Startups

ontariocreativeage

15 Feb 2009

0 Comments

Getting Creative – “Yes We Can” or “Mind the Gap”?

In today’s challenging economic times, it is extra important for governments, academics and individuals to plan our future economic prosperity. Thus, it is timely that Richard Florida and Roger Martin from the Martin Prosperity Institute, Rotman School of Management, University of Toronto this month published Ontario in the Creative Age, which provides a detailed future-oriented policy blueprint.

It sets a policy agenda to help us unleash our full potential in the Twenty-first Century where economic success is increasingly coming from creatively-oriented enterprise versus our traditional strength in routine physical and routine service occupations. The report is backed by research which highlights both our existing strengths and weaknesses including those in education, income and even the gap in our creative/routine job mix compared to our peers. Starting from the base of today, the agenda suggests four main focus areas to drive future prosperity:

  • “Harness the creative potential of Ontarians”, including businesses’ role in changing job mix, education and even marketing of our capabilities,
  • “Broaden our talent  base”, focused on  significant increases to our post secondary educational levels and broadening managerial capabilities,
  • “Establish new social safety nets”, including early childhood development, better utilization our key immigrant resource and retraining of older workers from declining occupational groups, and
  • “Build province-wide geographic advantage” which strengthens connections (physical and otherwise) within and beyond the mega-region spanning Waterloo-Toronto-Ottawa-Hamilton-Niagara-Rochester.

Having read this paper, it is encouraging to see such a forward thinking analysis that will certainly drive future governmental, business and economic decision and policy making. With that in mind, and being of an optimistic “yes we can” mentality, I was, however, struck by how very little attention was paid to the biggest gap of all — Funding this agenda.

Without proper funding, our ability to transform our economy in these wise and necessary ways, will go unfulfilled. I’ve written about this “funding gap” numerous times and from different perspectives:

I’m certainly not alone in this concern. Many others in positions of thought leadership have raised the issue of funding of investment, some with very specific policy proposals and others just highlighting the gap:

  • communitech-logoAvvey Peters from Waterloo’s Communitech blogged about Magic Words:  Economic Stimulus right before the Canada’s Januaray federal budget, and her post contains some very specific policy measures.
  • MaRS Discovery District - Where Great Minds MeetDr. Ilse Treurnicht, CEO of MaRS Discovery District, a leading Ontario driver of research and commercialization, provided a well-researched analysis of the major institutional and venture funding gaps of Canada compared to other jurisdictions in their latest newsletter.
  • Calliflower - A fresh approach to business conversationsAlec Saunders, CEO of one of Canada’s most promising web/mobile startups, Iotum, addressed the tech startup funding gap in the context of the proposed federal stimulus in his blog post Tech in Canada: Can We Do More Than Play Hockey? Also, a number of international discussions of technology competitiveness have been hosted on their innovative Calliflower service.
  • Peter Childs of BarCamp Ottawa & StartupOttawaPeter Childs, an Ottawa social media strategist and tech luminary, has laid out a framework Tech in Canada: Peter Child’s Framework  for Stimulus

Make no mistake, having surveyed funding sources for startups and social enterprise, Ontario (and Canada) significantly lags most regions in the US and Western Europe — our primary OECD comparables. The reasons for this are numerous and will be discussed in a separate posting, but this funding gap is our extra hurdle before we can be successful in driving the Florida/Martin challenge to transform Ontario to a creative economy.

And to be clear, this transition to the creative economy needs to be driven by the competitive, market economy. That implies that it will not the primary role of governments to provide the major funding for our transformation. Fundamentally, governments should not be picking winners and losers, but simply equiping market forces to go to work. And, given our long history and culture of relying on governments for answers, it is important to clarify that point. With the right framework in place, businesses and individuals will compete to drive the path to our future.

Thus, as their primary task, it is imperative that our federal and provincial governments develop a strong and co-ordinated policy framework, dealing with taxation, security regulation, and the like, to encourage the private sector to make such investments. And, in our current times of economic stimulus, the extra icing on the cake should be to channel some of those near term stimulus dollars toward growing the creative sector that is so essential to our future economic prosperity.

