Why CEO’s don’t blog - are you mad?

Kiruba bemoans in BS – why CEOs don’t blog?

He cites reasons like fears of blurting their hearts out, reprisals by readers to simple strapped for time.  Those as appear on the surface.  Not all are Lou Gerstners and Jack Welches.  Don’t even come a thousand miles close.

Let me amplify. How did he miss out on the typical CEO fear – of exposure of personal inadequacies, inferior intellect, analytical skills. Many CEOs run on the steam of excellent teammates. Individually they shine in the reflected glow of star teams.  Most are bad articulators. Many are great pretenders that lucked out and just get by.

Yet another reason is their priorities. A professional CEO is bent on spending 3-4 years in a company, appear in the media on some silly pretext (boss’s day out? It’s ok even if it means having to walk with an androgynous, plain chested, walking stick of a reporter appearing to play Golf) and wait for the head hunter to show up with the next nest to perch, next bunch of shareholders to con.  Who wants to blog? Why bother (and run into trouble)? 

CEO spends about a couple decades like this and move into (what else?) Private Equity firms.  Where you can squander other people’s money and get paid - generously.  Those that are destined to be team members slug it out, wilting and brooding over their lost opportunities that get usurped serially by the lousiest of the lot that just happened to be the luckiest bastard in town!

Get the best out of launch events

Says Paul Williams of Marketing Profs -

“Marketing programs fail because we don’t think through what it actually takes to make a new product, service, or store opening exciting and relevant enough to attract attention and motivate action….

We’re so wrapped up in our own excitement we develop a “if we build it he will come” mentality, losing sight the average customer really doesn’t care about our new thing… especially not enough to attend the ribbon cutting.

So that’s our problem… What are potential solutions?”

To make it “cross the threshold from ho-hum to possibly exciting to a can’t miss event,”…. Paul suggests a few broad hints.

Host the event at a time when (s)he could easily attend. 

Those nagging flyers under the wiper don’t fly with people. It bugs them no end especially if they are in a hurry when this flyer becomes an eyesore.  Neither does print ads, direct mail bring in attendees.

Special offers?  An year of free subscription to those who attend the launch? Seems it will work. 

So communicate in a way that gets peoples’ attention.  Deliver some value upfront.  Be relevant enough for potential customers to set their alarm to attend the event. 

So when are you launching your designer jewellery store?  What’s up on offer

.

“So if you can’t take a company public, how do you get out?”

Asks Fred Wilson.  Fred contends that the IPO market has been languid since 2000 and to sustain the current pace of innovation financing, VCs need a new route to exit their investments. M&A have lost momentum. The acquisitions by Google (YouTube, Feedburner), Microsoft (Facebook), AOL (Takoda) and Yahoo (Del.icio.us, Flickr) have flailed post acquisition.  Soon this window too will be shut.

So Fred suggests a new path to liquidity.  I quote –

“This topic came up in the comments to my Decline of the Firm post and one thing that was mentioned is Goldman Sachs’s GS True market. As my friend Roger Ehrenberg (author of the awesome Information Arbitrage blog) explains on Seeking Alpha:

But now there is a new game in town, and it relates to IPOs: Goldman Sachs’ (GS) GSTrUE (”GS Tradable Unregistered Equity OTC Market”) program.

It turns out that there is another private liquidity market under development called Opus-5.

The idea behind both of these new emerging (and currently illiquid) markets is to provide a place for private equity investors to trade securities with each other. The companies remain private, do not have to file with the SEC, and do not trade daily like public stocks do. When an entrepreneur or investor wants liquidity on a position they own, they come to these private markets, offer their position or part of their position for sale, and a trade is made.”  (Hat Tip : Narain)

Huh, is that so simple?  I see some basic flaws in such private exchanges.

a) Signals despair : Private exchanges have no market makers; and hence no two way quotes. The very fact that a VC investor is putting up his stake for sale declares (a) the investment has turned bad; or (b) the investor is in a hurry to exit. There is only an `ask’ and without a counter `bid’, VC has bared all her cards. Out goes her bargaining power.

b) Disillusions founders: Founders look up to VCs to provide them strategic support, connections and mentoring. If VC stakes change many hands, the founders lose orientation and may even stray. They feel they’ve been taken for granted.

c) Tax treatment of Income : Trading thro private exchanges meant for a special category of investors like VCs will make them ineligible for concessional tax treatments (capital gains / business income) available to traders in public markets. Proceeds from such divestments may get treated as windfall / speculative income – that could suffer far higher rate of tax.

d) Cartel plays : It is possible for a group of high networth investors to get together and indulge in price manipulation or badger a VC into submission. All they need to do is quote their bids in unison with a time stamp. Take it or leave it.

