Incomplete article on why Massachusetts can’t birth tech IPOs

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Scott Kirsner of The Boston Globe has a business section front page article entitled Where are all the Massachusetts tech IPOs, sub-titled When it comes to going public, the sector remains in the long shadow of California. 

This is scarcely news to anyone who has been or is in the entrepreneurial economy in Massachusetts. Silicon Valley has lead Massachusetts in every dimension of tech startups since the downfall of the Route 128 computer companies like DEC, Prime, Wang, Data General, and Apollo.  I assume what prompted Scott to write the article is the current flock of IPOs and soon-to-be-IPOs from Silicon Valley, including Uber, Lyft, Zoom, Pinterest, and Slack.

Unfortunately the article, while accurate, is incomplete. It principally blames founders for several sins:

  • Thinking too small – building million dollar companies that get acquired versus billion dollar companies that go public
  • Inadequate PR – not creating the kind of buzz that attracts big investors and star employees
  • Poor culture of mentorship – “We have a poor culture of mentorship relative to the Valley and now New York,” says Michael Greeley, an investor at Flare Capital Partners in Boston.

But he manages to mainly give a pass to both investors and the Commonwealth of Massachusetts. Having been in the “innovation economy” for 39 years, I can tell you there is a very strong investor culture here that is in one word conservative.  The first generation of VCs came out of companies that were consistently profitable. In fact, back in the day of DEC and Data General, the rule was you could not go public until you had four consecutive quarters of profitability. Tell that to the investors in Uber, Lyft et al! These VCs also hated consumer plays. They told me there was no way they could perform their due diligence on B2C companies. With enterprise companies they could call all their CIO friends in large companies and get a reading on the viability of new products from these potential customers. They had no idea who to call to get a reading on a consumer startup like Uber. So they passed. I can’t count the number of times I was told by founders from California that the startups I couldn’t get funded here in Boston would easily have raised capital in Silicon Valley.

And Scott leaves out one of the major governmental problems with the startup economy in Massachusetts: non-compete agreements. In California non-competes are illegal. Period. You can leave your company on a Friday and form a startup on a Monday to compete with your former employer. And many entrepreneurial-minded employees do just that. It’s a fact of life in the Valley. But it’s more than that. The constant spawning of new companies creates the winners that go public and in turn spawn more startups. Not here. The large legacy companies and their lobbyists have kept the legislature from ending indentured servitude in the tech sector. Until the legislature wakes up and does away with non-competes, Massachusetts is doomed to fall further and further behind the Valley.

But founders also share part of the blame that isn’t mentioned in the Globe article. The best and brightest leave Boston for Silicon Valley. The canonical example being Mark Zuckerberg, who founded Facebook in his dorm room at Harvard, but as soon as he got traction he headed for the Valley. Perhaps far more importantly, but lesser known, is that Paul Graham, the founder of Y-Combinator, perhaps the most important early stage investor of the past ten years if judged by the sheer number of investments it has made, started Y-Combinator in Boston. For a while he maintained both an East Coast and West Coast presence, before shutting down his office here and putting all his focus on Silicon Valley.

The tech sector in Massachusetts has been second fiddle to Silicon Valley since startups moved from 128 into Cambridge and Boston. But it has fallen farther and farther behind to the point that Massachusetts is no longer even number two, it’s behind New York, and if we aren’t careful, we will fall behind Texas next.

And there is plenty of blame to go around: entrepreneurs, investors, state government all play a part in squandering the tremendous entrepreneurial engines of MIT and Harvard. Until the culture changes amongst all three groups my advice to the founders I mentor is, sadly, “Go west, young man.”

 

How do you manage a remote team?

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The first question to ask is why would you want a remote team? Isn’t face to face the highest bandwidth communication channel? Don’t successful companies like Apple, Google, Facebook et al spend billions of dollars building campuses to house thousands of their employees together? How do you know what the heck your remote teams are doing if you rarely, if ever, see them?

There is one overriding reason and one only as far as I’m concerned: using remote teams means you have an edge in the global war for tech talent. Competition in tech hubs like Silicon Valley, New York, Seattle, and Boston is brutal, driving up salaries, benefits and perqs to a level that startups have to struggle to match.

But if the world is your recruiting platform and you are willing to add talent from anywhere, you can keep costs down while greatly expanding your recruiting reach. And there is a secondary benefit to a remote team – it adds diversity. A mono-culture is always at risk of some disruptive force. In addition, the ability to manage talent remotely is a valuable skill in this day of outsourcing development to India and elsewhere.

