An Uncommon Man

Some of the best memories of my time at Cisco are of the people. I was fortunate enough to be at Cisco at a time when the company was truly on fire and experiencing hyper-growth. The atmosphere was all "can do" and satisfied my key drivers – feed my intellectual curiosity (keep learning!), leave things better than I found them (contribution) and work with a team that just keeps hitting the ball out of the park.

One of the people who truly left an impression was Chuck Pease – Chuck was a sales professional in New York and had some of the largest accounts in NYC as his beat.

He was awesome! He was interested in deeply understanding the customer's needs and figuring out how to provide them with solutions that met their needs. This was at a time where customer understanding of network technology was still evolving and as a result, placed a lot of demands for rapid development of new product.

Chuck was a consummate salesman – not just externally to the customer but internally as well. He knew how to make his case, how to get people on his side and how to give credit and kudos to all the unseen players when we won business.

Working with Chuck and my marketing counterpart was one of my best experiences of synergy between sales, marketing and engineering – all focused on the customer and their need.

Chuck knew about the unseen players and deeply appreciated the role they played. So from time to time, he would Fedex a big shipment of New York's finest bagels and schmears to California – bagels for EVERYONE in Cisco California. You could tell when they arrived… you'd see all the people in the building eating bagels and telling their friends, "Hey, Chuck sent us some bagels!" His simple gesture spoke more than words could ever have done – folks knew that what they did was appreciated!

On one visit to California, Chuck came into my office with a CD – "Hey Stu, you gotta listen to this!"… The CD was Led Zeppelin's Physical Graffiti.

The track was "Boogie with Stu".

I'm listening to that track as I write this and I can see Chuck's grin as if he was here in my office today.

Sadly Chuck passed away suddenly last week at 53 years young.

Keep the Boogie going Chuck – we all miss you. The world lost a very Uncommon Man.

VC’s are not investment bankers!

There's a wonderful Op-Ed piece by Tom Perkins, one of the founder of Kleiner-Perkins, Caufield & Byers, in the WSJ today. Tom highlights the key differences between venture capitalist and investment bankers in a piece titled "Silicon Valley is not Wall Street".

Tom is an incredibly thoughtful guy – my few interactions with him over the years were when he was Chairman of Tandem Computers – a company he funded when Jim Treybig proposed the concept of a fault tolerant computer. Tom's insights and guidance helped many companies over the years.

If you haven't seen it, the article is well worth a read. The true source of innovation in our country is the entrepreneur. Venture capital might be the fuel that helps the company get going but the real star of the show is the entrepreneur.

Government can help best with a gentle hand, not broad legislation with unintended consequences that are worse than the problem it attempted to solve.

We need to get innovation thriving again!


Apropos the iPad, complete the following sentence…


Here are my first thoughts…

  • iDunno that I'd carry this AND my laptop
    The iPad just seems "in between" – it's too big to be a convenience device like the iPhone but too limiting to dump the laptop. It doesn't run half of the applications I use (real email client, Word, Excel…) that aren't more convenient on my iPhone (like Skype, Twitterific etc.). So the laptop remains when I'm travelling.
  • iDunno what I'd do with the iPad
    I haven't yet succumbed to an electronic book reader like the Kindle so my media consumption is via the iPhone (music, videos, pictures) or laptop (movies, work). If I was in the mood for a Kindle and prepared to carry yet-another device when I'm on the move, maybe I'd think about the iPad. That choice would be driven by available publications, battery life and weight… in that order.
  • iDunno how I'd fit all of this in my bag
    After dealing with neck and shoulder pains from bad position on my road bike (bicycle, NOT Harley…) plus having to schlep my way through Frankfurt airport too many times, I resorted to roll-along computer bag (it looks nerdy, but it's the ticket for walking/running to make connections at FRA!). Despite the roll-along, I'm still conscious about what I put into the bag. On the electronics front, the list is limited to laptop, universal power supply for laptop, iPhone, Canon Powershot camera and its charger, USB Flash drive – that's it. The iPad doesn't combine any new functionality. That was the brilliance of the iPhone. Eliminated the separation of phone, iPod and Blackberry in one go.

Steve Jobs and the team at Apple are great marketers so I'm sure I'm missing something. Hopefully I'll be enlightened and get an "Ah-ha! – brilliant!" moment.

In the meantime, I'm left wondering…

iDunno who's the target market for the iPad.


CEO Paths to failure

Over the years I've worked with a lot of CEOs – I've helped hire them, mentored them and watched them in action. It's a lonely job – even with a supportive board of directors, you have to be the chief cheerleader, strategist, therapist and mentor to your team. Despite the best intentions of all parties, some CEOs fail – often they aren't the first to leave as a high caliber team will vote with their own feet early in the process.

Stuck in traffic yesterday as a result of the wave of storms coming into California, I found myself thinking about a conversation with a good friend who recently left a company because of CEO issues. He had debated his departure for a while and from time to time had discussed the issue with me. I'd seen the underlying cause of the departure before – all too familiar as it was one of the reasons on my mental checklist of CEO failures.