A better way I think, is [to let VCs like Fred not have post-selloff remorse] is “stock warehousing”. VCs can found a platform with high networth investors and build a fund that offers liquidity in lieu of stock placements, with a promise to take them back at a later date at a pre-determined price. Just have a neutral body for valuations. VCs get liquidity, they don’t forego control and the business is run as usual.

 .

 

Why investors don’t trash deals I drive

One reason why VC firms earnestly look at deals that I drive is not just their faith in my level of competence, scrupulousness and fussy due diligence initiatives; they come with “I-know-the-entrepreneur” stamp.  Ho-Hum, how does that matter?  Read this.

Some of my favorite principles in screening deals –

a.   Premium on experience – I avoid teams that has just youthful enthusiasm.  I would any day place a premium on experience.  A venture backed by a mature team that has deep domain skills and expertise is always, always better than a bunch of upstarts with hollow passion.  The youthful team may certainly have some `cool’ quotient about it, but I would settle for teams that have a higher chance of hitting big time.  Youth loses its cheer after first few setbacks that can’t be wished away; experience is more resilient. “It’s my investors’ money on the line; that’s as good as my own.”

b.   Fee Filter – “Can’t afford $2500?  Don’t suck up.” That’s pretty much in-the-face, right?  I wouldn’t have it any other way. Teams that start up with scanty bootstrap will not survive to see beta, is what I think. No point in wasting precious time with teams that want `FREE’ consulting; “brainsuckers” as I call them.  So I quote my engagement fee upfront that gets rid of a lot of milk babies and some nags. Most beavers don’t ping back (and serious teams do sign up).  Seldom do they get far in their venture if they can’t engage a $2500 independent professional to scan their faint idea, vet up the opportunity, run viability checks, beef up with industry survey, forge out a sound business plan after several rounds of brainstorming and vouch for the team before connecting them with an investor that has a fair grip over the domain.  “All of this costs money, pal. So, call me only when you’re ready.”

c.   Technology that sells – Most founders begin with a big fuss over their technology.  Scratch the surface and you’ll find that it is the 25^th idea with the same theme.  I tell them openly it’s of no use unless their business model screams customers. Keep your tech to yourself; give the customer a sexy application that rids him of worries, costs and complexities. “Does your tech do something of the kind?  Then let’s get talking.”

d.   No investor bets on vaccum - Technology business is not loaded with physical assets to salvage sunk capital. No large swathes of land, building or fixed assets as in a standard manufacturing operation. The big bet is on the juicy idea and execution skills of the team.  If your project is meaty on these lines, you’re sure to get funded as well. I don’t mince words. I advise them to save up, start something small and then pitch for the next big thing.  “Do yourself a favor; stick with that sucky job.”

e.  Track record – “How many deals have you closed?”  This question makes me smirk.  You don’t close startup deals with investors as fast as you do large Private Equity deals.  PE deals are closed faster because it is done with listed companies that have a track record. To that extent, the risk is limited. Investors get to control a real business. They can replace the sloppy CEO with the best-of-breed that can turn fortunes around. But startups are concept bets. They take time to mature, undergo cycles of refinement that makes the diligence process tighter and hence, tardier. I don’t let them pitch unless I am satisfied of their pitch worthiness. Then investors come up with their own set of observations that make them go back to the drawing board.  It’s an iterative process.  It’s gotta’ be, because in the end somebody is gonna’ put his money on the line.  “Remember, your parents refused to bet their farm!”

f.    People traits – I co-habit with the founding team for quite a while when I prepare them for the pitch.  It helps me in getting to know them personally upclose.  That awareness is essential since it yields early clues into their lifestyles, habits and attitudes which are equally important to an investor as are their domain strengths.  “Can I trust this team with my capital?“  I realize it would’ve been yielding fair returns elsewhere and I’d better give them a good reason to take it out and invest in a startup. If you move closely with the team and influenze them positively as much as I do, you most likely will get the answer - “Trust them with the best you’ve got.“

So now you know why investors don’t trash the deals I drive; why fewer deals qualify!

