OpenView Venture Partners

Why Focus Matters for Success

Friday, September 3, 2010 by Igor Altman

For senior management teams of expansion stage software companies, focus is key to success, and to making their lives easier.

If you're a senior manager, you have limited product management and development resources, limited sales and marketing resources, and so on. So it's key to pick a target market, a direction for the product, and go after it with everything you've got (assuming you've validated that it's the right direction with some data and early success).

Otherwise, if you go chasing after multiple target markets, go in several product directions, chase all prospects, you likely won't get very far with anyone in any market.

To illustrate this graphically, here's a picture from a blog on Agile Development methods, titled, "If you chase two rabbits, you won't catch either":

Get it?

This is why OpenView Venture Partners is highly focused only on expansion stage software companies, and nothing else. It helps us be better at identifying the best investment opportunities and then providing unique value add to those companies. Chasing one rabbit is hard enough!

Changes in Candidate Screening

Friday, September 3, 2010 by Diana Winings Martz

My colleague, Tien Anh Nguyen, recently sent me an article on Slate titled, "But He Looked Good on Paper", about the changing ways in which candidates for positions at tech startups are screened and hired. As someone who offers recruiting support to expansion stage technology companies, I am always interested in learning about new ways that other companies are having success with candidate screening.

A major theme of the article was that Americans will increasingly find jobs not through

external recruiters, job boards, and their resumes, but by showcasing themselves online and undergoing less subjected automated assessments. I have discussed boards which are meant to display software developers' expertise in the past, such as StackOverflow.com, but discussion boards are now becoming popular in other areas of expertise.

Slate also predicts that video will become more highly utilized in future recruiting. According to the article, a handful of Bay Area startups have started using HireHive, a company that offers monthly plans to pre-screen applicants on video. Another startup, RoundPegg, assesses how a candidate will fit into the culture of a workplace. A series of short surveys and analysis by an organizational psychologist can tell the hiring manager whether an applicant will have a problem with the manager or team. For more information on other types of video and remote interview software that are becoming increasingly popular, check out this earlier post of mine on the subject.

Have a great Labor Day weekend, and Happy Hiring!

Keep it Sticky, Stupid!

Thursday, September 2, 2010 by Daniel Killeen

So much of expansion stage business-building is focused on acquiring customers that entrepreneurs may forget that keeping those new customers is just as important! With the web making the marketplace more accessible/transparent and lookalikes popping up all over the place, what can you do to keep your customers loyal and happy?

Whether yours is an enterprise model with three-year deals or a SaaS offering with month-to-month contracts, it is all about the service.

Here a few tips to keep clients coming back for more:

- Be a problem-solver: Create a sense of confidence within your customer base, assuring them that you will be there to handle issues/problems.

- Keep in touch: Send targeted and relevant letters/emails to customers to keep them engaged and make them aware that you are thinking about their success.

- Offer renewal discounts: Give customers a way to save a buck and give your business a cash flow boost by offering a discount on an annual subscription renewal (e.g. rather than $1,200 over 12 months at a $100 ASP, offer customers the full year for $1,000 upfront).

- Innovate: Continue to iterate on your offering based on customer feedback through the product management process. This will let users know that you are listening and improve the offering more generally.

At OpenView Venture Partners, we work with our portfolio companies to refine these customer service best practices and maintain long-term business relationships. In fact, we recently held a Customer Service Forum with Bill Price, author of The Best Service is No Service, to develop a 90 day plan of attack for improving the client experience.

What are some of the ways that you keep your users excited about your product?

Tips on Getting the First Conversation

Thursday, September 2, 2010 by Kobie Fuller

When getting a fresh lead across your desk, determining the optimal contact model to get a conversation with a key decision maker is not an easy task. Witnessing this firsthand at OpenView Venture Partners with some of our portfolio companies, this sometimes can be one of the biggest bottlenecks in lead generation systems and is oftentimes not given adequate attention. Many times you can find yourself leaving messages for weeks with no call back. You should take time to figure out what the right approach should be and execute effectively against it (while learning and iterating based on results). If you are a sales manager, you must ensure your team members are all employing the same best practice tactics (as inconsistency is not good). If you are an individual salesperson, staying disciplined against your contact model and being organized is key.

As you are figuring out the correct contact model, below are a few things to consider:

The first day you make a call and leave a voice-mail, remember to follow up with an email. Statistics have shown the combination of a voice-mail and email in the same day lead to a much higher conversion than simply leaving one or the other.

Try calling the lead more than once the first day (while leaving a voice-mail just once). You don't want to be a stalker and call the lead 50 times, but a couple times is not a bad approach.

Determine the optimal amount of days between past messages left to reach out and make follow up attempts (it can be as short as one day or as long as 2-3). If you have much longer than one-week intervals in calling a lead back, you may find it difficult to get a conversation.

Don't give up calling a super hot prospect. Some leads may take 30+ attempts until you get someone on the phone. A lack of response does not always mean non-interest (people are often times busy!). Be persistent and patient -- it will pay off.

Use a CRM system to automate and track your calling approach. Excel does not cut it these days. Salesforce.com does a good job at managing the outbound contact method through tasks. Additional bolt on systems like Jesubi take it to the next level in terms of automating the flow of follow up calls and messages.

Have your best outbound callers mentor those on the team that may be struggling. Coaching/feedback from a peer who is in the trenches doing the calling day to day will be better received than by management teams who may not have been there/done that for ages.