Here's a few of the causes on my list.

  • Micro-management; there are times when micro-management is a necessary skill such as dealing with a major crisis for a company that simply has to be resolved in a given time period. Setting short deadlines with rigorous follow-up can be very effective in crisis resolution. But sustained over a long period of time, micro-management by a CEO can ruin the best of teams. An effective management team doesn't need micro-management – set goals and let people get on with them. Persistent micro-management is a big red flag that something is wrong in the team – either there is a critical weakness in the team or the CEO hasn't got the comfort level to step back and let go. Either way, it's a problem.
  • Being disconnected; a CEO who isn't in touch with his team and customers is heading for trouble. A good team knows what needs to be done and has excellent recognition of looming problems – a good CEO listens to their team and keeps taking the pulse of what's happening and what needs to be done. Ditto with customers – your customers will tell you a lot about what's going on in your market and in your company. You just have to listen! Once a CEO gets disconnected, the team loses faith and quickly figures out that they need a solution – often, this is leaving for another job!
  • Not stepping up to lead; ironically, this can stem from a CEO spending too much time trying to keep connected! Every decision has to be made by consensus – often with the process of getting to consensus being long and painful. Decisions flip-flop and the team flounders. A successful CEO spends the time to understand the issues, bring people along in their own though process but ultimately makes a decision… and moves on.

There are other causes on the list for sure but these three stand out for me – they are the most frequented paths to CEO failure that I've seen over the years.

Founders and evolution

Fred Wilson has an interesting post today – The Founder Factor where he shares some thoughts about the role of the founder as a company grows. He ends with the comment:

"The founder factor is a huge intangible force in companies and is most often for the best."

In the early life of a company I agree with Fred. Founders with a strong vision can help keep a company focused as it faces the distractions of growth. Keeping true to a vision can be a major factor in the success of a company.

But as the company grows, it's critical that the founder's perspective and vision evolves both to reflect the needs of the company but also the changing dynamics of the market in which it is a player.

I can think of a number of companies that continued to be heavily influenced by a founder that eventually declined in influence or failed because the vision didn't evolve with the market and environment.

For example, Digital Equipment Corporation clinging to the mini-computer despite the PC revolution, Tandem Computer and its focus on fault-tolerance as hardware became incredibly reliable or perhaps Sun Microsystems and its vertical integration (chip, hardware and software) as its competitors became technology integrators.

I can't help thinking of an observation by one of my former colleagues regarding the "Tragedy of the commons" – any specific decision may look to be right on a standalone basis yet in the long term lead to a bad result.

Only time tells…


Your call drops here…

The utility of the mobile phone is amazing – despite holes in wireless coverage that lead to blocked calls.

Some of the holes are 100% predictable – there should be white lines painted across the road with a warning sign – "XXX Customers – your wireless call drops here!". At these locations I'm always surprised that the side of the road is littered with broken glass and shattered cell phones as frustrated cell phone users hurl their phone through the window when the call drops… yet again!

None of the wireless carriers are exempt from this… and in a lot of cases are as frustrated as us that they can't fix it! For example, one of the towns close to my office (Portola Valley) has a hole in coverage and one carrier attempted to negotiate with the School Board to place a new cell on the roof of the school. The School Board voted not to allow the cell because of "concerns about radiation levels". Another variant of the "not in my backyard" syndrome!

So you can understand why I really resonated with the "coming out" announcement of Root Wireless this morning on one of the Seattle tech blogs – TechFlash. Here's a link to John Cook's article "Startup pinpoints the good, bad and ugly of wireless networks".

Root Wireless builds coverage maps for the different wireless operators and allows a user to compare the coverage of one carrier versus another – imagine overlaying this data on a route map showing your regular commute and being able to see which carrier could give you the best coverage?

Coverage alone isn't a 100% predictor – I suspect a significant number of dropped calls result because of capacity problems on the next cell – the handoff fails because there is no available channel for your call. The network answer (any network!) to congestion is very simple… drop the call! Too bad the FCC doesn't make the carriers publish maps identifying the reasons for dropped calls!

I particularly like the idea of the distributed approach to collecting the coverage data – get the app loaded on enough phones and collect the data. Nice! I know from past studies when I was an investor in @Road (eventually acquired by Trimble a couple of years ago for close to $0.5B) that you can get excellent information with a surprisingly low number of units in the field – somewhere between 500 and 1000 active users would give you good area coverage for places like Seattle or the Bay Area.

Nice one Root Wireless!

Poison or antidote?

Brad Stone has a post on yesterday's NY Times Blog – "Falling Valuations: Poison for Venture Capital" in which he suggests that down rounds are poison to venture capital returns. His article summarizes Fenwick & West's quarterly survey of venture capital financings in Silicon Valley, which shows that down rounds exceeded up rounds during Q2 2009.

Down rounds aren't necessarily poisonous to venture returns – instead they represent a re-calibration of a company's prospective worth. If the current investors lead the down round, it's likely they wind up owning a higher percentage of the company than they did before. The bulk of dilution falls on the prior equity holders – of course, this includes the VC investors prior equity but also includes the founders and management (common stock or stock option holders).

