Even seasoned CEOs who have managed to assemble a valuable team of advisors and mentors sometimes struggle with board management. They’re not sure how often to communicate with them, how involved they should allow board members to be, or in which areas the board could provide the most value.

So are boards as useless as some CEOs think they are, or does the CEO-BOD disconnect have more to do with the fact that some entrepreneurs simply don’t understand how to interact with and gain leverage from their board?

I tend to think it’s the latter. Ultimately, the value you glean from your board is largely dependent on the goals you set for it, and how you choose to engage with each member. For example, independent board members tend to bring a different bag of tricks than a VC. Conversely, an early stage investor will be additive in a totally different light than a late stage investor.

The most common BOD challenges are often functions of these three issues:

• You don’t communicate with your BOD: If the only time you talk with your board is during quarterly meetings, an information gap will inevitably exist. That can cause a huge operational disconnect that results in ineffective and inefficient meetings. Too much of the BOD meetings are spent getting caught up, versus having a meaningful dialogue about the key issues.
• You don’t want to show your weaknesses: CEOs are very often hesitant to open up and reveal their weaknesses. This may be born out of a bad experience in the past or just pure ego. They worry that if they’re candid about the challenges the business is facing, they’ll be viewed as incompetent.
• You don’t want to bother them: Entrepreneurs too often assume that their board members are too busy to be bothered with seemingly menial issues, and they feel like a nuisance if they ask for help. 

While all of these issues are completely fair it’s your job to engage your board, communicate openly and frequently, and identify and tap into their individual strengths.

If you do that, you should be able to expect three key benefits from your board of directors:

• Strategic insight and market knowledge: Most board members are either active investors in your marketplace or former industry executives. Needless to say, both types of people can often provide key insights and connections. You should probe them on what they’re seeing in the market and ask them to highlight issues they’re seeing in the competitive landscape. Don’t hesitate to go so far as to ask them to do some additional competitive research for you.
• Executive recruiting: When you gear up to build out your management team, you can engage your board members in three key ways. First, by asking for guidance on how to find, approach, and hire top executives. Ask them to help define and maybe even guide the process. In most instances, you should have board members participate in all senior level hires. Second, by utilizing them as a selling mechanism for top talent that you hope to recruit. Get them involved in the process if you need to close a candidate. Many times a prospect will significantly benefit from hearing about a potential opportunity from a board member. Lastly, by serving as a sounding board when you whittle your executive candidate pool down to a small group of finalists. Don’t be afraid to ask for advice on whom to hire.
• Operational support: This benefit most pertains to an independent board member. If you don’t have one, get one. Ideally, that person will be someone with relevant industry and scale experience. If you already have that type of person on your board, you should ask them to evaluate one functional area of your business at least once a year. It will only lead to good things if you can get fresh eyes on the people and the processes that make you tick. You should also invite a subset of your board to your annual strategy/planning session. Again, the more experienced eyes the better.

A lot of boards — and board meetings — are ineffective for a variety of reasons, but this misalignment often leads to a painful half day and a totally ineffective use of resources. A board of directors is just another great leverage point for you. Take advantage of it.

Editor’s Note: For more advice on utilizing your board of directors and more tips on growing your business, sign up for the OpenView newsletter.

One of the most critical lessons is that companies can’t efficiently scale without establishing, committing to, and communicating their mission, vision, and values (MVV) — and the earlier they do it, the better off they are.

A crystal clear MVV statement provides guideposts for the entire organization to follow, allowing employees to navigate around the common walls that often impede expansion-stage companies’ growth. More importantly, they can perform that navigation without their companies’ CEOs having to steer the ship for them.

When a company is in the startup phase, the CEO drives every decision, interviews every new employee, and sets the agenda for every planning session. But as a business moves to the expansion stage and begins to truly scale, that want for control and influence begins to cause friction.

CEOs are no longer able to touch, interact with, and impact every decision and person in their organization. If they try to, it significantly impedes the pace at which key decisions are made. And if the company lacks a clear mission, vision, and values statement, employees will inevitably lean towards analysis paralysis, resulting in one of two things (or both): ineffective processes or poor organizational alignment.

Ultimately, that lack of guidance fuels massive confusion and noise among the ranks as the resource game becomes more complex and daunting. Is the company focused on growth or profitability? Is the priority clients or capital efficiency? Where do we add sales people? How do we handle under performers? Where should marketing spend dollars? Should engineers be dedicating time to new products or improving existing products? Essentially, what does the company want to be when it grows up?

All of those questions could pretty easily be answered by establishing company-wide aspirations.

As one of my colleagues, George Roberts, wrote in a post earlier this year, the actual wording of your aspirations will likely be fluid as you grow. But the basic tenants never change. Here’s how George defines them:

• Mission: The fundamental purpose of an organization or an enterprise, or succinctly describing why it exists.
• Vision: The way an organization or enterprise will look in the future. For our purposes, we look for a Vision to be 3-4 years out.
• Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization’s culture and priorities and provide a framework through which decisions are made. They are crucial in helping a company hire personnel that match the its values, and support and build its desired culture.

The bottom line is that companies can grow without establishing their mission, vision, and values. But just because a ship has wind in its sails doesn’t mean it’s going somewhere meaningful — or in the right direction at all.

In that way, it’s the CEO’s job, with significant input from his crew, to clearly set the ship’s course with crystal clear mission, vision, and values. They need to give their team a North Star to navigate toward, lessening the likelihood that there will be any deviation from that path.

One really interesting example in our portfolio is Kareo. When we invested, the company had roughly 15 employees. By the end of 2012, it will be nearing 200.

Halfway through 2011, the CEO of Kareo, Dan Rodrigues, began to notice that the company was undergoing some significant growing pains.

Dan recognized that he was becoming an obstacle to Kareo’s ability to be nimble and move quickly. Dan was also becoming less efficient and effective because he was sucked into meetings and decisions that could have easily been handled by his direct reports. It became abundantly clear that Kareo was dependent on him for all critical decisions because he was the founder and initial guiding force.

At that point, Dan launched a 4-month process to solicit feedback from the entire company on what its MVV should be. This community-oriented approach was consistent with the culture he was building and the values he was about to establish. Because he approached this process by getting everyone’s buy-in, the aspirations bled into every daily activity and decision almost immediately. Today, the employees no longer depend on him, and Dan’s schedule has been freed up, enabling him to focus on critical CEO-related activities.

While Kareo’s situation was unique on some level, it’s actually quite common among expansion stage software companies. Some companies hit that inflection point at 30 employees, some at 50, some at 75. But they all hit it. And if you’re not prepared for it well in advance by establishing MVV, it can be a harsh and ugly reality when you slam into the wall.

Editor’s Note: To get more great tips on guiding your company through the expansion stage, sign up for the OpenView newsletter.

