not be surprised if they think of themselves as important players on life’s stage, want to play visible roles at key moments, and expect recognition. A CEO too meek to do this would not be good at his or her job.

The best CEOs, however, keep almost all of their executive and promotional energy focused on doing the best possible job for their companies, and for their people. They don’t engage in politics beyond supporting causes widely viewed as worthy. They don’t try to be celebrities, knowing that celebrity CEOs often become embarrassments. They keep their private lives private.

Comey’s testimony before the Senate Intelligence Committee was probably the last word that he will have in the public spotlight, at least until the administration changes. It was his opportunity to set the record straight and also do what he could to serve his agenda as former FBI leader and any personal agendas. Comey challenged the propriety of actions and the veracity of statements by a sitting U.S. president. He stated that he leaked portions of his notes from meetings with the president with the goal of instigating appointment of a special prosecutor. Policing the actions of government officials is part of the FBI’s responsibility. And, Comey claims personal glory and potentially a place in history when he takes on, and potentially takes down, a president. I spoke last weekend with a friend whose father is Archibald Cox. Both of us saw parallels between Comey’s circumstances and Mr. Cox’s firing by President Nixon during the Watergate scandal. Comey’s testimony shows how he set the balance between his institution’s agenda and his own with his last words on the public stage.

The bulk of his testimony was answers to questions: 19 committee members questioned Comey for seven minutes each. Comey’s tone and affect were remarkable. He was calm, comfortable but not over-familiar, matter-of-fact, and devoid of any apparent emotional agenda. He was even funny at one point: he reported that, when he received a last minute summons to a White House dinner with President Trump, he had to cancel date night with his wife, and he would have much preferred to dine with her. His testimony was sometimes humble: e.g., when he questioned his courage in interactions with President Trump. And he sought balance when he went beyond the question to make a point in support of members of the administration. Overall, Comey came across as a dedicated leader trying to do his job and protect the institutions he served in very difficult circumstances. This was a remarkable exhibition of pure professionalism by a senior leader representing his organization in public.

In his opening remarks, however, Comey let his feelings show. Referring to president Trump’s assertion that Comey was not able to lead the FBI, as demonstrated by disarray with the FBI and lack of confidence in Comey as its leader, Comey said “He defamed me, but more important, he defamed the FBI. Those are lies, plain and simple, and I am so sorry that the FBI workforce had to hear them. ” He felt the sting of alleged incompetence in his ego, but he showed more concern about the aspersion cast on the morale and efficiency of the organization he led.

And at the end of his opening remarks, Comey did an extraordinary thing. He used the last 30 seconds of his time in the national spotlight to say goodbye to the FBI staff, which his abrupt firing denied him the opportunity to do, and to exhort and encourage them to carry forward the mission, work, and values of the FBI. It was a heartfelt and moving speech.

Each of us can draw her or his own conclusion on how Comey struck the balance between his role as a leader and his personal aspirations to be a star player. The committee members treated Comey with respect and several said they see him as an excellent professional. Regardless of party affiliation or where you come down on Mr. Comey’s conduct, his moment in the spotlight is a chance to learn about the challenge of balancing duty and self and how one very smart and serious man struck that balance.

First posted @ blogs.forbes.com/toddhixon on June 15, 2017.


Jim Comey’s Final Moment In The Spotlight Teaches Balance Between Duty And Self was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Follow Two Don’ts and Five Dos When Speaking With Today’s Customers

Little in life has changed as much as how we communicate, so the way we talk with customers has to change dramatically, too. Two don’ts and five dos will help you stay on top of your marketing game.

In the 1990s, email was hip, cell phones were a premium product for a privileged few, faxes were an everyday business tool, and landline telephones were a growth business, driven by the boom in dial-up internet connections. A burgeoning telemarketing industry sold long distance service [remember what that was?] and credit cards. International calling was dollars per minute. And moving large amounts of data around the country meant sending physical media by Fedex.