I’ve only spent a few months on a “distributed team” – we were hardly remote as we were all in the Boston area, but the founder/CEO didn’t have an office or the funds to pay for WeWork or other collaborative work space. So we relied on email and infrequent face to face meetings.

While I like working remotely at times – free from disruptions I can concentrate much better than in the office – I much prefer going in to an office and being physically close to those I work with.  But if you are a bootstrapping startup I would advise you consider at the least a distributed team and at the most a truly remote team. One operational issue with remote teams is the difference in time zones. This can be a problem when working on tight deadlines. Otherwise it’s pretty easy to compensate for.

The Inc. article Remote Teams Can Have Great Culture. These 6 Strategies Will Make It Happen by  Jonathan Steiman Founder and CEO, Peak Support  should be required reading for any founder contemplating building a remote team. I’ll just make a few comments on each point – I strongly recommend you read the full article if you have a remote team or plan on building one.

  1. Communication – I have found that a very high percentage of problems in any company stem from poor communications. Email strips communication of nuance and attempts at humor can actually be interpreted as offensive. It’s too easy to put thing in email you would never say to someone face to face. I strongly recommend that you meet in person with anyone joining your remote team when they are hired. It is well worth the cost of travel
  2. Community – community and corporate culture are the glue that holds any team – remote or otherwise – together. All hands meetings are one good way to build your community. It’s a staple of Silicon Valley companies. Meeting once or twice a year either centrally or regionally can help build bonds through non-business activities as simple as going out to eat together, taking a hike, going to a movie, etc.
  3. Narrative – the most important narrative is the origin story of the company. Other stories like how you landed your first company, your first investor, your first hire help build the company culture. Don’t underestimate the power of stories, no matter how seemingly small, so long as they are memorable.
  4. Vision – vision is the lodestar of the company, setting its direction for everyone in the company. As the saying goes, “If you don’t know where you are going any road will take you there.” Communicating the vision is one of the top priorities of the CEO and the founders. I would add mission to this. Vision is about the future, mission is about what you do in the present to help you move towards that future you envision.
  5. Values – I’ve written several posts about values, including Values: the bedrock of startups. Communicating values early and often is critical for any company and more-so for a company with a remote team. Company leaders need to live and exhibit the company’s core values. Without values you can’t build a company culture, let alone manage a remote team.

I consider corporate culture so important that I devote an entire blog category to it: https://mentorphile.com/category/corporate-culture/. Building a culture with a remote team is undeniably harder and requires more work. But it not only can be done, if must be done if your company is to succeed.

 

Are you a micro-manager?

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I’ve never liked rules, most seem arbitrary to me. But I have to admit that every time I started a company I didn’t give second thought to two major types of rules: those governing personal leave (vacation days, sick days, personal days, etc.) and recording and submission of travel expenses. Yet at the same time I was doing my best – and I largely succeeded – to hire great people for my companies. Thus the Incarticle by Justin BarisoNetflix Avoids Rules Like the Plague. Here’s What It Does Instead, subtitled One reason for Netflix’s success: It throws the rulebook out the window. was a real eye opener for me.

The embedded assumption in having rules in a company is rules are needed to manage behavior, with a goal toward ensuring quality and consistency of performance. Yet in Netflix’s culture deck they made clear their belief that though there may be short term benefits to rules, in the long term companies that become enmeshed in rules and processes get sclerotic due to bureaucracy.

Netflix focuses on two things: hiring high performance employees and building a culture that rewards high performers and weeds out unimproved low performers. Netflix is one of the companies in the book  Great Leaders Have No Rulesby Kevin Kruse. Here is the major takeaway from the section on Netflix:

“Netflix leaders believe that responsible people–the people every company wants to hire–are not only worthy of freedom, they thrive on it,” Kruse continues. “Creating an environment where these individuals are not inhibited by myriad rules allows them to become the best version of themselves.”

There’s another way of expressing this which I had heard before, but never operationalized: get your employees to act like owners! Two great examples of this at Netflix are unlimited vacation days and no formal travel and expense (T & E) policy. Netflix doesn’t bother with the unwelcome overhead of tracking employee vacation days – salaried employees can take as much as they want within certain guidelines. Similarly, with regard to T & E expenses employees are expected to spend money as if it’s their own–and look for opportunities to save when possible. The company’s expense policy is very simple: “Act in Netflix’s best interests.”