Image provided by: nikk_la

You wouldn’t know it, but it’s only been four weeks since Jeremy Lin played his first NBA game.  His Cinderella story has overwhelmed the social media landscape and he has displaced Tebow as the new darling of Sportscenter.

If you don’t know Lin’s story already, you can catch up by reading this New York Times article. Here’s the Cliff’s Notes version: Lin wasn’t offered a scholarship out of high school, wasn’t drafted out of Harvard, and was cut by two different NBA teams before the Knicks made him their starting point guard in early February.

Since then, he’s helped a previously struggling New York team to an 8-3 record over its last 11 games, averaging 24 points and almost 10 assists in the process. And who could forget that, in just his fourth game as a starter, he also upstaged Kobe Bryant, making a future Hall-of-Famer look like a high school basketball player. In primetime no less, and on arguably the world’s greatest sports stage, Madison Square Garden.

Not bad for a kid that was sleeping on his teammate’s couch earlier this month.

But here’s the thing about Jeremy Lin’s dramatic rise to fame: Lin possessed the talent to make this kind of impact long before he was finally given the chance. For Lin, it was an issue of opportunity (and a kiss from Lady Luck). What kind of general manager, after all, would bench a proven veteran (even an underperforming or washed up one) in favor of an undrafted (but maybe undervalued or overlooked) nobody?

In my opinion, a pretty smart one. There are numerous cases in sports where a coach or an owner’s loyalty to a long-time player ultimately hindered an organization’s ability to perform in the present and prepare for the future. The best teams, on the other hand, routinely recognize the value of young talent and make room for potentially transcendent players – even if it comes at the expense of a future Hall-of-Famer (see: Brett Favre and Aaron Rodgers, or Billy Beane and Moneyball). Now, whether Lin’s opportunity was the result of good management or circumstance, the point is that he was given a chance and he’s certainly made the most of it.

For expansion stage founders and CEOs, Lin’s story provides a valuable business lesson in talent management.

Let’s say you started your company with some trusted friends or former business partners. At the time, those founding team members possessed the capabilities necessary to get the company off the ground. But now, at the expansion stage, you’ve found yourself in a peculiar and often uncomfortable situation: those same dedicated and loyal employees are not scaling with the business. And, worst of all, those employees are probably some of your closest friends.

So, what should you do?

One way to tackle this often complicated and emotional decision is to write up a job description for the role that those individuals currently serve. Next, do your best to take that job description and match it to each employee’s current capabilities. Once you’re able to identify a mismatch, it should make it easier to communicate and justify any changes you make to your employees.

The harsh reality is that you need to objectively separate loyalty and emotion, and remove any bias about your pre-revenue employees’ core competencies. If you’re truly honest with yourself, you’ll realize that the best thing for the business is to move underperforming or incapable employees into another role or out of the company completely.

Ultimately, there’s a big difference between managing a $20 million business and a pre-product business. It is a natural evolution and as CEO you need to recognize the talent gap and make an adjustment. All too often loyalty in this situation can slow growth or, even worse, kill a business.

The key lesson here is to avoid confusing the superstar of your pre-revenue business with the superstar of your expansion stage business. You might be surprised with the talent sitting on your bench.

Image Credit: Fanpop.com

Last night I was watching Boardwalk Empire and realized there are a handful of management principles to be learned from Nucky’s current predicament.  The past few years have been very lucrative for Nucky, and he has become a bit enamored with his success.  As his empire has grown, Nucky has been left with less time and energy to spend with his associates. At the same time has maintained control over most of day-to-day decision making. This has left many, including Jimmy (his #2) and Eli (brother), disillusioned.

Unfortunately, Nucky’s situation is all too familiar to expansion stage CEOs. As your company grows and becomes “lucrative,” your most precious commodity — time — becomes almost non-existent. As CEO you end up having to manage way too many constituents — investors, board of directors, employees, customers, all while your company is experiencing explosive growth. It ain’t easy.

Given this time pressure, CEOs often spend too little time understanding how their management teams and employees perceive them and their performance. To make matters worse, they also end up having a hard time letting go of the reins. In Nucky’s case, these two challenges led to the unrest. Considering this is not an uncommon problem, I thought I would pass along a few suggestions on how to improve communication and create a feedback loop. While these three concepts might seem very basic; very rarely do we actually see all three implemented.

Establish and encourage open communication across the entire organization

“I’m prepared to hear your side,” Nucky says to his brother Eli. “Because in a minute it’s going to be too late.” Clearly this is not the right way to establish a open line of communication.  One of the most common mistakes we see  CEO’s make is his/her tendency to manage up and not down.  They spend entirely too much time keeping their BOD members happy. While we certainly appreciate the constant communication, that is not how you build a lasting company and happy employee base.  Keeping your finger on the pulse of what’s happening at every level of the organization is essential for effective leadership. Some of our most successful CEOs actually make this a physical initiative, setting up an open cube environment where they sit in the middle of the entire company. It sets an egalitarian tone and gives them the opportunity to hear and feel the company, as well as increased approachability.

Another productive way to approach this is to schedule regular feedback sessions with different levels of the organization. Set up a weekly lunch with a diverse set of team members to get a true schematic view of the different departments and issues they are confronting. At a minimum, dedicate a portion of your time every week to walk around the office and talk to people in all levels and departments of the organization. Jack Welch once said he learned more walking around the office then he ever did from management or board meetings.

Implement a 360-degree review policy

It’s rare that any of us see ourselves as others do. You review everyone in your company, but who reviews you? To get a true sense of your abilities as a leader, you need to implement a once-a-year 360-degree review process, in which both your board and your team  are giving you honest feedback on your performance. (For an in-depth post about this review process, check out our podcast and transcript.)

Conducting the review is the easy part. Actually implementing change is quite difficult. Once you have collected the data synthesize it into a digestible format and share it with the broader management team. Then spend time discussing that summary with each member of the team and ask them for suggestions on how to improve. That process should result in a clear development plan with achievable quarterly goals. Make sure you are measuring your progress each quarter by soliciting feedback from all of the invested parties.

For more tips on getting effective employee feedback, check out this post.

Transparency is critical for empowered and productive teams

Transparency starts at the top. Set up an all-hands meeting at least once a quarter, possibly once a month depending on your company. Be open and honest about the company’s performance and challenges.  This helps get everyone aligned and establishing priorities. Most importantly, invite feedback and encourage questions during these sessions. By creating engagement and buy-in from you employees it will feel like everyone is rowing together.

Ultimately to become a great leader and build a lasting company, a CEO needs to establish a feedback loop, create transparency and maintain an open line of communication. Otherwise you run the risk of ending up in Nucky’s predicament. “You know the funny thing?” Eli asks Nucky. “Nobody takes power. Somebody else has to give it to them.”