 

 

Getting “Lovemarks”

Kevin Roberts, CEO of Saatchi & Saatchi zigs when others zag.  No one knows what he’ll do next. 

The legend has it that while during a presentation in Canada, he took a machine gun and blew up a coke vending machine to prove to his employees and bottlers that Pepsi can go past Coke!  He is also the author of the book Sisomo – that is about Sight, Sound and Motion.  He is credited with coining a brand attribute – loyalty beyond reason – that he famously called “Lovemarks”.

Some gems from this K@W interview –

“Yoshi Suzuka, who ran Toyota for a decade, said to me 10 years ago, “Kevin, you will never know more about cars than Toyota — and we will never know more about the people who buy them than Saatchi & Saatchi.”

Companies like us now have to become very, very close to consumers. That’s complex because every consumer is different. So the whole mass reach and scale thing is gone. It’s complex because information and knowledge are now pure and simple table stakes. You will send the MBAs out of here. They will be fully equipped with information. They will be very knowledgeable about how to use it. Harvard will do the same, Stanford will do the same … they will focus very hard on information and knowledge.

What will win in our world is using those vital table stakes quickly, but then developing insight and foresight. You can’t get insight and foresight from data and from analysis. If you want to know a hell of a lot about lions, you better go to the jungle and not to the zoo. So, you’ve got to figure out how you can empathetically have the insight into consumer behavior and then have the creative foresight to do something about that before the competition. [Steve] Jobs and his folks are very empathetic.”

You can’t get much better than that!

.

Getting it wrong and still be loved

Paul Graham dwells on a hierarchy of disagreements.  Sarah Perez gives it a web twist.

I recall Tim O’Reilly in this old post recounting a story from a speech by Charlie Munger, a long time associate of Warren Buffet.  That story elucidates knowledge gained by rote and the one got by conscious labor. 

I quote -

“After winning the Nobel Prize, Max Planck went around Germany giving talks. His chauffeur heard the talk so many times that he had it by heart, and so one time, he asked Max Planck if he could give the address. Planck agreed, they changed places, and the lecture came off famously. But then came the Q&A, with the very first question being one that the chauffeur had no hope of answering. The chauffeur replied: “I’m surprised to hear such an elementary question on high energy physics here in Munich. It’s so simple; I’ll let my chauffeur answer it.”  

Munger went on to point out that what went wrong in oversight of Enron was a lot of chauffeur knowledge, great ability to give a presentation, but no deep knowledge.

As Graham says -

“the greatest benefit of disagreeing well is not just that it will make conversations better, but that it will make the people who have them happier…..Most people don’t really enjoy being mean; they do it because they can’t help it.”

To those haters of discord, I would just say this.  Most bloggers that we know are amateurs. They must entertain dissent while canceling those that go over the edge. Readers don’t expect professional quality in their output. So just they need be tolerant of dissent and be grateful to acknowledge a mistake when pointed out.  They can of course outwit a scathing comment by adding a dose of humor.  But never try to get around that by pleading you were way too busy and wrote in a hurry.  That makes you look like a stinking orifice.  You may well be one but why that secret be made public knowledge?  

Admit ignorance where you were. You need not be  Dr.Samuel Johnson for that! .

Intrigue your investor

Vijay Anand muses about building “businesses that don’t make money”.

It poses a question – why are VCs insisting on a business model?  Clearly the stress here is on investing in intuitive ideas that drive user base for everyone to benefit from. The trouble is in getting investors to fund it early when revenue visibility is poor or seemingly non-existent.

So, how to get around that?

I think the trick is in seeing things that lot many others don’t. Often opportunity comes in coveralls that look like work. Get around to work on some idea that isn’t good now because the infrastructure just isn’t there, but will be good five years from now. Capture your imagination in a logical sequence, spread it across a visual format to be evaluated by investors. Go easy on them. Most VC pitches fail not because the idea was bad, but founders didn’t know how to sell it.

Be passionate. Be always-on. Recognize likely problems and figure out ways to solve them.  Does work feel like work?  Ask yourself. If the answer is yes, you failed the test of passion. Don’t go further. 

If you’ve passed it, all that is left is to intrigue an investor; make her see right through you!

.

How to screw a virgin

I never give in to spam mails or TV commercials.  I zap’em all in one swoop.  I chuckle at the  ad spend that just got wasted and feel pleased with myself for being completely in charge, right on top. 