Hopefully the above are a few insights that will have you start thinking more about taking your outbound approach to the next level.

-KKF

Calculating COGS for a Software Company: Subscription and Hosting Costs

Wednesday, September 1, 2010 by Vlad Djuric

This post is part of a series that will compose a best practices process on calculating the Cost of Goods or Services Sold (COGS or COS) for a software company. While this series is not meant to be an authoritative guide to all GAAP principles that should be followed when accounting for COGS, it will help a company figure out its COGS and gross profit by product line, geography, etc. This will be especially helpful to companies looking to raise expansion capital, as many venture capital firms ask for this type of information during due diligence. Ideally, it will also allow expansion stage software companies to optimize their sales and marketing spend by investing more resources into more profitable geographies and lines of business.

Software as a service companies that deploy their software over the Internet will have a large portion of their COGS come from subscription and hosting costs. Subscription and hosting costs are typically broken down into the following line items:

Bandwidth costs: Whether a company hosts its application in-house or in a data center, it will have to pay monthly bandwidth fees to providers such as AT&T, Verizon, etc.

Data center costs: Most SaaS companies host their applications on servers in data centers, meaning that they are paying for monthly rent/rack space, along with power and cooling (which often cost more than the IT equipment they support).

Depreciation of data center equipment: If a SaaS company buys its servers, racks, and other data center equipment (instead of leasing it), it will have periodic depreciation costs to include in COGS. There is a number of methods that a company can use to calculate depreciation of data center equipment, and a company should refer to the relevant GAAP pronouncements when determining their depreciation policies. The two most common methods used to calculate depreciation are the straight-line method, and the declining-balance method. Both will be covered in detail in the next post.

Leases of data center equipment: If a SaaS company leases its servers, racks, and other data center equipment (instead of buying it), it will have periodic lease expenses to include in COGS.

Royalties or expenses related to 3rd party software used in data center: If a company uses 3rd party software on its servers, its costs should be included in this line item. If the company subscribes to the software, the period expense is simple to calculate. If the company buys a perpetual license of the software, the company needs to estimate the useful life of the software license (typically between 12 - 60 months), and amortize accordingly.

Royalties for 3rd part components used in product offerings: The exact amount for this COGS line item will depend on the agreement between the software company and the 3rd party component vendor.

Data center staff payroll, taxes and benefits: Many SaaS companies have at least a part-time systems administrator that maintains the company's servers in the data center. The data center staff payroll, taxes and benefits line-items covers cost of these employees.

Credit card processing fees: The vast majority of SaaS companies allow customers to purchase and maintain a subscription to their software by credit card. The credit card processing fees the company incurs belong in this line item within the subscription & hosting cost category of COGS.

What Can You Learn From Oracle Being Sued by the Department of Justice?

Wednesday, September 1, 2010 by Jeremy Aber

Quick background: Oracle was sued on July 29, 2010 by the Department of Justice, alleging that Oracle overcharged the government when it licensed its software.

How does this work? Well, when a company wants to sell a significant volume of software to the federal government, they file what is called a CSP-1 (Commercial Sales Practices Format chart). On this form the vendor describes their pricing, products, services, etc., by tier of buyers (direct, channel, etc.) and, most importantly, their discount practices. The government wants to know that no one is receiving better pricing for a similar transaction.
The Case. What happened in the Oracle case (at least as alleged in the complaint) is that the Oracle overcharged the government by selling software to various agencies at higher prices than it was to commercial customers. A whistleblower (i.e. insider) brought the initial case under seal and the government investigated (which took a few years). By the way, the whistleblower can receive up to 30 or so percent of the award, so there is a very strong incentive to bring these type of cases.
What could the award be? Let's look at some similar cases. Oracle paid $98.5 million in 2006 on behalf of PeopleSoft, EMC reached a settlement to pay $87.5 million, and Net App reached a $128 million settlement in 2009.

So what can you learn from this?

1) Commercial Practices Sales Charts are really important, and someone needs to take ownership of them (cradle to grave). I suggest 1 person should be responsible for (a) helping draft the CSP-1, (b) updating it, and (c) ensuring compliance with it. If you read the Oracle complaint, it really looks like people were confused as to what the Oracle CSP-1 covered and what was excluded.

2) You can be audited, and they will look retroactively at your transactions and discounts. Not fun.

3) Get expert help. You should work with an experienced government contracting consultant or lawyer, as this type of contracting can get very complex, very fast. Remember, we are talking about government purchasing regulations here.

4) The federal government is getting quite acquainted with software transactions and discounting practices, so they will get better at finding violations and bringing these type of cases.

Any company looking for growth capital or a venture capital investment should take a read, especially if you have a GSA Schedule or will have one soon. This type of compliance issue will also come up when you want to sell your company or as part of your company exit strategy, as buyers are now well aware of this risk and compliance issue (this applies whether or not you are looking for growth equity).

Resources

Here is a copy of the actual complaint filed with the court (if you have a few mins, it is worth reading)

Blog Post on the Risk and Rewards of Government Contracts

Here is an example of a Commercial Practices Chart

Disclaimer: This post is for educational and informational purposes only, and does not constitute legal advice. Contact your attorney for specific legal advice.

What a CEO does... and Larry Ellison

Tuesday, August 31, 2010 by George Roberts

This blog, "What A CEO Does" by Fred Wilson, A VC really resonated with me.

Maybe it is the picture he used in the blog of my former boss Larry Ellison that sparked a rush of flashback memories that replayed through my head.