I don’t know if there is a bubble or not, but at OpenView we have seen an increase in investor outreach at many of our companies. However, raising growth equity in this “climate” isn’t so straightforward. With that capital comes a long list of potential issues and questions for the board and the management teams.

Here are a few of the issues we have struggled with:

The misalignment problem
If you bring in a new investor, the cost basis for that new investor will presumably be higher than existing investors and founders. In many cases, orders of magnitude higher. A healthy valuation, while gratifying, represents some challenging questions for not only the new VC, but also the management and board. For the new investors, they wonder if they can invest enough capital at a valuation that they believe will yield VC like returns. Will that return be meaningful to their fund (this is especially acute for larger VC funds, $500mm plus)? The entrepreneurs on the other hand are trying to optimize around minimizing dilution (read highest valuation). This is no different than any traditional fundraise process, but can be way more impactful in later stages at high valuations. Another key concern for the management team is producing a venture like return for the new investor. For example, if you raise at a $50mm valuation can you sell the company for $250mm-$300mm (it’s important to note that according to new NVCA data the average exit last year was $150mm, so probability-wise things just got harder)? Early investors and the team should ask themselves a key question- if they can generate a great return at a much lower level, is this capital worth the risk associated with higher valuation? To put it more plainly, if a new investor invests at $100mm post and a year later someone comes along and tries to buy the company at $150mm, what do you do? At $150mm the founders presumably do well and the early investors do well but the last capital in does not. What happens then? Who makes the decision? Who can block the transaction? In addition, in many ways a new financing round resets the clock. If you are part of the team that has been cranking for five years and built a nice size company, do you really want to sign up for another five years? Clearly if you bring on a new investor, it’s very important to make sure there is alignment.

The control problemWho are you to tell me when the company can sell or when we can raise more money??? In a nutshell that is the control problem. New investors want to protect their investment and existing investors don’t want to cede control when they took most of the risk. This is a major friction point and there is no easy answer. These days new investors are more commonly asked to concede control to the board. But what if the board is primarily made up of folks who have a very different cost basis and motivation than the new investor? For example, the existing investor has a $50mm fund and this is his/her biggest winner. They want to make sure they capture that profit. If the new investor has a $500mm fund and they just put $15mm in, they need at least 3x to make it worth their time. That’s tricky.

The kumbaya problem
The one issue that I think many times gets overlooked in favor of great terms or brand is likability. Most companies that are performing well tend to have a productive board, and in many cases very complimentary people. When you bring in a new investor, that individual wants to immediately show their “value add”. Too often that results in a distraction for the team, and in some cases the board. Sometimes in an effort to be helpful, the new board member rubs existing board members or the management team the wrong way. It’s very hard to predict this, but think of the new investment as a marriage and spend a lot of time with your prospective new board member. Meet them in different settings, expose them to different folks within the organization and make sure that at every touch point people come away feeling positive. Ultimately, I think the best advice I have heard is to go to dinner with the potential new board member and have three drinks with them. At the end of dinner you will either want to hug them or punch them, but you will have an answer.

Clearly raising a high priced round from a great VC is validation that your business is compelling. However, I would urge management teams and boards to think through some of the issues/complications that this new round of funding brings. Lots of capital and high valuations isn’t the end to the means; in many cases it can be the start to a long road that isn’t all peaches and cream.

Over the past few years we have seen numerous industries get turned upside down and in some cases completely disappear. In the technology sector specifically we have seen companies like Yahoo and EBay completely flounder and essentially become experts in Active Inertia. They were replaced with more innovative commerce and content models (i.e. Groupon, Gilt, Facebook etc).

This year was essentially a healing year where everyone was focused on getting the ship settled and keeping an eye out for any rough seas ahead.

As we prepare for 2011, expansion stage companies need to migrate away from this defensive strategy and start thinking about how they will generate separation between their company and the competition. If you aren’t, you better believe your competition will be.

At OpenView, we encourage the management teams we work with to reflect on the year (a retrospective) before they set out to create goals for the following year. In particular we think it’s helpful to answer some of these basic questions.

- Did you meet your annual and quarterly goals this year? If not, why and what was the impediment? How do you remove that impediment?
- Did you improve the quality of the team this year? Where did you make team building mistakes?
- How has the market changed since the beginning of the year? What assumptions did you make going into the year that you now realize are wrong? What opportunity exists today that didn’t exist when you started the year?

As you head into 2011, I would encourage you to test every assumption you started with in 2010 and flip the calendar with a fresh perspective. Active Inertia is a real risk and something growth companies need to work hard to avoid. Just ask Carol Bartz when she is working for Tim Armstrong in Q1.

1. Do you really need investors? 
2. How actively involved will your investors be? Or do you want them to be?
3. What value beyond money can your investors add (connections, advice, experience)?
4. What is the time horizon for financial exit your investors are expecting?
5. What, if anything, are your investors hoping to get out of their involvement beyond just financial return?
6. Do your investors and board of directors buy into the vision and mission of the company?
7. Would they accept less profits if it meant the vision could be fulfilled faster?
8. How flexible are your investors and board members in their thinking?
9. Who controls the investors? Who controls the board?
10. Do the core values of your investors and board members match the core values of the company?

Overall I believe the primary objective when looking for investors is acquiring alignment. Do they look at the world through the same lens as you? Even if they say “yes”, test it and request a large number of data points to prove it.

Before I get to the crux of my post I thought I would make a few general observations about Linkedin activity.

- You almost always know when someone is looking for a job because the number of recommendations spikes. Do you think employers track this?
- 5% of my network accounts for 90% of the post activity. Some people really like to share. It would be great if you could rate their commentary so they know when they are wasting our time. I don’t want to completely exclude them from my feed but I sure would like them to tighten up their commentary.
- People do not send resumes anymore; they send Linkedin profiles. I think the “fudge factor” is much higher on Linkedin.
- I am constantly worried about accepting connections from folks I only know loosely because I don’t know how it will impact my Linkedin network. Will it muddy the water? Do they track/care if I don’t accept?

Aside from these observations, I also think Linkedin has become crowded. The signal to noise ratio is degenerating and I am finding it increasingly hard to optimize my connections and information flow. This issue feels significantly more painful when I conduct recruiting searches. A few years ago, I could easily navigate my way to some interesting folks. Today it is much more complicated and time consuming. To remedy this, I started researching resources that provide best practices for searching on Linkedin. Hopefully this is helpful for expansion stage management teams who are recruiting.