By: , , , , , , , , , , , , Tags: , , , , , , , ,
social_media_chaos

17 Jan 2009

0 Comments

Choices, Choices – Sorting Out Social Media

“Editor: a person employed by a newspaper, whose business it is to separate the wheat from the chaff, and to see that the chaff is printed.” – Elbert Hubbard

Being an inveterate early adopter, and loving the fusion of new research and web reach coming from the innovation in social media (see Science Fairs, Social Media & Fads – The New Science for the 21st Century), I decided to seek help of the blogosphere to sort out the social media wheat from the chaff.

Mark Evans recent tweet about Tumblr, made me try out yet another social media property. It could be interesting, but only time will tell.

And yet, with so many out there, I never know which are going to have personal value to me and, even more important, have staying power in a very crowded market. One thing is clear, especially in these lean times for tech financing, and that is that there will be long term consolidation. Therefore, I’d like to seek your help in predicting the ultimate winners and losers, and so . . .

PLEASE CAST YOUR VOTE:

[poll id=”3″]

[poll id=”2″]

By: , , , , Tags: , , , ,
cibc_ent101

14 Dec 2008

0 Comments

Ray Simonson Video Replay of MaRS Entrepreneurship 101

I wanted to share a great presentation by Ray Simonson who spoke on December 3rd, giving a “Lived It” talk as part of the Mars Entrepreneurship 101 lecture series at MaRS Discovery District in Toronto.

I’ve known Ray for a long time and, not only is he a great guy, but he’s an amazing storyteller. Certainly Ray’s stories can serve to inspire and educate any budding entrepreneur. Ray is forthright, having seen his share of challenges along the way, ones that might make a less determined person pack it in.

Ray SimonsonRay Simonson

Since 2004, Ray and I partnered through Verdexus to acquire then build the company now known as Coreworx (formerly Software Innovation). Since its August 2008 acquisition by Acorn Energy, Ray continues as CEO of a growing business.

This recent lecture, focusing on Ray’s first exit at BlueGill Technologies,  was taped and the video located here:

Lived It Video by Ray Simonson

is well worth the time to view. The site requires you to provide your name and email to access the video.

It’s part of a great, non-credit course to encourage and educate new entrepreneurs with real life experience. You can find out more about it at the MaRS CIBC Entrepreneurship 101 Lecture Series site. You might want to sign up for this series, but they don’t come much better than Ray’s recent talk.

By: , , , Tags: , , ,
free

29 Nov 2008

0 Comments

Business Models: Subscription vs. Freemium vs. Free in Lean Times

Have you invented a killer application that people will use in business or their personal lives on a regular basis? Are you ready to implement a great web/mobile experience in the context of building a web startup business?

Now what? You’ll want to evolve a business model that helps viral adoption, yet still allows for effective monetization of your great new application. Below are the three main web-based models you may wish to consider:

1. Subscription: This model involves a per monthly charge for a service and generally uses traditional and web approaches to customer acquisition. A conservative approach, this is simply a Web 1.0 conversion of traditional selling models to the online world. That being said, many great businesses have thrived using this model, because in principle, cash flows can commence very quickly.

Free2. Free: Since the early days of the web, sites like Yahoo!, and more recently Google and Skype, based on web economics and culture offer a high level of service and utility for the amazingly low price of free. Free continues to be the pricing model of choice for consumer web users. Notwithstanding the lowered costs to provide such services, the old adage of “make it up in volume” doesn’t get you very far toward cash flow positive. That’s one of the key paradoxes of the web, how to balance consumer desire for free with the need to make money.

3. Freemium: As a hybrid of Subscription and Free, this model was first popularized  in 2006 by Fred WIlson of Union Square Ventures. He describes it thus:

“Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”

Web services like Basecamp from 37Signals or LinkeIn are successful examples of the Freemium model. Few people realize that LinkedIn, which most people see as a free service, generates over $100 million in revenues from people who chose a premium ofering, special services for the recruitment industry, and some ad revenues (that serve to subsidize the free offering). With an industry average Free to Premium conversion rate of 3%, the Freemium approach, if designed and executed well, can be quite lucrative.