Kruse considers rules another way to micromanage. Rather than burden employees with a nest of rules the Netflix culture ensures that they feel ownership and accountability for their decisions.

“Most companies spend endless time and money writing and enforcing HR policies to deal with problems the other 3% might cause,” former Netflix chief talent officer Patty McCord wrote in a piece for HBR. “Instead, we tried really hard to not hire those people, and we let them go if it turned out we’d made a hiring mistake.”

So Kruse recommends founders follow the Netflix model:

  • Focus on hiring the best.
  • Set guidelines, not rules.
  • Reward great performance.

 

Do this right, and you’re no longer managing your people. You’re inspiring them. Leaders inspire, managers manage. If you can turn everyone into a leader you will harness the, creativity, and talent of your workforce.

 

How Barack Obama made tough decisions

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I’ve been interested in how people make decisions ever since I enter the decision-driven world of fast paced tech startups nearly 40 years ago. In fact I tell people interested in joining startups that they are really going to join decision machines – they will be making more decisions, and more consequential decisions, than every before in their lives. And perhaps more than ever again in their lives, unless, like Barack Obama, they become President of the United States. The article Barack Obama shares his approach to handling tough decisions by Lila MacLellan on Quartz at Work holds lessons for founders of new ventures as well as executives of well-established companies. She quotes extensively from an on-stage interview Obama gave Qualtrics CEO Ryan Smith.

By definition, if it was an easily solvable problem, or even a modestly difficult but solvable problem, it would not reach me, because, by definition, somebody else would have solved it,” he said. “So the only decisions that came were the ones that were horrible and that didn’t have a good solution. They said, ‘Let’s send this to Obama, I don’t know what to do.’” That way, he joked, “when things got all screwed up,” people could blame him.

Become comfortable with probabilities

First he needed, like founders in a startup, to become comfortable in dealing with probabilities, as there were no certainties. Not only must founders become comfortable with probabilities, but unlike decision makers in large, established companies, they must also become comfortable making decisions with far less information. As Obama puts it:

…being comfortable with the fact that you’re not going to get [a] 100% solution, and understanding that you’re dealing with probabilities, so that you don’t get paralyzed trying to think that you’re going to actually solve this perfectly.

In other words, avoid paralysis by analysis. As I’ve written elsewhere, most successful entrepreneurs will assert that any decision is better than no decision at all.

Get the facts, recruit the best minds

One of the first things I learned at Software Arts, where I started my high tech career, was to hire people who were smarter than I was. This was easy, as the dozen or so people in the company when I arrived were all smarter than I was, with perhaps one or two exceptions. Given that I rarely knew what I was doing, not being either a software engineer nor experienced marketeer, I tried to hire people who did know what they were doing. Obama took a similar approach:

Probably the last piece of this that was most critical was having the confidence to have people around you who were smarter than you, or disagreed with you, or have perspectives that were different than yours.

And is the case in many situations, asking questions is the best modus operandi. I found that instead of trying to conceal my ignorance I used it to my benefit. It turned many times that the experts weren’t necessarily right.  As Obama said:

Also key  was feeling certain you would understand what those experts were saying.  To that end, he wouldn’t stop asking questions until the facts were clear to him. “I am pretty proud of this: I always would say to somebody, if they’re talking about a really complicated issue, ‘I don’t understand what you’re saying. Explain it to me in English.’”

Little hat, big decision

There’s a great story Obama shares about how the solution to the BP Deep Horizon oil-spill disaster of 2010 was solved. Long story short, Obama asked Steve Chu, his Nobel-winning physicists to work on the problem and in three weeks he had a solution.

While founders may imagine the White House as like the rest of the government – slow and stodgy – Obama points out that is far from the case, the pace is like a startup, but the decisions could literally affect life or death.

“People’s idea of government is like the DMV, or the post office, when you used to go to the post office,” the former US president said, “but that’s not how the West Wing operates.”

 

 

How a strong, clear vision can help you focus

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I find founders have a lot of trouble focusing. For one, on their target market. Everyone wants to boil the ocean; start by trying to boil a teaspoon! For another, startup founders often seem to think they can support two different products at the same time. No you can’t, as Scott MacNealy said, “Put all your wood behind one arrowhead.” As a founder you need to be ruthless and ruthlessly focused, that can mean killing your babies, as in backburning a pet product to put 100% of your focus on the product with the best chance of getting near term traction.