About.com Tips

Boolean Black Belt Tips

Business Insider Tips

Unfortunately, the best practice data out there is very limited and as Linkedin becomes more ubiquitous the problem only worsens. One way we try to help companies address this issue is through the recruiting support we provide at OpenView Labs. One of my colleagues, Diana, spends all of her time handling recruiting projects of varying degrees for the portfolio. For example, one of our portfolio companies needed help staffing up the customer support function. The management team didn’t have the bandwidth to review all of the resumes nor could they screen, so Diana took the lead.The company now has a Director of Customer Support starting in a few weeks and the rep pool is at capacity.

Ultimately, recruiting is one of the most important activities for expansion stage companies. Whether it’s leveraging Linkedin or our network, we are here to help.

I was recently researching best practices process for building top management teams and I came across the research of Stanford Sociologist Elizabeth Cohen. Some of her findings, while fairly obvious, are incredibly insightful.

These are the three ways a leader can make teams successful. 

Rally around a compelling purpose
Great leaders articulate a clear mission, which enables teams to stay focused.

Share power
Effective teams have leaders who share power, information and responsibility. The team then becomes invested in the opportunity and the process.

Admit ignorance
Asking for help is critical to be a successful leader. Learn from your team — many times they know more than you do.

Here is a link to her full research. It is worth a read. Ultimately, one of the biggest challenges facing expansion stage CEOs is building a great management team. It is worth taking some time to reflect on your management style and contemplate ways to improve.

It is instances like this that it make it critical you manage your business with KPIs (key performance indicators). Too often, we see managers who miss a month or a quarter and can’t point to specific reasons for the miss. KPIs vary widely based on the stage of the company, sales model, and product, but here are a few resources.

What KPIs can do you for you and your analytics

Why metrics matter (from our very own George Roberts)

Lies, damned lies and metrics

And a series on KPIs just for SaaS companies

CAC Ratio

Churn

Ultimately, the key is to understand the drivers so you can identify which dial to turn. That is the difference between good management teams and a great one.

Establishing your core values/culture is key for scaling an organization. When a company is started, the founder is the culture. Most entrepreneurs are so focused on getting the product built and selling it, they have no time to focus on the company culture. Yet if you look at some of the great technology companies built over the past decade, you will find that they were driven by a very strong culture. Google, Oracle, Amazon, Zappos, Apple are just a few that come to mind. Furthermore, if you look at surveys on the best places to work, you will see there is a very high correlation between companies with clearly defined cultures and the best places to work.

There is no right answer when creating a culture, except to make sure you have one. Here are some helpful tips on building your culture.

Building a culture of innovation

Instilling the bootstrapping mentality in your culture

Netflix culture (this is a must read)

Six CEOs discuss their culture

Zappos core values

The challenge doesn’t end with defining the culture, but also spreading the gospel. As the company scales, the founder’s ability to touch everyone and spread the culture diminishes. The founder then must rely on the senior team to effectively communicate the core values. This becomes challenging without a clearly defined culture as it leaves too much to interpretation. The best practices process here is to identify the core values and then share them with the entire company. Incorporate your core values in your communications with the company. Identify and reward employees who personify the values. Make your new employees memorize them and hold your senior team to the values in every day activities.

Ultimately, establishing your core values and culture are almost guaranteed to make your employees happier and enable you to build a better and more valuable company.

The notion that VCs do very little post investment to help is certainly supported by a select small group of either lazy or rich venture capitalists. I have worked on both sides of the table and can say I have seen both scenarios. The best way to figure this out is to test them early on how they can/will be supportive.

- Radio
- Print
- TV
- Direct Mail

Today that number of channels has ballooned to include:

- Internet
- Mobile
- Social
- Email

The question we have been asking ourselves is how is the marketer conducting campaign management, budgeting, analytics and reporting against such a complex channel mix? More specifically, what application will come to dominate the marketers desktop, like SF.com did for sales? This issue isn’t exclusive to large consumer marketers, but also expansion stage technology companies, mid market marketers, startups and the list goes on. Everyone is trying to optimize their spend across a vast list of options.

There are some legacy players that claim to automate this process or facets of it, including Aprimo, Alterion and Unica (which IBM just bought for $480MM). However each of these vendors’ products only cover a portion of the marketers needs. For example, Unica is primarily just a campaign management tool.

So this leaves the marketer with limited options to managing their daily activities, which has lead to pervasive adoption of MSFT excel. We have spoken to folks who are managing loyalty programs with millions of members via excel. 

Over the course of our research we have found one compelling expansion stage company that has a dashboard for marketers — Entiera. They have built an elegant content management marketing platform for marketers to manage all of their daily activities. It’s a snazzy product. Yet this is only one data point.

That being said, we continue our research and would love to hear from any SaaS companies that are delivering SF to the marketer. Marketers need a dashboard too.

According to Wikipedia, GOOG has acquired 76 companies since inception, including 16 this year alone, and we still have four months left. Outside of ITA and Slide, all of these deals are sub $100MM, and most are sub $50MM acquisition prices.On the Facebook side, they recently acquired Chai Labs for $10MM. The founder of Chai Labs, Gokul Rajaram, by all accounts is an incredibly talented engineer (read the Godfather of Adsense), but I just don’t totally understand why they needed to acquire that company. Did they need him that badly that they were willing to buy a company that hadn’t hit its stride? I don’t know all of these expansion stage businesses intimately, but my sense is that none of them outside of ITA have more than $10MM in revenues. Clearly Facebook and GOOG are not making buy decisions based on financial impact and business growth strategies.

Separately, this isn’t good for venture capital firms and large VC funds when two large acquirers are actively buying companies before they can mature and generate meaningful returns. This actually incents the founders to start a business, take limited capital and wait for the check versus focusing on building a big, great company.

At the end of the day, if you are a talented engineer in the digital space, you are clearly better served to start a company than interview at GOOG or Facebook. If they like you, they will buy you, and $10MM surely beats $200K…..

So here is OpenView’s investment parameters.
- Expansion stage companies ($2MM-$20MM in revenue)
- Growing at least 50% YoY
- Raising $5MM-$15MM in growth equity
- Software, digital media or tech enabled business
- Great management teams (doesn’t matter if this is your first rodeo)
- Largish markets (bigger than $200MM today)
- We love profitable distribution models (obviously)

What doesn’t get us excited?
- Pre-revenue companies
- Companies that aren’t in our sectors (no cleantech, semis, telecom etc)
- Companies that will require $15MM to get to break-even (read: companies that don’t have a profitable distribution model)
- Companies that aren’t growing but are profitable (or not)
- Management teams that don’t want to build a big business

At the end of the day, we are very focused on expansion stage companies in our sectors and we provide operational support through OpenView labs. We keep our fund size small so we don’t have to over-capitalize our companies, and we keep our team small so we can move quickly. Hopefully this will minimize your time spent with us if you are not a good fit. We don’t want to waste it.

I spent the better part of the morning looking for good resources and advice on the migration. Unfortunately, all I ended up with was a bunch of links to Amazon’s website.

