There was an article recently in VentureBeat about how much control the startup CEO founder has over his/her board of directors. Unfortunately, this actually isn’t true in most cases, especially for first time founders, for many reasons.
Many factors come into play in early board formation including the founder’s goals, investors, cofounders, early appointees, family, friends. A well designed board can be the critical driving force in making a startup successful; while the wrong board can create disagreements, misdirection, angry members, awkward board dismissals, power struggles and can actually bring a company down.
First time founders usually aren’t sure how to populate the board, and first money from FFF (friends, family, fools) blinds them a bit to their best instincts.
Typical Pre-Funded Board
Here is the typical order of board formation before any professional funding comes in:
1. Founder/CEO
2. at least one Co-Founder
3. FFF
then maybe…
3. a “grown up” – former boss, relative, early (non-professional) investor
4. industry luminary
This is the group that must help grow the company properly, attract professional funding and make industrial strength business decisions. Most of this 1.0 group don’t have much experience, i.e. what it means to be on a board, how to optimize it, what the points of leverage are, what a natural disagreement is vs. a problem of discord. Usually the group is not experienced or cognizant enough to optimize this asset early on.
A Better Way
Here I’ll lay out some key steps to making this organization an asset rather than one with little to negative value.
Step 1 – The Founding Team It’s fine to have the founder and maybe one cofounder on the board; after all that’s all you have to draw from. The key to success here is to STUDY the topic, learn everything you can, follow proper board.
Also, internally you can determine if and when you actually have something worthy of funding – you must have a real business that is operating – product(s), spreadsheets, a team, Revenues?; asking outsiders to get involved too early can be the kiss of death. I see this happen a lot.
Step 2 – Get Outside Help In any startup ecosystem these days there are many people who have an interest in your business. The word “Startup” now gets their attention. Among these people are professionals that can get involved as a board member, but how do you do it? Which ones should be advisors instead?
Are there consultants that help with this? If you’re near Stanford or in San Francisco, every other person you meet almost seems appropriate, but don’t be fooled. You want people who are qualified but also who come to you via an organic process – you read about them, stumble upon them, meet them.
Listen to these signals. For example, in Los Angeles right now the problem is that a majority of those you meet fall below the level of “qualified” – they’re out there networking but have never sat on a real board or led a startup. Keep asking around and you’ll find the right people. And remember, make sure you have a real company first.
Contact me if you have a going company and this is a hole for you, I’m one of the people I mention above who can help. But not if you just have an idea, or are thinking about starting a company, those are a dime a dozen.
I recently completed a short term project with ReviewInc (RI), an online review management platform for businesses to mange and enhance their review process. RI is a small Los Angeles are company that’s been in business for about 3 years with a couple of major pivots under their belt.
My role was to analyze all aspects of the company and then find their unique opportunities to “take it to the next level”. It opened my eyes to the fascinating ( never thought I’d say that about reviews) details of this market segment and its ubiquity in all important Online Marketing.
RI primarily needs to accelerate revenue growth and market share in order to build new products, increase salaries to market rate and defend their position against a large number of competitors. I found several areas of excellence as well as several more that need enhancement. In the 90 period of my consulting they made many positive changes in a short time period with their minimal budget.
> The Larger Market:
The Online Review infrastructure industry is highly under exposed in the overall Internet marketing world. When most people think of reviews, they think of negative reviews people write when they’re unhappy about their service at a restaurant or tire dealership. Even expert Internet marketers are pretty unaware of the market and its details. Until recently I was fairly unaware of this market, more focused on social, dat analytics, seo, superior web development, content management and CMS design as my priorities for Online Marketing projects and conversion. But now I realize “the review piece” should be considered in any Online Marketing strategy and execution. It’s content, social, seo enhancing and is impacting a vast majority of online purchasing.
Yelp pioneered 2.0 of this industry over 10 years ago and should be given credit for that. Now the market is estimated at over $10 billion revenue per year, probably a lot more if you include all the sub-markets and service agencies using it for their business development and product lines. It’s a lot more than restaurant reviews.
Online review management systems are an established part of the web for both consumer and B2B. In the consumer markets, 86% of all customers rely on online reviews when they buy something, and 72% of all people say online reviews are their top reason for choosing a local business. For B2B, online reviews and testimonials and becoming a requirement in healthcare, automotive, government and other industries. And there’s a ton of overlap, making the line pretty fuzzy.