Freemium can be a great way to lower the costs of customer acquisition, provided that the free piece isn’t too expensive to deliver. Well designed offerings which tap into viral social media and user generated content can generate significant customer pipeline to the free service at reasonable cost

No startup entrepreneur needs to be reminded of the challenges of financing during this current economic turmoil Notwithstanding that, as I pointed out in Counter-cyclical Optimism, it may be one of the best times to launch your great new innovation into the marketplace.

One of the key success factors, that we’ve long espoused as part of our Venture 2.0 approach, is to keep the cash burn lean. Now, we would add to that the requirement to race as fast as possible to cash flow positive. The approach of low cash plus high speed is not often the ideal way to dominate a market, but it can shave hundreds of thousands, or even millions, of dollars off the cost to build an online business, thereby reducing the current financing risk.

I would assert that this dynamic is forcing some difficult, and possibly counter-productive choices. It goes without saying that it will be much harder to finance purely Free startups in this climate. Well known Web 2.0 companies like Twitter and AideRSS both fall into the “hard to monetize” category. Although they could drive small amounts of ad revenue, that might well distract from the experience enough to annoy users. It may well be that such businesses simply need to “find a new home” as a plug-in to a larger company with a well established business model. Thus, if you plan to build a purely Free business, you need to plan to build for the lowest cost from zero to exit, to reflect the fact that exit valuations may be impaired over the next period. Furthermore, it is unclear, unless you have a rich sugar daddy, how you will fund the burn until the exit.

For those businesses that lend themselves to the model, Freemium would seem to be the ideal choice. There are some major questions such as:

  • what to give away for free and what to make part of the premium service
  • whether to start with the free offering and build a loyal base or start premium, then later add the free piece

Fundamentally, you must find a way to a to accelerate the drive to cash generating premium subscribers. It will almost certainly mean finding accelerators to the business model to drive your premium adoption while lowering the costs even further in your (already minimal) monthly burn.

Solve this, and as a startup, you have strategic options. You have potentially built a great cash flow positive business, but also increase your likelihood to beomce a strategic acquisition target for a more major web or mobile player. Crack the code, and It’s a great recipe for success.

By: , , , , , Tags: , , , , ,
optimism

23 Nov 2008

0 Comments

Counter-cyclical Optimism

 

Is this a good time for startups? In the midst of the greatest financial turmoil in most people’s living memory and with several posts about the challenges of startup finance, it’s time to counter with an optimistic message about startups.

Perhaps I’m sanguine, having almost always raised capital against some of the worst macroeconomic cycles, such as the Asian Financial crisis in October 1995,  the Quebec Referendum of 1997, not to mention the technology meltdown of 2000. In the end, although closed at less favourable valuations, the financings got done, proving to me that businesses can get built in the midst of even the toughest economic and market conditions.

These experiences taught me that perhaps the best time to launch a startup may well be in an economic downturn. As counter-intuitive as it may seem, it worked for well known companies like Skype, Google, Expedia and Apple’s iPod. Here’s why.

First of all, innovations which involve disruption to existing pricing models, are likely to be most successful during economic downturns. Businesses and consumers, looking for ways to reduce cash burn, are way more open to new ways that optimize their cash burn. Startups need to focus on this fact at such times.

Sam Palmisano

Secondly, tough times mean less competitive pressure and marketing noise. With fewer over-financed competitors to deal with, getting noticed is easier and customer acquisition costs are significantly lower.

In essence, as Sam Palmisano, Chairman and CEO of IBM says, “win not by surviving the storm, but by changing the game”.

Mark Organ, founding CEO of Eloqua, tells of the challenges of raising his first angel round in April 2000, during the tech meltdown. Closing that round was discouragingly difficult. That being said, by making small, measured investments around a fine tuned strategy leveraged by working with SalesForce.com, he and his team, built the business during very difficult times for software businesses.

This is great news for Verdexus portfolio company Iotum, which launched the premium service of Calliflowerb on the west coast at Under the Radar – Mobility a week ago. Check it out. Right now, when cash is king, the integrated features and disruptive pricing could save your company money on all those online meetings and conference calls.