If you have any advice or can point us towards some great independent resources for AWS migration, it would be much appreciated.

Here are the resources I found:

As you would expect, Joe and his wife decided that it was time to focus on the things that matter. They sold their house in MA and moved out permanently to their home in Jackson Hole. Joe now spends a lot of time with his family and doing the things he loves. What struck me as surprising was that he continued to work. Joe is very comfortable from a financial standpoint, so he doesn’t need the cash. He could basically do anything he wanted. What was clear was that Joe loves building expansion stage companies.

I can’t imagine, if Joe worked at GE or P&G, that he would have chosen to continue working. But he loves what he does and is inspired by the management teams that run these companies.

It is experiences like this that only reinforce how lucky I am to be able to work with great entrepreneurs everyday. They are such compelling individuals and for Joe, they really matter.

These days the nightly news sounds like an economic dictionary — double-dip recession, metered recovery, aggressive expansion, jobless recovery, stagflation, deflation and depression are all terms that have been thrown around as the gospel yet in many cases can’t co-exist.

Over the past week I think the new economic data supports my notion that, frankly, I don’t think economists can predict much.

Let me list off just a few confusing economic data points.

- Yesterday Intel reported their best quarter ever and guided up
- Retail sales came in at 0.5% for June which indicated a massive slowdown compared to projections
- My father in law runs car dealerships and June was a great month for him
- My friends at consulting firms and financial service firms are busier than ever and hiring like crazy
- Airline pricing is way up across the board
- Gartner dropped their prediction for global tech spending growth from 5.6% to 3.4%
- Forrester upped their prediction to 7.8%
- The National Federation of Independent Businesses said its Small Business Optimism Index dropped in June by 3 points to 89.0
- Mortgage applications hit a 14 year low
- Everyday I see a new job posting on Linkedin
- Unemployment is at 9.5% and doesn’t seem to be moving
- Consumer confidence is at 52.9 compared to 62 in May and 102 in May 2007

So what does this all mean? I think what this means is that economist and weathermen could swap jobs and few people would recognize the difference. Ultimately, my view on the economy is based on three primary factors: Do people have jobs? Can people borrow money? And do people believe things are getting better? 60% of GDP today is driven by the consumer so unless he/she is making money, can borrow money and feels good, they aren’t spending money and we aren’t growing. If, only for a moment, you assume my views are somewhat fair, I think we are in for a slow recovery until consumers start feeling good.

Finally, how does this impact my thinking as an investor? I think expansion stage companies need to continue to invest in growth, but take a metered approach. Management teams looking to raise growth capital should not plan on significantly expanding their cost structure, but look for pockets of opportunity to invest. I would also caution management teams to only slowly add new team members when they run out of capacity. I would not hire ahead of growth.

Ultimately, the US economy is driven by entrepreneurship and innovation but lets all try to take a more conservative view this time and not rely on the weatherman.

When President Clinton campaigned for The White House he wrote on one of the whiteboards, “it’s the economy, stupid”, which became the administration mantra. From that day forward they focused on keeping the economy in good shape and, in turn, felt like everything else would follow.

Over the past few months, I have spoken to numerous expansion stage companies raising venture capital and I have realized that keeping things simple is actually more complicated than you think.

Many of the companies we meet with have a hard time outlining key operational strategies:

• What is your target segment- who are you selling to?
• What is your GTM strategy- how are you selling? Or which is the best way to sell?
• How is your product unique or differentiated?

Instead they say that by raising $10mm in growth capital they will be able to accelerate growth with no clear strategy for using the capital.

In some cases they are probably right, but in most cases that is an efficient recipe for $10mm to disappear.

I am not saying VCs know what’s best or understand your business better than you. But what I am saying is that if you are going to pitch for money, I wouldn’t recommend having a 25-page deck of fancy charts and slides. You are better off having a simple plan on how to scale your business — it’s the economy, stupid.

1- I would like to congratulate my friend Jeremy Delinsky on his promotion to CTO at Athenahealth. Jeremy is first-class in every way and I am very happy for him. It will be a blast to watch him continue to shape Athena.

2- Yesterday I was in NYC celebrating the first graduating class of First Growth Venture Network. The first crop had 14 companies, all of which made great strides during the six-month program. In fact, one company was acquired while many others continue to receive growth capital from top venture capital firms like Greylock and Trueventures. It was a terrific experience and one that I am looking forward to continuing next year. 

These success stories reinforce all that which initially drove me to the venture world. I hope we can continue to celebrate great people like Jeremy and fantastic companies like FGVN and its inaugural crop.

If you work at an expansion stage company I would highly recommend you make the time to watch this interview. I would say it’s equally important if you are a venture capital investor. Some of the lessons from this interview could have a very significant impact on the management teams you work with.

My favorite comment:
“I don’t like hard rules at all. I think they’re all bullsh*t.”

My second favorite comment:
“Success makes people cautious and conservative.”

This is full of just fantastic advice and themes worth noting. Enjoy!

Let me walk you through an example. We focus on expansion stage software companies primarily. These companies have anywhere from $2-$20mm in revenue and are growing very rapidly. Usually when we meet them when they are looking to raise $5-$10mm in venture funding. Many of these companies have some very compelling characteristics- fast growth, good unit economics, capital efficient, compelling teams and big markets. However one consistent attribute has become increasingly apparent. These companies also operate in markets that become commodotized very quickly.

Here is why. Most of these companies are targeting SMBs with a significant bias to the S. They acquire the lion-share of their customers through cost effective on-line marketing or cold calling. The products are pretty lightweight and easy to adopt. This is driven by the fact that most SMBs have limited feature and functionality demands. They want something that works and is inexpensive. A great example of this is Constant Contact. CTCT provides a very low cost easy to use email solution. When CTCT went out to raise capital over five years ago most investors said it was a commoditized market with limited, if any, product differentiation. They were right but CTCT’s critical differentiating factor was their ability to capture customers in a very large market (read superior execution). Today they are a very large company with a $600mm EV.

So CTCT was a great success but many of its competitors perished. This is a perfect example of the challenge we are facing. We meet with a great software company that is growing like a weed and profitable. It operates in a huge market and you can see the company scaling from a few thousand customers, to tens and maybe hundreds of thousands of customers. Unfortunately in most cases, the technology differentiation is very limited and the competitive intensity high.

Now what? The big questions we face are – when does the market get commoditized? Does the company get to $20mm in revenues and then see massive pricing pressure and increased churn?

I actually don’t have an answer and maybe this is something other more experienced investors learned a long time ago, but it really struck me this week. Obviously there are outliers that don’t fit in this bucket but I would say it is a fair assessment of the broader SMB market. Ultimately, the only thing I can point to is superior execution in a big market with a solid product and a great team should lead to an interesting outcome. Who knows?