Before I joined OpenView Partners, a Boston Based Venture capital firm that invests growth capital in expansion stage software companies, I spent 27 years as an operational executive in the software industry. Thirteen of those years were at Oracle. During the last 5 years I ran North American Sales and was on the Oracle Executive Committee and reported to Larry directly.

During those 13 years Oracle accomplished some amazing things.

I was there in 1990 when the company's revenues exceeded 1 billion dollars, and I was there a quarter later when they had to restate their revenues below a billion dollars and had their first loss since they went public.

I was at the company when Sybase was an actual competitor, and when the industry transitioned from character mode to client server and later to thin client web based systems. I was at Oracle when Larry hired Ray Lane and when Larry fired Ray Lane.

I was in the room when Larry stood up in front of the financial analysts during the .COM boom and predicted that some day real customers, real revenues and real profits would matter again... and the analysts did not get it. I was also in the room when Larry predicted the consolidation of the software industry ... and again the analysts did not get it.

I was part of the executive team that helped transition Oracle's business from a historical 22%-23% EBITDA to greater than 40% EBITDA in less than 24 months, making Oracle the second most profitable software company in the world... and the most profitable software company in the world that does not hold a monopoly. This was when Larry told the analysts that Oracle was going to save 1 billion dollars and again they did not get it... and 6 months later when he got up and told them he was wrong and that we were going to save 2 billion dollars, they just shook their heads. By the way, if anyone wonders how Oracle got the 34 Billion dollars to fund their acquisition strategy, this was what started it all.

As I look back on those 13 years and the time since, the 3 things that Larry has always done as CEO that Fred Wilson mentions in his blog are...

Sets the overall vision and strategy of the company and communicates it to all stakeholders.
Recruits, hires, and retains the very best talent for the company.
Makes sure there is always enough cash in the bank.

As a CEO, you could do a lot worse than focusing on these three things.

By the way, I am still a shareholder and, as long as Larry is there, I always will be!

All the best!

G

Stop "Selling" and Start Building Relationships

Tuesday, August 31, 2010 by Brian Zimmerman

When offering sales and marketing support to our expansion stage portfolio companies, our sales leaders offer many questions around sales techniques, tricks, or methodologies that can be used. We have all probably read the books and been educated by the "sales geniuses" offering "ABC--Always be closing", "a few new techniques will boost your sales", or "think positive and overcome your fears of interaction". These are generally old-school teachers and do not lead to new thinking.

I came across a great article from Ari Galper titled 7 Ways to Stop "Selling" and Start Building Relationships. It really speaks well to the "New Thinking".

Here is the intro....

New Thinking = New Results

Maybe it's time to take a different approach. Maybe we need to seriously analyze our sales thinking so we can identify why we're not making more sales. Take a look at the table below and think about your current selling mindset. How would your selling behaviors change if you changed your sales thinking?

Traditional Sales Mindset: Always deliver a strong sales pitch.
New Sales Mindset: Stop the sales pitch -- and start a conversation.

Traditional Sales Mindset: Your central objective is always to close the sale.
New Sales Mindset: Your central goal is always to discover whether you and your potential client are a good fit.

Traditional Sales Mindset: When you lose a sale, it's usually at the end of the sales process.
New Sales Mindset: When you lose a sale, it's usually right at the beginning of the sales process.

Traditional Sales Mindset: Rejection is a normal part of selling.
New Sales Mindset: Sales pressure is the only cause of rejection. Rejection should never happen.

Traditional Sales Mindset: Keep chasing every potential client until you get a yes or a no.
New Sales Mindset: Never chase a potential client -- you'll only trigger more sales pressure.

Traditional Sales Mindset: When a prospect offers objections, challenge and/or counter them.
New Sales Mindset: When a potential client offers objections, uncover the truth behind them.

Traditional Sales Mindset: If a potential client challenges the value of your product or service, you must defend yourself and explain the value.
New Sales Mindset: Never defend yourself or what you have to offer -- it only creates more sales pressure.

The article link provided above goes on to explain each....good reading and learning!!

Are You Ready to be Acquired?

Tuesday, August 31, 2010 by Firas Raouf

I recently read a great blog post by a CEO who went through a six month acquisition process that eventually fell through. But before I send you to his post, you have to go through my thoughts...

While most early expansion stage software CEOs aspire to hit the IPO nirvana... the reality is that most early stage ventures end in three outcomes: an acquisition, a wind-down, or a non-event.

Regardless, both an IPO and acquisition require significant preparation. And the longer you wait to prepare, the more complicated and expensive it gets. I recommend that CEO start laying out their company exit strategy 18-24 months before a desired event.

Assuming you're CEO of an early stage company, here's a sequence of steps you should start with sooner than later:

Hire a CFO: I won't dwell on this point, as I've written about it here.
Get your financials in order: get your financials GAAP ready. Time to say goodbye to Quickbooks and cash accounting.
Build your economic model and operating dashboards: More on that here.
Get a financial audit by a reputable accounting firm: there's nothing like an audit to ensure your compliance with basic financial accounting. Make sure to dive deep into the audit firm's assessment of your financial operations and processes for areas that you can improve upon.
Get a legal audit by a reputable law firm: in an acquisition, your company will go through a super extensive legal due diligence audit which will uncover all sorts of issues. These issues will delay the closing of the deal. A mini-version of this due diligence typically happens when a company raises an institutional VC round. But in the case of VC audit, companies typically don't do much with the due diligence findings after the investment is done. I encourage companies to do their own audit with their own law firm, and use the findings to make process and documentation changes to clean up their legal infrastructure.
Start taking investment banking meetings: there's lots to be learned from bankers that cover your space. For one, investment bankers have a wider lens to your market, to the larger companies in it (acquirers); and the competitive landscape around you. As they get to know your company, they are more apt to bring it up in their discussions with potential acquirers.
Get your board of directors in order: more on that here.