Today, email is stodgy, everyone has a cell phone and probably a smart phone, and U.S. cell-phone-only homes outnumber landline homes (see chart below: cell phones in blue and landlines in orange). Fax is an antique tool used mostly by doctors, DropBox moves gigabytes effortlessly, calling London costs 2¢/minute, and few have heard a dial-up modem sing its song for years.

Most U.S. households now have only cell phones.

Plus, trends and markets are increasingly defined by Millennials, a generation who grew up in this digital/broadband/mobile world with a set of communication preferences that is quite different from their elders.

So it’s no surprise that businesses need to rethink how they talk with their customers. First, the don’ts:

Don’t call customers’ telephones unless you already have a relationship with them. By “relationship” I mean there’s a good chance you’re in their contact file already. Consumers are rapidly moving to mobile phones and cutting the telephone cord. Mobile phones are harder to reach because they all have caller ID, mobile phone numbers are harder to acquire, and consumers are a more reluctant to answer if they are on the move or have to pay for airtime to listen to a sales pitch. Many people, including me, simply won’t answer calls that don’t match a contact in the phone, causing the contact name to appear on the screen; they let it go to voicemail and decide from the message if they will call back.

This situation worsened fast in the last couple of years, due to robo-calls and the election. People have learned that most unknown callers will be SPAM, and you don’t have to be polite to a robot, even a clever one that tries to seem human. If you do connect with a customer, you put your business in a class with the other persistent, robotic callers: bill collectors, IRS audit scams, credit card and electricity “deals”, and increasingly desperate public opinion surveys. This is not the road to success.

[Update, June 24, 2017: The FCC is seeking to impose a $120 million fine on Miami robo-caller Adrian Abramovich, who is alleged to have made 96 million robo-calls employing fake caller IDs: caller ID was spoofed to make the calls appear to come from local numbers, making their targets more likely to answer. The commission appears to understand how much consumers resent these calls. And the risk of a $120 million fine is a good reason to avoid this practice.]

Don’t expect email blasts to reach potential customers. There are probably some cases where email still works, especially if you have a hot deal or eye-catching visual content. But most people have a strong email filter today. Gmail does a great job of separating “important” emails, those that its algorithms determine you want to see, from all the rest. Microsoft Outlook has a similar feature. Add-on products like SaneBox are remarkably accurate, about 99% based on my experience with SaneBox. Most people who don’t use such products are skilled at skimming headers and ignoring the messages they don’t want to read.

New communication modes creates new opportunities, too. Hence the “Do’s”:

Use quality content on your website to bring customers to you. Internet traffic is driven by search to a remarkable extent: e.g., most of the traffic to this blog comes from Google. So generating traffic depends on putting up content that will rank high in Google searches. There is an entire industry that helps businesses primp for Google. The fundamentals are common sense, however. Content needs to be meaty, original, graphic, relevant to topics that are currently top of mind, and structured for search with key words and phrases up front where Google’s spider finds them best.

Weave your ad messages into content people want to consume. Ads on the edge of pages have shockingly low and declining response rates. Ads that are inserted into the flow of the content do much better, especially if they are relevant to the content. This contributes to the rise of product placement in television (why the NCIS:LA agents are seen driving Benz’s and Audis, not dull government pool cars) and the ever-rising price of professional sports broadcasting rights. Sports offer lots of logo placement opportunities and sports are usually viewed live, avoiding fast-forward thru ads. Facebook does a great job of working commercial content into its customers’ feeds and eliciting high response levels. They charge for this, naturally.

Reach millennials in the media they follow. As a general rule, they hate the telephone and like text chat, mostly on over-the-top platforms like Snap and Instagram rather than old-fashioned cellphone texts. This is not a good medium for brand messages or complex offers, but it can be good for quick promos and order follow ups. Millennials are also remarkably fond of YouTube, using it like a user-defined TV channel.

When you do have a customer’s attention, use it to build the relationship. While harder to reach than in the past, customers will call you, take your call, read your email, or even visit your internet or physical site if they are interested. This is a chance to sell something, but it’s also a chance to say something about the value you place on the customer. Don’t insult and annoy a customer by making him or her listen to a sales pitch before you will activate a new card you’ve just sent them. Make your site a destination and visiting it an experience. It’s not a surprise that successful upstart competitors feature café-like bank branches, longer hours, U.S.-based call centers, or service without a sales pitch as differentiators.