- LPs are significantly pairing back the number of firms they support (in some cases by half)
- many LPs are no longer investing in new managers
- LPs going forward are less focused on brand and more focused on cash on cash returns

In my view this is a welcomed change and way overdue. It appears these changes are already manifesting in the market as many funds are holding off fundraising, or recognizing that a new fund is no longer a plausible path.

Josh Kopelman at First Round Capital has written extensively on this topic. In fact, he recently posted a new blog with further data supporting the notion that large venture funds don’t work. Net, net small funds are 24x more likely to produce returns above 2x than large funds. That is a staggering data point.

At OpenView we are strong believers that high quality expansion stage companies don’t want to be jammed with extra capital with limited value. The management teams of these companies would rather raise just enough capital to accelerate growth and get significant leverage from that capital. This enables us to get alignment with both the teams we invest in, but also the reality of the exit landscape today.

I truly hope we have reached the inflection point and that going forward the venture capital ecosystem is a smaller and healthier place to play.

When I was a kid I would go to the dentist, and the actual dentist would clean my teeth and then conduct an exam. Today, my teeth are cleaned by a hygienist and then my dentist comes in for a two minute “check in”. This new process clearly gives the dentist lots of leverage to conduct more meaningful, presumably more profitable activities without losing the customer volume. I am not sure but my guess is I/insurance still pays a nice premium for the cleaning, so the dentist probably takes some small hit on the top line, but generates a better margin.

I bring this up because we recently completed a case study on the lead qual process that we set up at Intronis. The premise behind the lead qual process is not too dissimilar from the dentist analogy. How does a company get the most leverage from a customer contact point? Does it make sense to have an outside sales rep (the dentist) talk to every inbound lead? Wouldn’t it be better for a lead qual specialist (hygienist) screen the companies (make sure Adam has no cavities) before passing him over to the sales rep? 

At OpenView, we are constantly looking for ways to help expansion stage companies raising growth capital. This case study is one example of numerous ways we have partnered with management teams at our portfolio companies to accelerate growth.

Here is a link to the two other case studies we have recently published.

Case in point, SAI recently posted data indicating that the CEO of Yahoo, Carol Bartz, made $47.2mm last year in cash and equity. It is my understanding that Carol was brought on board to effect change at Yahoo. Essentially find meaningful business growth strategies for a company that had lost it’s way since they signed that search deal with GOOG in 1999. Did that happen last year? I certainly don’t think so. I presume much of this compensation is part of an elaborate package she negotiated on the way in. That said, Yahoo’s stock performance has lagged considerably to its peers (and didn’t even beat the S&P) over the past year.

Yahoo- up 18%
Ebay- up 47%
GOOG- up 36%
AMZN- up 72%
S&P- up 38%
Nasdaq- up 46%

As a venture capital investor in expansion stage companies, I am a huge fan of showering management teams with bonuses when it is deserved. However, in this case I am having a hard time seeing why Carol deserves anything more than her base compensation. Hopefully this is an outlier and our transparent and objective technology community will not go the way of Yahoo.

The iPad aside, if I compare my monthly operating budget line items today versus ten years ago it is pretty clear to understand why my generation doesn’t save money.

2000
Rent
Land line
Electric
Gas
Cable TV

2010Rent
Land line (yes we keep a land line for emergencies)
Electric
Gas
Cable TV
DVR
Netflix
Cell phone
Data plan
Apple apps
Internet
iTunes
Virtual goods (not for me but millions of others)

That is a lot of coin going out the door every month. We certainly are living in exciting times and consumer web innovation feels like its at an all time. I just wonder when consumers will max out. What is the next venture capital funded application that takes money out of your pocket?

Automotive
Dealerships are looking for ways to more effectively target customers, cut costs and build closer relationships with existing customers. The legacy products, like Reynolds and Reynolds, are on premise and very clunky. You basically need a dba to run the software. New SaaS based solutions are 20% of the price and have a much easier to use UI.

Legal
The legal market is a massive and inefficient market. Online applications can cut down on time and costs associated with the most basic legal needs. That coupled with today’s lawyers internet awareness creates an environment whereby technology can radically improve end customer experiences, and client capture and management for lawyers.

Healthcare
Why would you spend tens of thousands of dollars for accounting and payment processing software when you can get web based easy to use products for hundreds of dollars? That is the transition we are seeing at small practice offices across the country. Overly complex local software is getting displaced by web based consumer oriented software that is a fraction of the price.

Based on our research, there are great expansion stage companies being built in all of these verticals. If you have a consumer looking application for the enterprise, and looking for growth capital trying to displace a sleepy legacy player, please contact us. We think there are huge opportunities in almost every vertical if you can just make things easier and cheaper.

The key take aways for me were:

- You can’t plan your career
- Luck and serendipity play a major role in any outcome
- Hard work trumps any other attribute
- Do what you love not what your Jewish mother tells you to do
- Get along with people
- Learn how to communicate and persuade people; you are always selling
- Be smart enough, but not the smartest

Recently we ran a process to hire an Associate for our growth equity firm, OpenView Venture Partners. As we were talking I wanted to hand him this interview as I think he has lost sight of how unpredictable life, and a career can be. When I got out of school I would never I have thought I would have ended up in Boston working in Venture Capital. This is certainly not the path my Jewish mother would have chosen, but it’s one that I quite happy with. My guess is most management teams of startups feel the same way.

Over the past month, we have received an inordinate amount of rain. I mean Noah like rain. The two storms produced more than 10 inches of rain. During both storms we experienced pretty dramatic leakage in our bedroom in our condo in the South End. To be fair, we got off easy compared to some communities North of Boston where folks experienced debilitating damage. It turns out the other units (there are only 3 units) in our building experienced some form of leakage as well.

In an effort to resolve the damage our condo association has traded no less than 50 emails over the past few days. Now mind you this is only three people conversing. Before I explain the title of the email, and pose my question, let me explain what transpired.

-
Step 1 – Find a contractor
First we needed to find a list of contractors to come by give us an assessment. It ended up being three vendors.

Step 2- Coordinate onsite visits
Then we needed to coordinate their visit to our units to review the damage. This was complicated by the fact that one of the owners actually lives in Philadelphia. So this left two units responsible for meeting the contractors. The damage was more extensive than initially thought so two of the contractors had to come back with another contractor. The key pain point here was the passing of keys to different people and contractors. I am sure you can imagine how fun it is to cancel meetings and calls only to learn that you need to cancel more when the contractor has to come back. Joy to the world.

Step 3- Get estimates and compare pricing
Now we are collecting estimates and need to decide which way to go.

While this list seems relevant benign it was a fairly painful experience. For a living I invest growth capital in technology companies so I went online this morning to try to see how technology could hopefully smooth this workflow.