As you get closer to being ready for an acquisition, make sure that you allocate at least 12 months to getting there (assuming you get there at all.)

Pick a banker that best covers your market: use that relationship to get a perspective on all the possible acquisition prospects, their priorities, their appetite, and how best to engage them.
Start building relationships with prospects - start with product integrations: the most effective way to get a perspective acquirer's attention is to demonstrate how an incremental revenue stream can be built for them around your product. So get a product integration built first.
Start building relationships with prospects - follow with joint selling: once you have an integrated solution, start marketing and selling it... Then engage the prospect's sales team in the process.
Retain the banker for a "soft sell" process: retain a banker to go out and solicit interest in a partnership or "strategic" funding. It provides the banker with an excuse to reach out and have the conversation, without giving the impression that the company is actively looking for an exit.
Take an inbound offer and shop it: This is where it gets tricky, and why you need to have all your ducks lined up before you get to this point. The cliche of "great companies are bought not sold" holds very true. And what I say is that "greater companies are bought in a competitive bid." Ideally, you would receive an inbound offer for acquisition (assuming the offer is not perfect)... and you take that offer and use your banker to shop it around. Which would ideally create a bidding situation that maximizes your outcome.

Which brings us to this very interesting perspective from Gleb Budman, CEO of BackBlaze. I found his experience to be a great read for early expansion stage CEOs.

Market to Everyone, Sell to No One

Tuesday, August 31, 2010 by Tien Anh Nguyen

April Dunford had a nice article on her blog "Rocket Watcher" on "Avoiding the #1 Startup Marketing Mistake", which is "marketing to everyone". According to her, there are 4 main reasons why start ups should focus their marketing activities on specific targets:

- Targeted Messaging is more effective
- Social Channels work best within community
- By targeting specific segments, there are more opportunities to win and become the leader in those segments
- Success in a specific target builds upon itself

While this is clearly very typical with startups, which are under pressure of establishing some initial customer base and buzz, the same might be said of older companies -- from the expansion stage to the later stage -- or even after an IPO or exit. Here is another typical situation with a more mature company:

After successfully growing by selling into a particular segment and establishing itself as the leader in that segment, the company raises a lot of venture capital funding and tries to become a "platform". This is understandable as there is intense pressure to quickly grow and capture the broader market. However, what typically happens is that the company spends a bunch of capital on marketing to everyone, hiring a big marketing department that can do everything from analyst relations, to PR to influence marketing and content marketing.

The company thinks that it needs to think big in order to grow big and compete against the larger, more established competitors in the market. Therefore, it expanded its marketing team and hired marketers who are more suited to large companies. At the same time, it still tries to stay with its roots, and hence the grassroots social media marketers.

A variation of this is when a company tries to define a new product category to differentiate itself from its competitors. With a new product category, the company tries too hard to build buzz and focuses more on creating the new category rather than to sell to any specific target. We have seen this situation backfire on the company as they started to lose their existing customer base while not getting any new prospects signed up, simply because their messaging then becomes too general, "thought leader" like.

10 Things to Consider Before Launching a Cold Calling Initiative

Monday, August 30, 2010 by Devon Warwick

If you are an expansion stage SaaS business looking to generate more qualified leads for your sales team, launching a cold calling initiative to supplement other lead generation systems (SEO, email marketing, advertising, influence marketing, etc.) might be just the ticket to catapulting your company's growth into high gear.

While a well-run cold calling initiative may be great for your sales team's pipeline -- be prepared. It will also be an investment... an investment of time and money. For management teams at the expansion stage, time is money. And money, particularly if you are at the point where you are looking for investors, must be spent wisely. That being said, make sure that you are buttoned up before you kick off something like this so that you are not wasting any of your company's precious resources.

If your goal is to launch a cold calling initiative to generate revenue for your business within the first 90 days, here are 10 things that you must consider prior to kick off:

Do you know your target market segment that will have the greatest need for your product/services?
Do you know who the key decision maker is within that segment, and what his/her pain points are?
Do you have the capacity to build content customized specifically for that segment? (Must haves: email templates, call scripts, case studies, white paper, power point presentations for demos, competitive matrices, etc.)
Do you know which of your competitors are prevalent in that market and how you will compete against these companies (features, cost, services, etc) to win business?
Does your sales team understand the value of adding lead qualifiers (aka cold callers) to the team?
Have you established a hand-off process that will make for a seamless transition of qualified leads from cold callers into the hands of the closers?
Do you have a lead nurturing campaign established for the leads that you find are interested, but not quite ready to be passed along to the sales team?
Do you have a manager with the capacity to train, manage from a productivity standpoint, and gather feedback to improve the process on a weekly basis?
Do you have a resource/service (either internal or external) that will provide you top-quality leads on a weekly basis for your cold callers to call into?
Does your team have the patience to build something that may not have short term results, but rather long term results?

If you can't answer "Yes" to every one of these questions, you may want to consider putting off your cold calling initiative until everything is sorted, and resources have been properly designated to support the initiative. You simply can't cut corners if you are expecting immediate returns.