In the end, most entrepreneurs are have strong passion for what they do. They are accustomed to swimming upstream and being considered contrarians. And, as we’ve shown, many times such contrary times are the best launching innovative startups.

By: , , , Tags: , , ,
iphone-early-adopters

13 Oct 2008

0 Comments

Digital Policy #3: Startup Investment and Taxes

During the current credit crunch, you can imagine that getting startups financed is a big challenge. And, you’d be totally right. In Canada, with our rapidly diminishing venture capital system, startup financing was tough long before the current financial situation.

Yet, for our economy the healthy generation and regeneration of young companies is a motor that drives our future economic well being – or doesn’t. The startup economy represents the most likely path to diversify beyond such industries as automotive manufacturing (a just over 100 year old industry), not to mention to find the next Research in Motion’s.

Hot sectors like web, mobile, green technology and life sciences, transform knowledge and research into valuable commercial businesses via a healthy appetite for capital. In another post, we’ll examine why, particularly in Canada, there is less insitutional capital, such as venture capital, available to these startups. We’ll also examine issues like international visibility of Canadian technology, LSIFs, historical returns and the like.

With institutional capital frozen like never before, we are reliant upon angels, high net worth individuals, strategic investors and friends and family like never before to build our startup future. As a result, I’d like to focus on measures that our federal and provincial governments can take to increase capital investment flowing to startups.

Here, in no particular order, are a few sample issues with our tax system and recommended approaches to removing such barriers investment:

  1. Simplify those parts of our tax system, such as the necessity to have complex and expensive Exchangeable Shares to implement many cross border structures and M&A transactions. In particular, many startups build Canadian-based global business and, as such, need to have global (often US) structures around Canadian-centred operations. Right now, the strctures necessary to achieve global value, are unreasonably expensive.
  2. Likewise, the key Scientific Research and Experimental Development (SR&ED) refundable tax credit is critical for many early stage companies. The costly structural intricacies of keeping Canadian Controlled Private Corporation (CCPC) status through many cross-border and financing transactions needs to be simplied. Almost every company I’ve worked with or invested in has spent tens (if not hundreds) of thousands of dollars in CCPC workarounds.
  3. Many common early stage investment approaches, such as convertible debentures, can be a challenge for angel investors. These typically pay a “coupon rate” of interest which is almost never actually paid out, but instead converted into additional equity in the early stage business. Although received in equity rather than cash, CRA treats this “accrued interest” as income. While many individuals and big institutional investors with their Limited Partnership structures generally get tax deferral on this accrued interest, simpler corporate and holding company structures don’t. The increased legal and accounting complexity to work around this often acts as another barrier to early stage investment.
  4. Many of the issues that affect employees and management of startups that we discussed in Digital Policy #2: Taxing Talent Down the (Brain) Drain also intersect with the angel investment community. For example, many serial entrepreneurs adopt a “hands-on” investment model in which they invest both talents and returns garnered from previous successes.
  5. Ideally, without the government getting into the problematic business of “picking winners”, taxes could really jump start investment. For example, a tax strategy to allow tax free “roll overs” on gains from one investment to be injected into another business without triggering the gain, could be extremely effective. In this model, the tax would be payable only when the money was taken out of active investment.
  6. Going even further, instead of LSIFs, tax policy could be designed to top up certain qualifying angel rounds. Clearly good design would be essential, but the main strategy would be to piggy back on investment decisions and risks being taken by investors. This could be implemented either as a tax credit (as with LSIFs) or potentially through a separate matching investment body which would back existing deals.

A direct outcome of undue tax system complexity, is that it acts as a brake on investment. As a country our future depends on healthy investment in the businesses that will build future prosperity. We are a nation of talented, global thinkers. But, without the capital to harness that passion and energy, we risk losing the economic strength we all have come to take for granted.While it may not be the sexiest topic during our current campaign, this area may well be one of the most important.