Step 1 possible solution
We could have used Angie’s List, a growth equity backed company funded by my former firm, for finding a contractor. But that doesn’t address the workflow and actual manpower coordination issues.

Step 2 possible solution
I found a site that enables you to hire “runners” to handle errands for you, Runmyerrand.com. This might have resolved the time off from work issue, but not sure how they handle a situation when a contractor needs to come back or the actual sourcing.

Step 3 possible solution
The only solution I could find for the workflow/communication issues are GOOG apps. Yet it is not clear how to minimize the communication trail. It seems you just end up using a different repository than work email.

SO, who is Rudy and why is he important. Rudy is our 12 year old Australian Sheperd. Last night I was boarding a plane to San Diego and I realized our key was under a mat in the entrance way, behind a locked door. Our dog walker was coming to pick up Rudy for the weekend but she couldn’t access those keys. The keys were there because the last contractor left them where we had told him to. Obviously I was not thinking about the implications for Rudy. I was 20 mins from boarding a 6 hour flight to California and our poor dog was locked in our apartment for the weekend. Luckily our downstairs neighbors were home so we were able to resolve the issue.

Here is the question:
Can’t we fix this problem with software? I hope some aspiring entrepreneur reads this blog and has an idea on how to address this problem. To me it seems like you could combine a bunch of existing attributes, and build a software package for small businesses or condo associations that would alleviate this pain. That way, Rudy will never have to walk himself.

If you are kicking around ideas like this or having an existing expansion stage company that addresses this problem please look us up at OpenView Venture Partners.

• Change is good; don’t be afraid of it.
• Lead a company; don’t over-manage it.
• Hire and develop managers who can energize, excite and control.
• Acknowledge the facts and proceed to exploit them for advantage or eliminate their negative impact.
• Be focused, be consistent and follow up on every detail.

If you actually stop and think about it, there isn’t much else I would incorporate. All of the great management teams that I have worked for over years nailed most of these skills, and conversely the troubled managers usually failed at all of them. This is a guide I intend on using every day.
 

Here are the stats that I found most compelling.

- Only $12B raised last year (down from 56% from 2008, lowest since 2003 when $9B was raised)
- 104 funds raised (down from 192 in 2008)
- Average fund size was $117MM (yes, not $500MM)
- The largest IT fund was $575MM raised by Greylock and two $100MM funds made the top ten
- $6.1B was invested which is the lowest level since 1996
- Only 817 deals consummated which is the lowest level in over a decade
- 2009 was the worst year for liquidity since 1995
- 15 IPOS 2008-2009 was worst two year performance since 1985

Growth capital will continue to help pull our economy out of the Great Recession but it certainly will not be at the same scale that it was after the last economic downturn. Let’s just hope its more effective than the last ten years.

1. Apple (3rd year in a row)
2. Google.com
3. Berkshire Hathaway
4. Johnson and Johnson
5. Amazon.com
This survey sparked a few thoughts. First, I love the fact that technology companies dominate the top five. I work at a Venture Capital firm where I meet with entrepreneurs every day, and I do admire them. Second, it made me wonder what technology companies specifically do that generate so much admiration.

Here is a quick rundown on the factors that I think lead to this.

1- innovation. the pace at which technology companies innovate is staggering relative to other industries. Think of what GOOG has done in the ten years since it was launched.
2- meritocracy. This is a key factor. Most technology companies don’t get caught up in years of experience or degrees but rather productivity. It’s not uncommon to have someone in their early 30s running hundred million dollar P&Ls at a tech company.
3- flexibility. technology companies, and in particular venture backed technology companies, are constantly adapting and shifting their business model to create value.
4- people. my friends who work at technology companies have significantly more support and access to training and coaching relative to their peers.

I hope over the next few years top venture capital firms continue to fund great entrepreneurs so technology companies can ultimately own the top ten.

Footnote
Curiously two companies who have been making headlines in the past few months also made it in the top ten. It certainly will be interesting to see how fast they fall next year.

7. Toyota Motor
8. Goldman Sachs

- Their doctors have salaries instead of compensated on a per procedure plan. This reduces the incentive to do extra tests and also increases the time spent with patients, focusing on the activities that matter most every day is essential. Don’t confuse activity for productivity.
- Everyone has one year contracts and annual professional reviews. There is no tenure which enables the hospital to maintain high quality professionals. Remember in college or high school the prof who had tenure. Can you imagine that person as your doctor? Performance reviews is a critical activity for management teams. If you want to build a high performing organization, honest and frequent feedback is required activity. At OpenView we not only conduct performance reviews, but also 360 degrees reviews. It makes us better.
- The CEO is a doctor vs a professional manager. Everyone on the senior management team is a doctor. Been there and done that is much more compelling as a manager than a pure observer.

AND they do one thing venture capitalist might learn from.

- They allow patients to read their own charts. Maybe Venture Capital firms should share their analysis of companies with the teams. It seems to me that might decrease the constant friction between investors and management teams during a fund raising process.

So here is my first stab at it.

- ability to work in an unstructured environment. startups are chaotic.
- a good gut is critical at an early stage technology company. ultimately a management team will have to make a critical decision with almost no visibility and without the luxury of time.
- a willingness to walk through walls. too often entrepreneurs are told their business/idea has no merit. some of the best companies have been counted as the walking dead only to resurface as huge winners.
- great communicator. selling ice to Eskimos isn’t easy.
- unbelievable work ethic. startups are not for someone who enjoys a happy hour and weekends at the beach.

My advice to my friend was to a find a mid sized company where he could leverage his skills but not get out of his comfort zone (read: a startup was not the right path for him)

The top sources for hiring are:
- Referrals 28%
- Job Boards 26%
- Other 12%
- Direct Sourcing 9%

One additional interesting data point is that a few years ago, job boards accounted for 33% of total hires. What has caused job boards to lose market share over that period? I know Monster is spending oodles of marketing dollars to push their new product – power search. In my view, search isn’t the major hurdle for today’s job boards. How do you make the experience more dynamic and interactive? How do you combine search with referrals/social networking? Linkedin is clearly trying to tackle the 54% of the market that relies on referrals and job boards. But they still have a long way to go. We just started looking for an Associate and used Linkedin. It was painful trying to figure out how to send this listing to my network and screen out the relevant people. I am looking for the site that combines social networking features with job placement specific functionality. How do I get the right referrals from someone I trust with an application that enables me to manage these leads? Or conversely how do I apply for jobs by using dynamic communication to make my application less static?

If you are an expansion stage company looking for venture capital financing trying to solve this problem let us know.