Now, if you have a bit more flexibility and are looking to treat your cold calling initiative as a market clarity research project just as much as a revenue generation strategy (see my recent post about this exact topic), then this type of initiative can have a tremendous impact on your business in the long run from a market knowledge standpoint. If this is ultimately your goal, you've got to figure out the logistic early on -- not a month into the campaign. Your lead qualifiers must understand their roles from the get-go to keep motivation high and frustration low, and their metrics/quotas must reflect this research-driven approach. On a final note, in this situation, point #10 will be very, very important to consider!

Location = Loyalty?

Monday, August 30, 2010 by Faria Rahman

An article I read in the New York Times today stated that, according to the National Venture Capital Association, venture capital firms have poured $115 million into location start-ups since last year; most popular of them being Foursquare, Gowalla, Shopkick and most recently, Facebook Places. These location-based apps offer services that allow people to inform their friends of their physical location online, so users can connect with their friends or receive coupons/discounts from businesses.

The rise of such location technology opens up a new avenue in influence marketing. Even though adoption has been largely confined to young, tech savvy urban dwellers, these apps have immense potential for gathering valuable consumer data. Location apps can provide large amounts of behavioral data, which can be used by market researchers to reach possible target segments. I will use Foursquare to showcase how such apps can be used to a researcher’s advantage.

Identify your loyalists: A key part of Foursquare’s interface, for instance, showcases which users have checked in at a given location. From this, a programmer can demonstrate how many times each user has visited, the duration of each visit, locations each user has visited before and after coming to a particular venue, the number of other visitors that user is friends with, and the reach each visitor has. Such information is greatly helpful in understanding and evaluating target personas and understanding the behavioral patterns of heavy users.

Provide incentives: Foursquare does this by rewarding a location’s mayor. A mayor is the most frequent visitor of a location and is likely a heavy user of the service. By providing incentives to the mayor, businesses can keep current loyalists happy through coupons or discounts. Businesses can now visit Foursquare + Your Business to get further information on the program and browse ideas that other venues have implemented.

Information from an app like Foursquare can be used to focus on new or repeat customers; it can be used to target and treat customers with heavy influence and reach differently; it can be used to be creative with reward strategies, for instance to reward those who recommend Foursquare to a certain number of friends and their friends sign up, and so on.

However, for all the attention and money these apps are getting, only 4% of Americans have tried location-based services, and 1% uses them weekly, according to Forrester Research. Delving more into the statistics reveals that 80% of those who have tried them are men, and 70% are between 19 and 35. So, this is far from being mainstream. The loyalists using the app are a far smaller subset of the percentages I mention above. Also, the users seem to be skewed toward men.

The young user base is promising when planning for future sales support and marketing. But at the present, even though location apps can provide a new, deeper outlook into consumer behavioral data, they are very restrictive. The overall user base is small; hence the target segments are small. Additionally, people have qualms about sharing their physical location online, even though they might be comfortable sharing other information on the web. So, even among young people there will always be resistance because of security issues. May be for specific information like location, there HAS to always be some incentives. May be rewards are the only way of making such app-use seem worthwhile, because they can prevent the privacy trade-off from crossing consumers' minds.

The Lonely Expansion Stage CEO - What Senior Managers Can Do!

Monday, August 30, 2010 by Scott Maxwell

Expansion stage CEOs are some of the loneliest people in the world at work. I wrote about the lonely CEO recently and I also wrote about what the lonely CEO can do about it. The senior managers in an expansion stage company can also help quite a lot by recognizing the issue and working hard to help your CEO build the business.

Senior managers working for the CEO should be like Alan. Alan worked for me when I was a young manager. He wasn't the smartest guy that ever worked for me. He didn't work the highest number of hours. But, Alan was one of the best people that ever worked for me. What Alan did incredibly well was that he worked really hard at understanding the goals that I needed him to take responsibility for, and then he put all of his time against taking the responsibility and delivering on those needs. When he completed the goal(s), he came back, reviewed the work, and then tried hard to understand what the next goals were. Alan did this constantly without needlessly complicating my job by also taking responsibility for developing his working relationships with other managers and other departments and figuring out how to accomplish his goals rather than complicating my job with issues that he could resolve on his own or could resolve with the help of someone else.

Alan offered up great ideas and approaches and alternative goals and we had good conversations about how to attack those goals. But once his targets were locked and loaded, he was off to the races. Alan's best characteristic was that he took full responsibility for the ultimate goals and always seemed to figure out how to realize the vast majority of them with minimal help from me.

As I wrote, Alan wasn't the smartest guy I ever worked with. But, he was smart enough. He didn't work the highest number of hours. But, he worked hard enough. His greatest strength was figuring out what needed to get done and then focused all of his time and attention on getting it done. And, he did this without creating a lot of extra work for me or anyone else.

If you are a senior manager working for a CEO, do you take on major goals and get them done without much help from the CEO? Does your CEO have peace of mind that you will accomplish the goal? Or, is your goal one of the issues that keeps your CEO up at night? (if you are unsure, then ask!)

Additionally, do you create work for your CEO by bringing the CEO issues that you could resolve yourself or solve with the help of other managers? Do you bring your own personal issues to the CEO more than you need to? Do you distract the CEO with new ideas or issues that already have a forum for discussion and could be addressed more efficiently in that forum?