No matter the segment, reviews directly impact sales, market position and business health. Yelp is the giant in the industry at a $4 billion market cap, but there are over 1,000 other review companies in all segments of business and consumer markets. Other heavy hitters are Trip Advisor, Glassdoor, Angie’s List, Edmunds.com, NewEgg.com, La Fourchette, Menu Pages, Doctor.com, Best Buy, Michelin, Cityvox Avvo, IMDB, Call a Plumber, Brad’s Deals, HotFrog Gayot.com, Rotten Tomatoes, Ripoff Report and Zagat.
It is a quickly evolving market that will continuously challenge current players, as Yelp has seen as it has lost almost 50% of its market value in the past 12 months.
> Market Segments:
Online Reviews, Review Management, Restaurant Reviews, Employer Reviews, Movie Reviews, Social Analytics, Reputation Management, Customer Service Feedback, Review Aggregation.
> Company Summary:
Saas Product launched, several Fortune 1000 customers, currently growing. Self funded to date, 10-20 employees.
> The Bottom Line:
ReviewInc. is doing a lot of things right in product innovation R&D efficiency and anticipating user needs. They will have to continue to innovate and adapt to the market and win big deals to grow to a sufficient size to be a factor in this market; they have many direct competitors. They need to be sufficiently afraid of this ruthless market and use it for motivation. As Andy Grove says “Only the paranoid survive.”
If RI wants to grow faster they will need to take the company through the chasm and make critical changes to their management team, product line and UX. Not all companies want this; they would prefer to fly under the radar, so 2015 will determine which path RI takes.
As further market proof of the power of Drupal in the enterprise, Acquia has received about $100 million in funding in the past 3 months, which puts its valuation at over $1 billion.
There’s a lot of buzz about the Amazon acquisition of TWITCH this week. As a personal friend of the original investor, I’m very happy for this transaction – after 7 years of work, repositioning, and sticking to it their vision has paid off. But that’s a different article…
Less prominent in the news, but possibly more important, is Amazon’s investment in ACQUIA. Acquia, Inc. is the for-profit company founded by Dries Buytaert, the inventor of Drupal, to support his open source project. Drupal was launched in 2001, and Acquia started in 2007. When Open Source software projects are launched, the progenitors often start a for-profit sister company to garner some income from training, support and consulting. Because they are open source. the original products can’t generate revenue, so when these OS projects occassionally blow up into phenomenons like Drupal and WordPress have over the past few years, it’s gratifying but also quite frustrating to watch others derive so much value from your baby while you toil away to lead its growth with no financial return. Plus, there are tons of expenses like servers, bandwidth, office space, travel and the time of many professionals.
Red Hat was one of the first of these types of companies bridging open source with big finance, leveraging Linux support into a profitable business, also leveraging the enterprise. They kind of invented this business model. Sun Microsystems and others almost made it happen, but they were only semi-free. Google has optimized this open source to freemium model in almost all of its products.
But Drupal has succeeded way beyond it’s original expectations. It was originally started as a college dorm project, where many of the best products on the web seem to hatch. It gained recognition during the 2004 presidential campaign when Howard Dean’s IT director decided to use it as a platform for community and campaigning. After that it quickly gained credibility and spread throughout government, and corporate America.
Drupal is now driving some of the largest and most critical websites in the world, including The White House, The Oscars, Twitter, Mercedes Benz, Warner Music Group, The Louvre Museum, The City of Los Angeles and Stanford University. Over its 13 year life the web has vastly changed from primarily static pages to dynamic database driven automated (“rendered”) web page serving, which Drupal excels at. The average website size has also greatly increased, aided by automated rendering systems like Drupal and others. The term Content Management System has become mainstream in everything from the Fortune 500 to small businesses.
Some of Drupal’s success has come from luck, but most of it has been because of strategy and excellent timing. Dries has carefully pushed the technology not to the bleeding edge, but towards the modern edge where enterprises are comfortable. He and his team have avoided many temptations to try new fads, make big changes and try to grow faster. Currently they face enormous pressure to innovate faster, and are responding with Drupal 8, which will incorporate many new modern web architectures previously not part of the Drupal platform.
Acquia has been critical in supporting, guiding, enhancing and positioning Drupal for the past 7 years. It was a startup that launched with funding from day one and has never looked back.
Amazon’s motivation in buying into Acquia is a bit more self serving. Acuia provides premium, high security, supported hosting to it’s customers, which all runs on top of Amazon AWS. Amazon can see that some of AWS most robust and challenging work comes from Acquia with Drupal. For example, Acquia runs its Drupal infrastructure on more than 8,000 AWS instances and serves more than 27 billion hits a month (or 333TB of bandwidth). Amazon has a strategic value beyond many other companies or VCs in their investment.