*careerXroads

A few thoughts on why I like this market:
- Legal is an enormous market- multi hundred billion dollars. Most growth equity investors look for markets that measure in the hundreds of millions not hundreds of billions.
- It’s an incredibly inefficient market. Think about all the times you have spent just running to some office to sign a document. If you conduct banking online, why aren’t you passing and signing documents online?
- SMBS are adopting on-demand products at a very rapid pace. Legal is a critical work-flow item and cost center for SMBs. It’s only a matter of time before they migrate this process to an online vendor.

Net, Net when you have a large market dominated by large slow moving competitors it is ripe for innovation.

PS- Apparently his article struck a chord with others. Connie from PE Hub has a similar view.

So I have been wondering does ego drive greed on both sides or is it actually something more objective? More to the point, if you throw game theory out the window, how do you reach a place where both parties are happy?

1- The Daily Candy
Back in late 2004 she started relying on this email for restaurant, shopping and just general recommendations. She would constantly remind me how good it was and how it’s popularity was increasing. That winter Bob Pittman bought the company for $12MM. Two years later he sold it for $125MM to Comcast. Carrie would have made a 10x.

2- Gilt Group
In early 2008 Carrie said a bunch of her friends started using Gilt Group for huge mark downs on designer goods. Fast forward to late 2009, the company is supposedly at a $200MM run rate and recently raised $40MM in growth capital from GA. Their closest competitor, RueLaLa just got bought for $350MM. Carrie would have made money again.

3- Groupon
In the spring of this year, Carrie said a new service had started that enabled consumers to get great deals on all sorts of local services. Groupon just raised $30MM from Accel in a hotly contested process. Apparently there was a bidding war and 10 VCs were vying for the deal. The company is projecting $100MM in revs for next year. Sounds like Carrie picked another winner.

At the end of the day Venture Capitalists can do all sort of analysis, but they would probably be better served asking my wife for the next big consumer trend.

So what does this all mean? Well I think we have probably hit the bottom and companies are now maximizing their existing resources. It’s similar to an athlete training for a big event. You push yourself to the brink/exhaustion (the red zone) to see how far your body can go. Our economy is currently pushing the workforce into the red zone to see how they can stretch. Companies are not seeing top line growth but are seeing the benefits on the bottomline. To me that is a key indicator we are at the bottom.

Going forward management teams will only start taking the workforce out of the red zone when top line growth starts kicking in. I am not an economist so I can’t predict when that will happen (nor can economists frankly) but I do know when the pendulum starts swinging back to a more normal balance (out of the red zone) we will be on our way to a recovery.

There are two key lessons to learn from this simple interaction.

1. People have different perspectives even in the simplest situations. Management teams should take notice. Not only on strategic decisions but also weekly interactions. Unique views are imperative when tackling the most basic problems. CEOs should contemplate unique backgrounds when building a management team to foster creative and dynamic decision making. Too often companies end up with group think in the board room.

2. When management teams are pitching venture capital investors they should take into consideration the investor’s perspective. More to the point, they should clearly understand how that investor thinks about your market and stage of business. Too many times entrepreneurs don’t screen the investors before engaging in a discussion. Time is your most important asset and you should use it sparingly. I recommend reviewing the investor’s website including the investment profile section along with the portfolio (I mean really read it). It is key so you understand what will drive them towards making an investment in your company.

This past week were two exits that proved me completely wrong.

- Playfish was sold to EA for $275MM plus an earn-out
- Admob was sold to GOOG for $750MM

When Venture Capitalists make investments they think of three basic principles:

- Management Teams
- Market
- Product

Based on these principles, what did I get wrong?

Playfish is a social gaming business that competes against Zynga, OMGPOP, SGN and many more. When I first started hearing about this market and I questioned the size of the market. In fact, I think I said something like- “how many people are going to spend a meaningful amount of money on virtual goods”. Man, was I wrong. This group now probably combines for more than $1B in revenues (in less than 2 years!!).

Verdict- didn’t truly understand the product, market bigger and grew much faster than I had anticipated.

Admob was a different story all together. I spent the better part of late 2007/early 2008 looking at the mobile ad market. I worked with some of the best minds in the space including folks from the carriers, agencies, and publishers. They all agreed the market desperately needed standardized ad products and metrics, but mobile was still very nascent ($100MM). In addition, the world had imploded and the ad market was in a tailspin. Everyone was focused on what was in front of their nose (including me) which yielded a negative bias towards mobile. Furthermore, a lot of VCs had invested in mobile companies in the earlier part of this decade with tons of carnage. Fast forward a year and Admob, a three year old company, sells for $750MM. Ultimately, I think I was thorough in my analysis but I didn’t want to take the risk that early in my career.

Verdict- right call on product, bad call on timing of market.

This is an incredibly difficult job and one that requires a healthy mix of luck, hard work and great timing. I am very happy for these two teams and their investors. They built great businesses and proved a lot of Venture Capitalists wrong (including me).

So what does all of this doom and gloom mean?

I believe the next 12- 18 months represents a monumental opportunity for expansion stage companies. The break out winners should capitalize on this opportunity by hitting the gas and taking market share. Too many folks play defense in times like this rather than playing offense.

I am not forecasting where the market will be in 12-18 months. But I do believe by playing a little offense in the near term, expansion stage companies can leapfrog their competition.

Don’t get sucked into the sizzle for the sake of it. You might already be cooking with gas.

1- do you really need the money?
2- do you like the investor personally? is he/she a good person who you can trust?
3- do you think he/she can add value for the dilution? are your expectations aligned?
4- what do you want the company to look like 5 years from now?

The list goes on but I think it’s important to take a step back and realize VCs are not out to hurt your business. They want you to be successful, and if you so choose maybe one day you can be the man in the mirror and help the next great entrepreneur.

What I find intriguing is why so many of these mega smart, ambitious people are leaving GOOG, not to join interesting, innovative startups, but rather are jumping on board to what appears to be a stagnant company. Over the past few days I have spent hours checking out the AOL site. I know the plan is to create proprietary content but as of today, I don’t see anything that is really unique. I can’t remember the last time someone referenced AOL for a funny video, great article or any content worth noting. You have to ask yourself, what is Mr Armstrong planning over at AOL that is so compelling? He helped build GOOG into the behemoth it is today so you have to assume he has big ambitions. And you have to ask yourself is that $4.2B valuation cheap or expensive? YHOO, which I would put as AOL’s most relevant comp, has a $23B market cap (3.5x revs). AOL’s rev multiple is much closer to 1x, if the $4.2B holds (I realize they have a declining revenue stream tied to dial up, different business model etc). Do the GOOGlers think there is upside just from multiple expansion?

Clearly the news last week supports the notion that online continues to eat away at offline’s piece of the pie. Maybe the GOOGlers think there is still lots of upside just from a rising tide?

There are obviously lots of different angles on this story but I am going to be watching closely because history dictates that a few of these folks have had a good nose before.