The Five Dysfunctions of a Team

When I was at Turner, my friend and colleague, Karen Painter, said that I absolutely had to read "The Five Dysfunctions of a Team."  I had the best of intentions.  About halfway through and I wish I had read it earlier.  The notion of your peers being your primary team is one construct that I think is right and needs to be set from the start.  Also, that the team has the same goals.  Obvious, but I have not seen in practice.  Regardless, food for thought.

Hard Thing about Hard Things

The current book list is pretty analytics focused, but I have ben reading some of the startup books that folks recommend.  First one:  Joe Zawadzki (founder of x+1 and MediaMath) called out "The Hard Thing about Hard Things" by Ben Horowitz.  Ben is a founder in the VC firm  Andreessen/Horowitz.  He was the CEO of LoudCloud and Opsware and has great experience building big companies, relatively quickly.  

I liked the book, but Ben has a perspective that is obviously driven from his experience.  And  Ben's experiences are a bit rarified.  He was running B2B infrastructure companies and talks about needing to raise (and then spend) $100MM to ramp the businesses.  Also, he had enviable advisors.  Micheal Orvitz, Bill Campbell to name drop a two.  But he also had to deal with serious threats to the business.  Regardless, I would recommend the read.  Short version, don't give up.  There are going to be very hard times.  As a CEO you need to be prepared for the hard times.  He leaves the "how" as an exercise for the reader (I think he would say that every situation is different and you need to find your own path for your particular hardship), but the book provides plenty of food for thought.

I will also say that this is the only business book I have read twice.  I aspire to build not just a company, but a team, as influential as Ben.  I have promised myself that when we hit 50MM in revenue, I will read it again.  And I read Ben's blog.  He just did a piece on "The Prophets of Rage" as a prototypical personality in a company.  I know several PoR from both Turner and AOL.  Given my time as a sound engineer with Public Enemy, this piece resonated with me in both name and content.  

As an aside, I saw an Amazon reviewer ding the book on use of the female pronoun.  I did the same thing for my dissertation.  One comment: Be the change you want to see.

Good reads

The funding process for the later rounds is a bit opaque.  But there are tons of resources to help you understand the investors perspective.  I found Reaction Wheel blog, written by Jerry Neumann, a couple of weeks ago.  He is a long time angel investor.   I have also been checking in on AVC by Fred Wilson.  Both are worth reading.  Fred publishes every day.  I also read the "startup trades", Venture Beat and Tech Crunch daily.  

Where is Kenny?

Some folks are asking why I am not listed on the Capture Your Flag site as an interviewee.  Not sure. I reached out to Erik to ask. Here is a link to all my interviews. I did the year 4 interview maybe 5 months ago and we talked how I thought I was ready to be a CEO; that I thought I had been in training for the job and ready to take the plunge. I dId not think we were going to start our own thing. Surprise!

Starting a company is like making sourdough. Start with culture.

I know it is a bad title.  I thought it was funny.

As a former academic-wannabe, I like to research things before doing them.  I am wired to process information.  So when Joe and I started to talk about the company, I read books and websites on entrepreneurship and founding a company.  There is a lot out there.  Over the next couple of months, I'll post resources that I think are worthwhile.  To start:

Getting the company culture right (or at least not wrong) in the early days is critical.  Once the culture gets ingrained, it is very resistant to change.  Like impossible.  Just so we are on the same page, I think of culture as the beliefs that drive behaviors in the organization.  So the critical thing piece when trying to influence your company's culture is your first set of hires.  They bring their beliefs with them and those beliefs drive behaviors.  Of course, you have to know what beliefs you want to embed in the company.  Then hire, in part, for those beliefs.  And if you find that you made a wrong decision on one of your new colleagues, well, as the CEO, need to make it right.  

If you are starting a company, you should take a look at the Netflix culture deck.  It provides a great food for thought when thinking about what your own company's culture should aspire to be.  There are some things I really like, but at its core, it is an exhortation to hire "stunning" colleagues.  Having great people around you solves a lot of problems.  Check out the discussion of what happens when your company gets large and specialized (around page 45).  I have observed this very phenomena and made the same observation.  But more importantly, they way they avoid the problem is to just hire great people.  And career development?  No formal program.  They provide great colleagues.  You are expected to learn from them.  And how do they find these unicorns.  They pay top of the market.

I don't like that there are nine values.  Seems a bit heavy.  I'll share my thinking in a later post.

How do you finance a Friends and Family round

I am looking at various resources for startups.  Our product will be consumer facing and we'll need to raise money at various stages.  Currently, we are putting together our Friends and Family round.  Typically, this round uses a convertible note where the investors lend you the money to start the business and then that loan gets converted to stock at the Series A valuation.  We are using a similar instrument called a "SAFE" created by Y Combinator.  Same notion, but it is not a loan.  There are some important terms in the SAFE; the premium and the cap.  Both are optional, but seem to be common.  At least in my conversations.

First, you may specify a premium that the investors gets, over and above their investment.  So, if an investor gives you $100k and the premium is 20%, when the shares get issued, they get $120k.  In effect, the risk premium for the investor is 20%, plus they get the upside of any future valuation.

Second, you can set a "Cap."  The cap acts as a maximum valuation for the investors.  Say the cap is $5MM and the investor puts in $100k.  If the valuation at the Series A round is $2.5MM, the cap does not apply.  Note that I did not put a premium on the investment.  Hold that thought.  Now, if the Series A round had a $10MM valuation, the cap applies.  Without a cap, the investor would get 1% of the stock (100k/10MM=.01).With a cap, the maximum the denominator can be is $5MM.  So, in the example, the investor would get 2% of the stock (100k/5MM=.02) regardless of the valuation.

Typically, the SAFE has both a premium and a cap, but the investor gets one of the other.  If the series A valuation hits the cap, then the investor does not get the premium.  Of course, if the cap is not reached, then the premium applies and the cap is not used.

Some investors don't like the SAFE; they have no claims on the assets of the company if management needs to close the company down.  A convertible note has a little more protection.  But in the early rounds, the investors I have spoken with are not worried about a wind down.  They are making a bet and assume that if we need to liquidate, we will do right by them.  And they are right.

Left Turner, working on something new

A bit of news.  I left Turner Broadcasting in December and have started a company with Joe Wilson.  Joe was my VP of engineering at Turner and we have had a great professional relationship.  I don't want to say too much about the company at this point, but we are working on a media product.  More details as we get closer to having the product in a state where we can demonstrate it.  I expect to do some postings on starting up a company.  More to come.