What will come next? Will Amazon try to acquire all of Acquia before the inevitable IPO? I think we can bet on that.
This is a very contemplative time for Buytaert – he has fierily protected Drupal’s independence and strategic positioning, taking risks but protecting his large customers from drama, can he keep Amazon and Bezos at bay? I have no doubt he will, for he is a true “Startup CEO”, even though his title is CTO at Acquia.
Here are a few traits to try to emulate if you want to be a successful startup guru. Success may be financial, fulfillment of a life goal or even altruistic. Success will begin to create itself if your heart is in the right place…
Take a look at the 9 things below and send me feedback on your thoughts.
1… Genuineness, honesty.
2… Humble openness to feedback. When I returned to LA in 2011 after being away for many years, I was smacked in the face by the volume of young startups that were in their first stages; and many of them sought me out. After a bit I noticed a dangerous trait in many of them – a false confidence and no ability to hear constructive criticism. The attitude was “just give us funding” even though I could see several fatal flaws that they couldn’t.
Being closed to feedback in itself is a sign of bad health, a fatal flaw. You don’t take all advice given to you of course, but you listen to it, calibrate it, mix it in with everything else you know that they don’t. You also have to know whom to spend your time with, many of the wrong people will want to offer advice, mostly for the wrong reasons.
3… A set of doctrines. It’s almost corny to see in many companies; they’ve worked out an internal lexicon, code words, project names to make things more unique and understandable. It speeds up communication. It
4… Taking everything from 90% to 110%. This is one I often see in looking under the hood of successful startups. It’s like a beautiful restored car that has every detail perfected when you inspect it further. The wiring, the upholstry, the under carriage – all the little details that most never see. In startups there is a beauty when you see these little things. I can think of many startup companies
5… Belief in the Idea. Belief that you have something unique, that the world, or part of the world, really does need this new thing/method/service. This is a key factor in many of the successful kickstarter products.
6… The journey is the reward. The #1 request I get from would be entrepreneurs startups is ” how do you do it, what does it take to build a successful startup, what should I do differently? They want all of these answers in one sitting, over lunch, and then want to go off and pour them on top of their startup like syrup. Great questions, but it doesn’t work like that. My answer is this… Get up every morning, work very hard (see 3. 90 to 110) make the best decisions you can, cry a little bit, then do it again the next day. Do that for several months continuously. Enjoy the process with its imperfections, if nothing else you’ll create a rhythm for yourself and your team.
7…Self Confidence. This is the most important trait of all. Unyielding confidence, an authentic, real confidence that comes from deep down inside is what takes you through the bumps and setbacks. Think of a topic you know that you have down cold. Nobody can tell you you don’t know this.
Not false confidence, that will do the opposite and cause failure.
8… Location. Being located in the right ecosystem helps foster self confidence; you know it can be done there, there’s success in the ether, those ahead of you help you make things happen, critique you,
9… 5 Best Friends. You want 5 people in your business-sphere that you can go to, brainstorm with, respect, and drive your progress. They must be influential, cognizant, and you must reciprocate, pay it forward. Don’t compromise here. If you don’t have 5 then go find them.
Last week I witnessed again the difference between 2 people meeting in person compared all other forms of communication we currently employ.
It’s amazing to see the power of the connection between 2 people in proximity to each other. In the startup world, it seems to be winning over the bits and bytes style. I’ve discounted the value of face to face recently as much as anyone, leaning heavily on asynchronous electronic communication for much of my business and personal life, and even using broadcast communication (twitter, Facebook, LinkedIn, Pinterest, email, …) to replace individual communications. But we all should rededicate ourselves to the face-to-face – the random, the first time, the networking, the required, the “have a good weekend”. Connecting on LinkedIn or FB is great but usually leads to few subsequent actual interactions. Apple’s face time is bridging the gap nicely, but still isn’t the same. Meetup.com and Eventbrite, founded on this principle of meeting in person as a response to too much Internet meeting, has helped to spawn, grow and change thousands of startups.
So, back to last week – at a startup mixer I was walking past someone headed to my seat, and we kind of got stuck in the crowd face-to-face. He had on a name tag, I didn’t. We couldn’t move. So he stuck his hand out to say hello, and we wound up talking for 10 minutes and definitely made a bit of a connection. We found several things we had in common, most people do. Since then we have met and emailed and referred business to each other, all from a semi-random meeting.
We never would have connected otherwise. If we saw each other on the street or lived on the same block we probably would just walk on by. So get out there, go to things that you like and are interested in. Barriers will melt. @tomnora