But like so much mentor advice, focusing is so much harder for the founder to enact than for the mentor to say.

Inc has a great Q & A on focus with Jeff Bezos, who has done an incredible job of first focusing on a single beachhead market, books, then moving to adjacent market, CDs; then another adjacent market, DVDs; and so on, as Amazon conquers the world of retail.

In a world that’s filled with more distraction than ever, how can you achieve greater focus?

That’s a question Amazon CEO Jeff Bezos touched on in a recent interview in New York. At a private event for The Wings Club, a global society of aviation professionals, Bezos spoke primarily about his private aerospace company, Blue Origin, and its plans for the future.

 

Towards the end, the moderator asked Bezos how he manages to stay focused on such a tremendous, long-term vision, to which he replied with the following:

“Vision is absolutely important, but it doesn’t deserve your day-to-day attention. You need a vision, then, that’s a touchstone: It’s something you can always come back to if you ever get confused. But mostly, your time should be spent on things that are happening today, this year, maybe in the next 2 or 3 years.”

Bezos then concluded with these two powerful sentences:

“So I would always encourage people to hold, powerfully, [to] a vision and be so stubborn of it. Don’t let anybody move you off of your vision.”

So there you have it from one of the world’s greatest entrepreneurs. I strongly recommend you read the entire article, by Justin Bariso entitled It Took Jeff Bezos Exactly 2 Sentences to Teach a Major Lesson in Achieving Great Focus subtitled Whether you’re running a company, working for yourself, or leading a team, there’s a lot to be learned from this simple advice.

You need a mission as well as a vision. And what’s the difference?

Your vision should be the overarching goal, the established purpose and objective of an organization (or an individual).

While vision could include a company’s mission, it goes further. Mission generally describes what you are currently doing; vision goes into the future and describes what you hope to accomplish.

For people buying a house or condo, what’s are the three most important factors to consider? Location, location, location, goes the old real estate saw. For startups, it’s focus, focus, and focus.

 

When it comes to building companies, Waste is good!

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The common maxims of startups are that “cash is king” and you must “stretch the dollar.”  And that conventional wisdom is just that, conventional. But there’s another side to spending, as the editorial director of Conde Nast, Alexander Liberman, the mentor of the owner S.I. NewHouse, oversaw ballooning editorial budgets and the lavish image of Conde Naste.

You may recall Gordon Gecko in the film Wall Street proclaiming in stentorian tones,”Greed is good!” Well he had nothing on Alexander Liberman, who summed up the company’s ethos when he said: “I believe in waste. Waste is very important to creativity.” And he should know something about creativity, as Liberman was a success in painting, sculpture, and photography before joining Conde Naste.

And as many music and film fans know, a single song or single scene may be redone dozens and dozens of times until the creative person in charge  – the record producer or the movie director – is satisfied. No one cared how many reels of tape were wasted by the Beatles in recording the Sergeant Pepper’s Lonely Hearts Club Band – it was a massive hit, just as no one was counting up the thousands of feet of film left on the cutting room floor by George Lucas, director of Star Wars.

I was taught by VCs that spending should be an investment in the company and should be carefully monitored by management for its ROI. But I was also told by an early investor and mentor after raising many millions of dollars from is firm that, “You’re going to waste a million dollars launching this company. You just don’t know which million.” That advice gave us the freedom to experiment, to fail, and then fail harder the next time, until we finally did get it right and the company became a hit.

As Apple Designer Director Jony Ive points out, problem solving is necessary in creating a great product, but it is creativity that’s the spark that ignites the development process and fuels the fire.

So does that mean founders should add a new line item to their budgets labelled, “Creativity” or “Waste”? Probably not, but I wouldn’t rule it out. What founders do need to do is to make creativity and problem solving the first duties of their staff, not toeing the line in a line item budget. I learned this lesson the hard way. I started Throughline, Inc. as a way to help founders save time and money on the necessary infrastructure of their companies: office space, furniture, servers, telephone systems, etc. I mistakenly thought VCs would love me and promote Throughline to their portfolio companies.  And one VC did buy the story and invested half a million dollars to start the company. And we did acquire a great strategic investor, Silicon Valley Bank – the go-to bank for founders.  But Throughline did not succeed. What I learned post-mortem, and should have learned pre-mortem through customer discovery, was that VCs could care less about operating expenses. What do they care about? Growth! Growth in eyeballs, users, customers, market share, brand, and a talented staff – the top line, not the bottom line.