If I were a brand, my tagline will be – “Don’t sell me stuff; make me buy”!

But the whole world wants to market or sell stuff to folks like me because it is hard to get us to buy!  I recently came across a bunch of young entrepreneurs with little or no marketing budget.  Being the cheapest and with scope for a decent outreach, they had zeroed in on viral online marketing.  I told them how I loath spam mails and how much I like an unchoked inbox. I told them about my tagline too and in an instant they were staring down a pest.  But it got them thinking seriously since they badly needed orders.  Soon they were busy figuring how to sell to these eclectic if not elitist, spam zappers.

So, how to screw a virgin? 

Rape is impossible within the confines of her inbox. She calls the shots in there where she is free to open, save or zap mails.  Marketers can at best land a message and forget about it.  Ah, messages can be followed up over phone.  But calls cost and budgets rule, don’t they?

Then I read this piece by Kim snyder on getting the most out of email marketing.  Interesting spin.

[Got here because of title?  Silly you!  Fools die ]

.

Easy, guys !

Steve Brotman, a New York VC on pitching to VCs.

 ”….complicated pitches make the potential investor feel stupid. Entrepreneurs sometimes err on the side of complexity. There are a million ways to be complex. Some entrepreneurs insist on showing you a detailed demonstration of the product. Others will launch into arcane science or algorithms that only an MIT doctoral candidate could understand. There is a subtle psychology here that could be plumbed, but showing someone you are smarter by confusion isn’t a productive strategy.”

It’s a good advice for founders to worry about the business of technology than be obsessed with technology itself. 

Can’t agree more because I am guilty of advising several founders to focus on selling their idea to investors at the pitch and not attempt to educate them - because what they said beat me

.

In control of my destiny

Old chums meet is a lot fun.  I look forward to it especially after delivering up on weary assignments.  Last weekend I met up with a couple friends from college days and we had a go at a nearby watering hole.  We caught up on a lot of things but given our age and times, it centered mostly on our careers and life in general.

They all envy me. No office policy enslaves me, no boss to rankle me.  I decide what to do, how to do, every day.  I am at liberty to pick and choose my clients.  I operate singly and have a home office for added comfort. No long and tiring daily city travel.  A very lucky man – as they see it!

While I have some of those liberties, my hassles are more from a business angle.

Lack of institutional steam:  Clients want big names. They are not ready to suspend their disbelief that individuals are capable of driving PE deals.  My first 15 minutes are invariably spent on convincing them that even in big firms, they operate as silos.  PE firms have no problem.  In fact they are kinder because I am available 24×7x365 as opposed to big firm executives that stick to workdays.  I now even get tipped by them on deal prospects over after dinner chats.  But I lose deals as well for this apparent old fashioned one-on-one work model, that some see as lacking in glamour.

Knowledge is a curse: Before approaching any client, I do a complete top-down and bottom-up research of its business and its industry.  Then I compare with global and local peers, last few transactions done by others, inter-firm comparison, cyclical nature of industry and apprise myself of its prospects in the short, medium and long term. This knowledge often is a baggage. I give presentations of case studies why a client should do a deal only after he goes a few notches up over competition that could be easily achieved with some minor tweaks to his operations. Clients are desperate sometimes to get into a transaction that is clearly against their interests.  Wary investors seize this moment and offer pittance seeing the client’s level of desperation. A couple weeks later, I get enquiry from another investor for that price I had indicated earlier but the deal is no longer there. The client had sold out in a hurry.

Dilution issues: In India, majority holdings in most enterprises are held by one or two families, sometimes over generations. It takes a lot of convincing to explain that it makes sense to cede control if it entails holding 40% stake in a Rs.100 crore ($25 MM) Company than holding 100% stake in a Rs.25 crore ($6 MM) business that took  generations to build.  Believe me, I’ve lost a lot of deals on this count alone.  Sometimes I get excited seeing their successors returning to business with advanced B-school degrees from Wharton or Harvard.  But after a couple years, they go the elders’ way instead of turning the elders around.

Valuation mismatch: “Big firms can fetch us better valuations”, clients say. I tell them “go try”. I follow up after a couple weeks, status quo. I pay another visit with hopes of getting “defogged” signal after illusions get dispelled. Some do come around.  Others settle for big firms for the same or lower valuation than I had indicated, grudgingly bearing a 4x fees than what I had quoted.

Does it read like a sales pitch?  So be it.  Who can stop me?!

.