No doubt, the CEO that you work with is lonely (almost all are in one way or another whether they show it or not). Your CEO can really use a partner that takes things off his or her plate and gets them done with little work from the CEO. Doing this will also help move your company toward its aspirations faster and better.

One complication that you may find is that your CEO may have some "control freak" or "micromanager" characteristics (this is particularly true for many founding CEOs). These characteristics were probably beneficial to the company at its early stages. But now that you are at the expansion stage the goals need to be set and then the senior team needs to accomplish them without a whole lot of help from the CEO, given that you are trying to increase your velocity and sophistication of company development.

Your CEO may need some help with this and may need to be involved more with the first few goals that you take on yourself. You may also need to have an open conversation and figure out how the CEO can get comfortable with you taking on more without the involvement of the CEO. Yes, it is interesting that the CEO both needs you to be responsible for goals and at the same time has difficulty letting go of them. If you really want to help your CEO, you will recognize the importance of overcoming this complication and then help the CEO overcome it! With time and experience -- and with a few senior managers that act like Alan -- your CEO will recognize the benefits and be more and more comfortable letting go and allowing the senior team to take on more goals.

Think about it. Then, do something about it!

More Updates from our Newsletter Experiment

Monday, August 30, 2010 by Amanda Maksymiw

Newsletter Best Practices

As the summer winds down, we are in the 24th week of our newsletter experiment. Each week we release a newsletter full of tips and tricks that are hand picked by the OpenView team to provide the best new ideas and insights to senior management teams of expansion stage companies looking for investors or not.

Since it has been a couple of months since I have discussed the newsletter in a blog post, I'd like to share some insights and issues of my own about creating and sending newsletters. For this analysis, I took note of our open rates (how many unique times the newsletter is opened) and click through rates (unique percentage of subscribers clicking through the links). Next, I focused on identifying 'hot topics' that get opens and clicks, in addition to reviewing list performance over time.

Sharing our Numbers
The following image shows our open rates and click through rates for the past 9 editions of Viewing Value. During this time we have been focusing on increasing both statistics to improve our subscriber engagement. I typically look at these two main statistics two days after each edition was sent. Is this an accurate picture of our subscribers' engagement?

Since I do not know the answer to that question, I decided to compare the two-day old statistics to older statistics. In the past 9 issues of Viewing Value the click-through rate increased up to 1.6%. More often than not, the open rate increased as well. See below for details.

Note: These stats were pulled two days after each edition was released.

Note: These stats were pulled on 8/30/2010.

Contents that Get Opens (and Clicks)
We cater to senior managers at expansion stage software companies within our newsletter. This general audience typically boils down to CEOs. We have found that a few specific topics seem to resonate best with our audience. They are:

Increasing sales
New, efficient marketing techniques and strategies
Leadership insights
Compensation

How did we figure this out?
In addition to analyzing our subscribers' engagement as topics of the newsletter varied, we also include one survey question in every 4-6 editions of the newsletter. The question asks, "Which topics are you most interested in seeing covered in next week's edition?" It never hurts to ask!

Which List is the Most Engaged?
Our subscriber base is comprised of several opt-in lists (i.e. web collect, blog collect list, existing portfolio companies, prospect companies, employees). Here are our better performing lists:

Web Collect

Prospect Companies

Portfolio Companies

One issue we are having is accelerating our list growth. What are some strategies or tactics you have deployed to boost your list size over time?

Podcasting 101: Business Benefits and Best Practices for an Expansion Stage Company

Monday, August 30, 2010 by Corey Walkinshaw

Over the past few weeks I have been familiarizing myself with the world of podcasting. Researching best practices, technologies and uses for podcasting in a Boston venture capital firm like ours. While researching, I was also looking to see how applicable podcasting could be used for an expansion stage company with a content marketing strategy.

Below, I have outlined some of the key benefits of podcasting as well as a few best practices that are important to understand before getting started.

Business Benefits of Podcasting:

• Branding: effective podcasting is an excellent medium to reach tech-savvy consumers or businesses. Additionally, timely and relevant podcasts can position your organization as a thought leader in your industry

• Lead Generation & Nurturing: keep prospects engaged with your brand by providing them with a trusted source for value-add content and industry best practices

• External Communications: keep portfolio companies, prospects, media contacts and industry experts informed with company news and developments

• Search Engine Optimization: search engines rank websites with high download activity as more “important”, thus increasing organic search results

Best Practices:

·    Keep it brief: average listeners have an attention span of between 15-20 minutes per topic. Spread content out between multiple podcasts should it become lengthy

·    Don’t be too salesy: while a brief introduction to your company/product is a good idea to establish credibility, avoid being overly focused on yourself

·    File Format: use MP3 format, avoid .wav files. MP3s are the most universally used format

·    RSS: promote podcasts through an RSS feed on your website

·    Provide a Brief Overview: Include a brief written overview on your website to accompany each podcast, use keywords to increase SEO

· Promote your podcast on your internal website, blog and social channels as well as on podcast directories

· Brand your podcast: use a clear introduction and conclusion to each podcast. Thank listeners for listening at the end of the podcast and share any plans for future podcasts at the close of each piece. For example, “Come back next week to hear about…xxxx topic”

OpenView will be starting our podcasting initiative in the coming weeks and we are really excited to reach our audience in a new way!

Question of the week: Are you currently podcasting? What have your challenges/successes been in this space? Do you have any additional tips?

Recent Tech M&A Uptick: Drunken Sailors or Value Creators?