Management is doing things right, leadership is doing the right things. Leave cash management to your bookkeeper or contractor CFO. As a founder, your first duty is not cash management it’s customer acquisition. Look no further than Uber, which is losing billions of dollars, but has grown faster in both customer acquisition and revenues than almost any other startup in history. As a result, even as a massive money-loser to the tune of one billion dollars a quarter!, Uber is valued at as much as $120 billion.

The true bottomline is that building companies and building products is an art, it’s a creative endeavor. Companies have announced this in their names: Software Arts, Electronic Arts. If you have a great idea, start building!

 

I’m a reformed workaholic and proud of it!

 

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ILLUSTRATION: JOHN. S. DYKES

After I graduated from college I started a business providing sound reinforcement services to local bands. Building my own Altec Lansing Voice of the Theater loudspeaker cabinet introduced me what was to become a decades-long addiction, not to any drug, but to work. It wasn’t until years later that I came across the concept of flow, but I knew what it was like to be in the zone building stuff. Hours flew by like minutes and the body signals of both hunger and the need to for rest were shut down. That single project introduced me to the addictive nature of work and helped turn me into both a perfectionist and a workaholic. I wrote previously of The Dangers of Perfectionism, now it’s time to tackle the dangers of addiction to working.

As usual it was an article the spurred to write a blog post, this time The Wall Street Journal article by Jason Gray. I always look forward to Jason’s articles on sports in the Journal but the sports columnist tackled a serious business issue in his article Working Like Crazy May Actually Be, Well, Crazy, sub-titled Are you griping about working too much, or bragging about it? If you are too busy working to read the full articlewhich I  highly recommend – here’s my synopsis coupled with my some of my experiences.

Jason provides a great, and typically humorous, self-test for workaholism. Does any of this seem familiar?

I can’t believe how much of a time suck this project has been.

I feel like I’m living at the office.

I’ve forgotten my dog’s name.

I just returned 20 emails on a Sunday.

Peanut. I think the dog’s name is Peanut.

Jason introduces the concept of the workbrag – the element of pride embedded in our complaints about the long hours we work. The Apple team that built the Macintosh proudly wore T-shirts reading “Working 90 hours a week and loving it!” Workaholism seems part and parcel of working in technology and media. The advent of the Internet and mobile phones has enabled the always on 24 x 7 connection to work and the workplace. The two metrics that founders often tout – much to my dismay, as neither correlate positively with a venture’s success – are how many employees they have and how many hours a week they work.

But I fell into the trap of working crazy hours myself. Predating the internet, I remember having at-home access to Software Art‘s Prime minicomputer, enabling me to send and receive email, draft and review documents, and effectively work at home. For someone who ate, lived, and slept his job this was paradise by the VT100 terminal light. And I still remember that when I told my co-founder of my first startup that bought an early flip phone, the Motorola StarTAC, he responded with glee that he could now get in touch with me wherever I was, any time of the day!

At don’t recall exactly when it was that I discovered the downside of working crazy hours – that errors start creeping in when you are pushing past natural limits. Then when trying to correct those errors you end up creating new errors! It finally dawned on me that working past my limits was counter productive. I could actually deliver higher quality work by putting in less hours. That lead me to start monitoring my teams and not so subtly reminding them of our vacation policy, which we made “use it or lose” it to prod our staff to take needed time off. And we added personal days to the company’s benefits package so staff didn’t use up their vacation days or use their sick days when some type of personal obligation – like closing on buying a house – demanded their in-person attention. However, being a workaholic I hired people in my own image, so we had teams full of workaholics! And I was seeing their error rate rising when they exceeded a normal day’s work of eight to ten hours.

Jason’s article is based on a talk he hosted by the authors of a new book It Doesn’t Have to Be Crazy at Work by Jason Fried and David Heinemeier at a Wall Street Journal event in New York City.

The authors are co-founders of the workplace software company Basecamp, Fried and Hansson are successful entrepreneurs who pay their employees to take vacation—not vacation time but the actual vacation. Fried and Hansson’s company used to have one of those “limitless vacation” policies, until they realized that it made employees nervous about taking vacation. Now they insist on three weeks.

The concept of work-life balance hadn’t emerged until years after I did my last startup. Whether or not people actually do attempt to balance their work life with their personal life or just give the phrase lip service I don’t know.

But as a reformed workaholic I’ve learned how to turn off work and spend more time with my friends and family, though I’ve yet to learn how to actually stop thinking  about work when I’m not working!