By: , , , Tags: , , ,
talent-tax

18 Sep 2008

0 Comments

Digital Policy #2: Taxing Talent Down the (Brain) Drain

The knowledge based economy is all about businesses finding, motivating and retaining the very best talent. And the quest for top talent goes way beyond the lofty C-suite and includes top developers, product managers, sales people, marketers — i.e. pretty well everyone in a knowledge-based company.

I personally view building talented teams as the number one determinant of business success

Technology startups tend to use stock-based compensation, mostly Employee Stock Option Plans, most liberally in part as a way to level the playing field in competing with larger companies in the talent search and in part because the “lift” in value as startups grow from zero to exit can be quite significant.

With that in mind, it is ironic that stock options were originally adopted as a key strategy in the Silicon Valley employed to leverage equity in cash-strapped startups and because of their tax efficiency. Today in the US, and even more so in Canada, they can also be a real headache as people negotiate the tax maze of CRA and IRS.

The labyrinth of unfair taxation problems relating to stock options is unbelievably complex, and more importantly, potentially punitive. And, it is important to note that this issue doesn’t just affect founders and senior management, but can cause real stress for all levels in a corporation. This issue is agnostic to level.

Typical problems are:

  • Option Gains Taxed at Employment Rate: Counterintuitively, the CRA taxes gains on stock options at the rate of employment income, rather than as a Capital Gain which is half the tax rate of employment income. There are special rules and exemptions which attempt to drop the tax rate down to be equivalent to a capital gain, but the the sheer complexity of the Income Tax Act means that this system fails far too often. You’d get a capital gain investing in the stock market, so why not in your own company?
  • Taxation on Phantom Income: It gets worse. There are numerous cases where, depending on the timing of a rise in stock price relative to stock option exercise with the actual redemption of the stock at a later date and lower price, an employee can be taxed on gains that they don’t actually receive. In other words, CRA demands tax on monies never received. One egregious example reports “a single mother of two children who sold her options stock for $2000 and was taxed $50,000.”
  • Cross Border Issues: There are many tax provisions that work in Canada, but completely break down when companies are structured across borders, such as between US and Canada, which is very common. Furthermore, cross border acquisitions, which are extremely common, are a real source of taxation headache, not to mention generating unnecessarily complex structuring costs.

For those interested in a deeper understanding of this issue, some sources containing extensive analysis and documentation of the anomalous world of unfair talent taxation are:

Clearly, such taxation is unfair. But, more importantly, it is an example of how a complex and inadequately debugged taxation system can put a significant brake on our future economic development. It is important to understand that this is not about people paying their fair share of tax. Instead, the issue stems from complex rules that create surprisingly unfair outcomes that, because they are codified in taxation law, must be enforced. Only governments have the power to fix these serious anomalies.

Future economic prosperity in Canada will be driven by successful knowledge based businesses, and thus we should be encouraging our top talent to be motivated to work long hours and provide the motor of the economic growth provided by knowledge based startups.

While it may never top of the charts in the current election campaign, in fact, this taxation issue might well be one of the most important for our government to address. Is anyone in Ottawa listening? The current election provides citizens a great time to engage and educate politicians of all parties in this issue.

By: , , , , Tags: , , , ,
moneybags

31 Aug 2008

0 Comments

How to Get Rich Quick With a Startup?

It’s surprising how often an aspiring entrepreneur or young technology executive has tried to pitch me with that implicit proposition. And, guess what? When I hire executives, invest in a company or otherwise have to work on the same team, such “get rich quick” rhetoric suggests the best course is to steer well clear.

The notion that a real business, with lasting value, could be built in a few months or years seemed to take hold, like much else, during the heady “tech bubble” days of the late 1990’s. I can recall one such aspiring entrepreneur telling me that “we should be able to flip this business in 18 to 24 months”.

Why is such hubris a problem? For starters, it shows a healthy naivety around the amount of real work and time it takes to build a great business. Of course, there may be exceptions. Against the odds, some people winn the lottery. Likewise, in normal times, some seem to be able to build and cash out in record time. In my book, that’s largely serendipity. In addition, this short term perspective, almost always accompanies inexperience around the twists and turns that cause most business plans to take longer than originally anticipated.