Saturday, August 28, 2010 by Daniel Killeen

There has been no shortage of tech M&A activity over the past 6 months. It seems as though the cash-rich IT players aren't afraid to start spending some serious dough. Are these guys just antsy with billions on the balance sheet or are they making smart, competitive bets that signal even more activity to come?

Two companies come to mind that have recently exemplified this ravenous appetite for deals. HP has moved to acquire no less than 4 companies in 4 months, with two of these having over a $1B price tag. On the heels of its $2.7B acquisition of 3Com at the end of 2009, the company has acquired Palm, several venture-backed tech vendors and is currently in the midst of an escalating battle for 3par with rival Dell.

On the healthcare technology side, Ingenix has been holding its own. A wholly-owned subsidiary of the UnitedHealth Group, Ingenix has announced 3 considerable tech acquisitions in recent months, including Axolotl, QualityMetrics and Picis.

The question becomes, is this recent boon a result of the need for competitive positioning or shareholders looking for value creation from ever-increasing piles of cash (HP with $15B and Ingenix (UHC) with $12B)? It is yet unclear. With Intel's $8B deal for McAfee and active interest in Infineon's $2B wireless chip unit, however, the ranks of the acquisitive tech-sphere seem to be swelling.

This is a great sign for expansion stage businesses with an eye towards continued growth and a strategic exit. Venture capital firms can find some comfort in the thawing of the M&A market with the public markets still seeming ice cold.

What's your pick for the next big deal? My sense is that Oracle and Cisco seem to be awfully quiet and I can't imagine they will want to be left out of the party for too long...

Cloud Storage Meets the Hype

Friday, August 27, 2010 by Igor Altman

There has been a tremendous amount of hype around everything "cloud", and anything that might be called "cloud", in the past 12 months.

So when Network World writes a story headlined 'Cloud Storage Lives Up to the Hype', that's saying a lot!

According to Network World, cloud storage can really be cheaper than your current solutions while delivering high performance.

Not surprisingly, they also found that cloud storage -- and cloud services in general -- offers more complexity than one might expect, and approaches to calculating the full cost of ownership are not necessarily obvious, as this chart from the article illustrates:

The article covered several services, including Amazon's S3, Nirvanix, Rackspace, Egnyte, and Nasuni.

There is also a number of early and expansion stage software companies out there that are not covered in the article that should help cloud storage become much more widespread.

For example, Mezeo enables service providers to offer their own cloud storage service, and Twinstrata helps enterprises derive faster performance and better integration from their cloud storage service providers.

Based on Network World's findings, senior management teams grappling with storage costs should look to the cloud, and expansion stage software companies selling cloud computing software should look to partner and integrate with cloud storage providers.

The Lonely Expansion Stage CEO - What the CEO Can Do!

Friday, August 27, 2010 by Scott Maxwell

Expansion Stage CEOs are lonely people. It is the nature of the job that I wrote about it in a recent post.

What can the lonely CEO do?

My observations and discussions with hundreds of CEOs over time resulted in the following ways that CEOs can address the loneliness issue, which also results in them being better CEOs of better companies:

Get one or two great senior management partners. Some CEOs founded their companies with one or two great co-founders. When this works, it works really well as the deep trust between co-founders that each have unique skills and experiences creates a really solid core for a young company and helps to spread the most important issues among more than just the CEO (note: clearly this does not always work and a lot has and could be written on dealing with the situations where this doesn't work or stops working). If you don't currently have "partners", it is not too late. Consider the skills that you most need in the company at this point and find a person that both fills the skill gap and has the experience, character, and chemistry that would make a great partner for you. At OpenView, we encourage CEOs to get senior managers that would "fill a seat around the management table" to help our CEOs with this issue.

Recruit one or two people that could serve as partners/mentors to your board. CEOs that have one or two board members that can serve as deep sounding boards, provide some mentorship/partnership help and help to unite the company's board tend to have better experiences, better board meetings and better companies. As with the senior management partner, the Board partner/mentor needs to have the right skill, experience, character and chemistry to make a good partner for you. At OpenView, we encourage our portfolio companies to build the best board possible with as many independent board members as possible and also encourage our portfolio CEOs to find people that fit the profile but also have the right chemistry for the CEO.

Find an outside mentor or two. Similar in nature to finding a person to fill a board seat, finding a person or two that are willing to be unofficial or official senior advisors to you personally could be of great assistance. There is also a growing group of "executive coaches" and I have heard some great feedback from a number of CEOs that believe that they have benefited greatly from their coaches. Again, experience, skill and chemistry are really important for success.

Join a group of other CEOs that you can connect with and learn from. Many CEOs view this activity as a luxury, but the CEOs that I have spoken to who are actively involved with a group report that they get great advice from groups like this. The group that gets mentioned the most is the Young Presidents Organization, but there are a lot of local CEO groups in every city to check out. I have also heard examples of CEOs connecting in online forums in places like ExpertCEO or LinkedIn groups with some success. At OpenView, we have quarterly in-person forums and workshops to both help management teams gain some great ideas, but also to network and find their counterparts at other portfolio companies that can help in a similar manner.

Find the right Venture Capital Partner. Venture Capitalists come in all shapes, sizes, personalities, characters, backgrounds and skills. If you raise capital, try to find a VC with the right experience, skill, character and chemistry that could both serve the purpose of capitalizing your company and serve the purpose of being a true partner to you and your team.