Organize your phone system so your calls to customers come from a recognizable number. Never use an 800 number for outbound calls: it makes you look like a telemarketer. Ideally the caller ID for an outbound call will be the number on your letterhead and/or business card. That maximizes the chance the customer will recognize the number and take the call.

Above all, treat the customer with respect. This seems obvious, but recent events at Uber, United Airlines, and Wells Fargo underscore how often it fails to happen. Recently, a friend had a bad claim experience with Liberty Mutual. She called the head office to complain and asked to speak to customer service, not expecting much. She was put through to a pleasant, mature woman who listened politely and sympathetically to her story. She did get a call back from a manager to follow up on the problem, but the main thing she wanted was to give Liberty feedback. They listened actively and respectfully, and my friend was ready to move on from the problem. Good listening and respect go a long way towards building loyalty: some things never change.

First posted @ blogs.forbes.com/toddhixon on June 21, 2017.


Follow Two Don’ts and Five Dos When Speaking With Today’s Customers was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

Harness The Power Of Service For Your Business

If asked what is the significance of Memorial Day, I suspect the average young American would answer: “It’s the beginning of summer”. Memorial Day is the national holiday on which we honor those who have died serving in the U.S. armed forces. The town in which I live puts a flag on the grave of each veteran on Memorial Day. I’m struck each year by the profusion of flags: most of the family burial plots include someone who has served.

Each flag designates a a veteran.

Most of the burial plots shown above belong to people who were born before 1950. Military service has declined dramatically in the U.S.: among men, who are 92% of veterans, over half over age 74 have served. Almost 40% of men aged 65–74 have served. In the 55–64 cohort the percentage drops sharply to 15% and continues to decline to only 5% for men aged 25–34. The shared experience of military service is disappearing from our society.

When I was a brand new Air Force lieutenant, a salty colonel took me down a few pegs for trying too hard to play the system for my own advantage. His point was: you are here to serve your country. This is not all about you. I resisted his message, but eventually came to appreciate the lesson. Gallup reports that the U.S. military enjoys the highest level of public confidence among all U.S. institutions included in its surveys. The ethic of mission, service, and teamwork that the military instills underpins this.

The last 20 years have brought a sharp decline in the cohesion of U.S. society. Its current state is characterized by heightened tribalism, government gridlock, post-truth politics, disengagement from the rest of the world, Wall Street pushing the global economy over the brink in its blinkered pursuit of profit, major “customer service” businesses (Wells Fargo, United Airlines) abusing customers and employees to make their numbers and Silicon Valley firms (e.g. Uber) manipulating people with algorithms while maniacally focused on “blitz scaling” to achieve the next $100 billion market cap.

However, most businesses depend on teamwork and customer relationships. A service ethic — serving on a team, for the customer — is an essential enabler of success. Successful service businesses, like Boston Consulting Group where I spent my journeyman years, teach the same lesson the Air Force taught: it’s not about you. You are there to make the client successful. Notwithstanding the sad stories that appear in the media, most veterans do well in later life. As a group, Veterans are better paid, better educated and more likely to be in marital relationship than non-veterans. Female veterans do particularly well.

Let Memorial Day be a reminder to all of us of the power of service. It powers most successful businesses, and it powers successful nations, too. Service ethic is built by leaders, who teach it directly to young staff and stitch it into the culture of their organizations. Better service is always a competitive advantage, particularly when other forms of advantage fade. And it can help businesses come back from blunders, as United Airlines is doing by doubling down on service to its best customers.

Small businesses rate high in the Gallup survey cited above, right below the U.S. military, probably because they are usually service-oriented with senior management close to the front lines. Notch up your efforts to instill a service ethic in your organization. It will help your business run smoothly, and that will help you truly enjoy the summer.

First posted @ blogs.forbes.com/toddhixon on June 2, 2017.


Harness The Power Of Service For Your Business was originally published in NAV Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

Todd Hixon

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