And, more fundamentally, I got involved in software and technology originally as a passion. I remember saying in my early days that working in computers was “so fun, that I didn’t need to be paid for it.” Every company I’ve ever started, worked with or invested in has become a personal passion of mine. I strongly believe that long term success is rooted in passion more than money. Furthermore, it is my personal experience that almost every long term successful technology entrepreneur has shared this characteristic.

For those set on the notion of “get rich quick”, there’s still the lottery or Texas Holdem, the probabilities notwithstanding. But, building a great business almost always takes a tremendous investment of time and effort.

By: , , Tags: , ,
ian-maclellan08

21 Aug 2008

0 Comments

ARISE Fair Sun …

The reference to Romeo and Juliet was apt when last week I had the pleasure to meet with Ian MacLellan, of ARISE Technologies (TSX:APV)

The Founder of ARISE, Ian is now Vice Chairman and Chief Technology Officer and I met him just after a great quarterly release to the public markets.

Having worked tirelessly for close to 12 years, Ian is a living example of the qualities we recently outlined in a set of blog posts entitled “Entrepreneurial Toolkit”:

  1. Fearless Passion
  2. Don’t Drink Your Own Bathwater
  3. Embrace Change
  4. Taste the Cash Burn
  5. The Power of Two (or Three)

First of all, rarely have I seen someone more passionate about a business vision than Ian. His company vision, almost a mantra, is to “take solar mainstream” and that hasn’t changed since Ian first explained ARISE to me many years ago. In fact, I believe it was the founding vision way back in 1996. Indeed, even the company name itself, shortened from “Appropriate Renewable Intelligent Sustainable Energy” is a passionate embrace of Ian’s vision.

Having pioneered in the solar industry long before Green Technology was fashionable as it is today, particularly in Canada’s challenging technology funding ecosystem, meant that the company was forced to run on fumes for many of those formative years. By watching cash burn like a hawk and by being able to sell and articulate the vision clearly, Ian was led the charge to fund those early days. Indeed, Ian spent significant time in fund raising mode for many of those years. In our investment climate, this is something almost all early stage technology companies will easily relate to. I would credit Ian with more persistence in riding through a challenging funding environment than almost any other entrepreneur I can think of.

As an early ARISE advisor and investor, it was instructive for me to watch Ian lead a charge which necessitated navigating through a number of key stepping stones to attain their current status as an advanced solar manufacturer. Now they produce both proprietary PV solar cells in Germany and refine specialized solar-grade polysilicon feedstock in Waterloo. As part of the means to an end, ARISE acted as a distributor/reseller of solar components. As well, they honed their brand and expertise by integrating solar systems into a number of, primarily residential, projects. Although this potentially diverted much energy and focus, it was necessary to generate awareness, cashflow and to be ready when the market was ready for ARISE to ramp up production of their proprietary products.

Today, having raised over $100 million in financing, which is in itself a rare feat in the cash-starved Canadian technology ecosystem, ARISE is growing at breakneck speed. They will transition from effectively a pre-revenue state to a projected over $40 million revenue from commercial solar production during 2008. Such rapid market expansion requires scaling of all aspects of the business, including significant increases to their management footprint. Unlike many founders, Ian was ahead of the curve, both in recruiting A-team talent into CEO and CFO positions, but also refining his role into a long term role where he can have the highest value to this growing Canadian success story. Other entrepreneurial founders could do well to learn from people like Ian. Although it’s sometimes hard to “check your ego at the door”, building great companies is all about great teams as imposed to superstar individuals.

Kudos to Ian and the great team at ARISE. We’ll be watching this Canadian-headquartered global success story closely.

By: , , , , , , Tags: , ,
power-of-two

11 Aug 2008

0 Comments

Entrepreneurial Toolkit #5: The Power of Two (or Three)

As an investor, the most important lesson I’ve learned over the years is that great companies are built by great teams. Furthermore, great teams rarely are one superhuman “A” player surrounded by a supporting cast of “B” players. And unlike the Borg Collective which seeks to “… add your biological and technological distinctiveness to our own”, great management teams need to have a set of complementary, yet overlapping, skill sets.