Ask a lot of questions, look for objective measures, and work hard to listen, sense and analyze to find the "truths". As the CEO, you are most likely on the receiving end of a lot of filtered/biased information and perspectives. The larger your company, the worse this issue generally gets. Work hard to ask a lot of different people the same questions, listen hard, and try to triangulate the answers in a manner that helps you separate the signal from the noise. Also, work hard to put objective measures/metrics in place to help you. Objective measures are more difficult to filter/bias.

If you are a lonely CEO, consider the list above and determine if one or two of the ideas fit your context. Then set a goal for doing at least one of them and put some time against exploring the possibilities. Also, let your team, board, investors and network know about your goal so that they can open their networks to you and provide you some help.

Bookings vs Revenue vs Collections

Friday, August 27, 2010 by Cynthia Mignogna

Fred Wilson had a fantastic blog post a few weeks ago discussing Bookings vs Revenue vs Collections. As a Boston-based venture capital firm that focuses on expansion stage technology companies (primarily in the SaaS space), we encounter a great deal of confusion in this area as we speak with prospect CEOs, as well as our newer portfolio companies.

It's important to understand the difference between these items, and it's just as important to track these items regularly. If you're looking for investors, you'll definitely want to make sure that you can provide this data for your company, and that you can explain the trends within the data.

Bookings are not a GAAP defined term, and thus, the definition might vary by company. Typically, bookings correspond to the value of a contract signed during a certain period. Where this gets tricky is making sure that whatever data you are reporting for bookings is apples to apples. It's not a good idea, and it is also very misleading, to combine the value of a 12-month contract with a 24 month contract booked in the same period and report the sum of the two contracts as your company's bookings for that period. Even if you have booked a multi-year deal, the amount that your company reports for bookings in that period should typically be limited to the value of the first 12 months of the contract. When you're presenting bookings numbers to a VC, be prepared to explain exactly what your company's bookings policy is.

Revenue is a GAAP defined term, although many startup companies might not be reporting revenues 100% correctly. In the most simplistic sense, revenue happens when a service or product is actually delivered. For most SaaS companies, revenue is recognized ratably over the life of the subscription. As I mentioned, many startup companies may not yet know whether the revenue they are reporting is correct under GAAP...what is important is to understand how you're reporting revenue, be able to articulate how you're reporting revenue, and show that you've consistently followed this methodology for the periods that you are presenting to a VC.

Collections are simply when you receive cash from your customers. This may or may not correspond to when you've recorded a booking or when you've recorded revenue.

A fourth item which often causes confusion is Billings. Billings are simply the amounts that you've invoiced your customers. They may or may not correspond to bookings (in the case where you've booked a 12 month contract but are billing the customer monthly), and they may not correspond to revenues (when you've billed a customer up-front, but will be delivering the product or service in the future). Your company's billings amounts within a certain month might not be for consistent time-periods. For instance, you might bill 1 customer for 12 months up-front, and another customer for 3 months up-front. This doesn't mean that the amount you calculate for billings is incorrect...but it does mean that if a VC asks for your billings data that you should really make sure that you provide specifics about what exactly is being billed. The VC might be running analysis on the data unbeknownst to you, and the outcome could be radically different depending upon the assumptions they've made around the periods billed within the dataset.

Hopefully these tips are helpful whether you're seeking expansion capital or growth capital, or if you're just trying to understand the complexities of your companies' revenue cycle.

Please check out Fred Wilson's post on this topic as well. I highly recommend it!

Keep the Sales Pipeline Full by Building a Great Referral Business

Thursday, August 26, 2010 by Daniel Killeen

An expansion stage company has a number of issues that it deals with as it continues to scale. One of these, and one that a company deals with at all stages of growth, is maintaining a robust sales pipeline. As an early-stage business, those first few adopters and customers are essential and drive initial revenues. Once those prospects are converted, however, new targets must be quickly identified and pursued.

A great inside and/or outside sales team that is focused on closing qualified leads can make a good deal of headway in ensuring this backlog is built. With press releases announcing new clients each month and account managers working to upsell the current customer base, some entrepreneurs may think they are exhausting all possible outlets. Many businesses, however, forget to supplement these sales efforts by leveraging a captive marketing asset: their customers.

By taking a systematic approach to referral business, a company can keep its pipeline brimming with prospects. John Jantsch's recent book, The Referral Engine, offers a nice framework for thinking about creating a system for generating referral leads. Joseph Jaffe's Flip the Funnel is another great read about making existing customers your most productive salespeople.

Across these books and several web resources, a few overarching themes/tips come through:

Ask for referrals at least 6 months after a customer signs on: Don't jump the gun and ask for referrals immediately after signing. Give the customer time to experience the product and/or service. This will make the word-of-mouth reference more substantiated and keep customers from being turned off by referral efforts.

Focus on a customer subset: At least at the beginning of a referral program, focus on your top 25% of loyal customers. Most companies have visibility into their customer base and efforts should be made to leverage those most in love/familiar with the company.

Think about a reasonable rewards program: One way of showing customers appreciation for referral business is to offer them a small reward. Perhaps a month of free service, an upgrade or even a gift card.

Thanking your referral base: Sending a form letter/email with a simple "Thank you" for referring business in the company's direction can go a long way towards fostering repeat referrals.

Here at OpenView Venture Partners, a Boston-based venture capital firm, we work with our portfolio companies to think creatively about enhancing sales and marketing efforts. Whether B2B or B2C, a referral program can aid a company by adding yet another lead generation tool at little cost to the company.