Most of us know the example of how Steve Wozniak the brilliant hardware designer teamed up with the uber-persuasive Steve Jobs to create Apple, an iconic Silicon Valley startup success story. While that partnership didn’t last forever, it’s pretty clear that the fusing of the talents of these two brilliant individuals directly led to Apple’s early success. I encourage you to read more in a “must read” book  I’ve recommended earlier, Founders at Work.

Jim BalsillieMike Lazaridis

Here in Waterloo, Research in Motion (RIM) would not be today’s superstar company unless Jim Balsillie joined engineer, founder, Mike Lazaridis. Until Jim joined Mike in the early 1990’s, RIM had long remained a typical engineering oriented company doing about $500 000 annual revenues from 20-odd products. Although Jim could never have built the products, his introduction to the management brought the marketing and financial drive and focus that ultimately led to the Blackberry led success story we know today. Rather than the cult of the individual, once again it is the power of this amazing duo that built RIM.

What is unusual about this case is that both Mike and Jim share the title CEO, billing themselves as co-CEOs. Perhaps more companies should consider this approach?

Reed Hastings

Back in 1995, as MKS was starting to look to the capital markets, one of my personal inspirations, Reed Hastings CEO of Pure Software (and now Netflix), observed that “Pure Software has built a team where any of the senior management team could be CEO”. I certainly took that approach to heart when building MKS’s great team and it has been an important insight ever since.

For example, Chuck Bay, who was Pure’s CFO at the time has subsequently gone on to be CEO Broadbase Software (acquired by KANA) and President and CFO of Spatial Technology. Rob Dickerson, who was VP & GM of Developer Tools for Pure, a key operationally focused executive, subsequently became CEO of Faves and President, CEO of Pacific Edge Software (acuired by Serena Software) and EIR at Ignition Partners. These are just two data points illustrating the calibre of the team Reed built at Pure Software.

At MKS, we managed to build an amazing team, especially in the mid-late 1990’s with superstars like Ruth Songhurst, Eric Palmer, Tobi Moriarty, Michael Day, Frank Pfeiffer and Paul Laufert. It was a great mix, with stars from Canada, US and Germany. As well, almost uniquely, we had a balance of the genders. It is a big disappointment to me that I continue to see how rare that is.

To round out our discussions, anyone wanting a deeper grounding in this important topic should read the book Co-Leaders: The Power of Great Partnerships by David A. Heenan and Warren Bennis, John Wiley & Sons, 1999. With the thesis that great organizations need “more than a visionary CEO”, the bookoutlines the rare, but critical, role building a strong management team takes in building exceptional companies.

To summarize this book, in the authors’ words, “Co-leadership . . . is a tough-minded strategy that will unleash the hidden talent in any enterprise. Above all, co-leadership is inclusive, not exclusive. It celebrates those who do the real work, not just a few charismatic, often isolated, leaders who are regally compensated for articulating the oranizations’ vision”. Although, like many it has taken me years to learn this valuable lesson, I couldn’t say it better myself.

There are lots of detailed case studies, from companies in many industries, with a few key lessons for co-leaders, including:

  1. Know thyself
  2. Know thy leader (check your ego at the door)
  3. Avoid titanic clashes (!)
  4. Find out what the enterprise needs and deliver it superbly
  5. Lead as well as follow
  6. Know when to stay put (control the temptation to star)
  7. Know when to walk away (learn when to say no)
  8. Define success on your own terms

To reiterate, great companies are almost always built by great teams. As organizations and markets get more complex, I believe co-leadership will become increasingly the norm. For smart and successful people to control their egos takes a lot of maturity. Furthermore, the ideal team depends, in large part, on the stage and growth of the company. As I’ve learned, great teams take a lot of work to build, but can also dissipate over time. Indeed, they are a rare and fragile flower, to be cultivated constantly.

Nonetheless, it is definitely worth any entrepreneur’s full time and attention to unleash the power of the team – whether a gestalt of two, three or even more remarkable individuals.

By: , , , , Tags: , , , ,
1 2 3 4