Ultimately, the value of an investment is a function of preferences, percentage equity ownership and the exit valuation. Interim valuations have to be reported to the limited partners of the venture investors and have to be "marked to market" because of FIN 157 but the real value is only apparent when the company exits.

The last 9 months have seen a steep decline in how the market values public companies – focus has shifted to real results – growth rates, market leadership and profitability – rather than on promise (or hopes!). Valuation metrics (multiples of stock value to earnings, sales etc.) have fallen dramatically.

As a result, many companies find themselves with a last round valuation that was set perhaps 1 to 2 years ago – a valuation pegging at a time of apparent better market conditions and certainly higher valuation metrics.

A prospective investor assesses the likely exit value of a company when considering it as an investment. The investor discounts that exit value based on perceived risk and the return they target for their investment. As public market comps fall, so do private company valuations.

If the company is doing well, the inside (existing) investors are often unwilling to let a new investor get the benefit of their work to help the company and their capital. This results in an inside led "down" round. This used to be perceived as a statement of weakness about a company but today, it's a rationale response – it's a correction in valuation.

A down round doesn't poison a company or in most cases, returns. It goes some way to correct ownership levels and establishes realistic expectations of what a company is worth.

Those are both good things – good for the company and good for the investor.

Down round are not happy events for anyone – but I think they are more of an antidote to challenging times than poison to investors or entrepreneurs. Both get to live to fight another day and make progress to a higher valued exit.

Venture Capital – time for V3.0

It's impossible to escape the debate of whether Venture Capital is "broken" – tech blogs, national newspapers, even the overheard conversations in my favorite coffee shop (Café Del Doge in Palo Alto and no, I'm not an investor, just a happy patron!) debate the "death" of venture capital.

Like any "system" that has been "enhanced" over decades, the architecture of the venture capital business isn't broken but has fundamental issues that slow or even limit its ability to adapt to new market requirements.

Few companies survive a major architectural overhaul of their main product family.

Years ago I lived through just such a transition at Tandem Computers as the operating system and related system software (small things like the transaction monitor, database, communication products etc.) all had to be overhauled to deal with faster processors and larger memory.

The original system had been designed in the 70's when the idea of more than 255 processes in a CPU was considered a "huge" number – you can probably guess that the process id was encoded in 8 bits. Years later, the CPUs were so much faster that you couldn't run them at 100% utilization because of that process limit. The process id and similar system data had to be made larger – the ramifications were staggering in their impact.

Project EXCEED was the code name for the project to remove operating system limits. It was originally estimated at 300 man years of work – in the end it "exceeded" that by several multiples – consuming a large percentage of the development staff. This was a critical time as the "open system" transition was accelerating. Tandem missed the wave, lost market share as its systems were relevant to a smaller market niche and eventually was acquired, first by Compaq and then by HP.

Venture Capital firms are caught in an architectural transition:

  • Too much capital in the aggregate.

    The supply of capital into Venture funds isn't balanced by the market exit potential (IPO, M&A) to generate an acceptable rate of return. The same things happened with capital inflows into the LBO funds which I wrote about back in January 2007 (but was my concluding observation about early stage capital off the mark!).

    Many Limited Partners believe that Venture Capital isn't an asset class but an ACCESS class – the majority of venture returns have been generated in the past 10 years by a very small subset of firms. If you could get into those firms you were going to make a return – or at least that was the theory…
  • Too little operating expertise.

    The bubble run up resulted in the inflows of two forms of capital into Venture firms… money and people. The expansion in human capital attracted a lot of very smart people but with little operating experience.

    You wouldn't want a medical procedure to be performed by someone who had been trained but was about to conduct their 3rd or 4th procedure - on YOU. Yet in the VC world this happened with new VCs sitting on the boards of private companies and dispensing guidance and business advice. The rapid growth exceeded the capacity of the experienced VCs to mentor the new folks coming into the business.
  • The Internet effect.

    A little discussed side-effect of the Internet is how it eliminated latency in information flow and flattened access to data. We see this everyday – the speed at news travels approaches the speed of light – Google search makes even obscure data easy to find (you just have to know what to search for!).

    But this same improvement means that ideas, concepts, description of problems etc. quickly spread to be known by many people. The time advantage of knowledge has been reduced and places an ever larger premium on being the first mover and flawless execution.


  • Technology markets are mature

    It is much harder for a startup to break into a mature market than one that is emerging. The technology has become mission critical with the target customers and they don't want to take risks on new entrants. Similarly, the scale and performance requirements necessary to make meaningful improvements require much larger amounts of capital.

Like many of the technology companies they funded in the past, few Venture firms will successfully weather this transition.

I wonder if there isn't another factor to consider… as the H1N1 flu pandemic began the question was posed whether Google Trends had provided an early warning of the developing problem (for those who knew to look!). I'd seen Google Trends when it was first released but had forgotten/ignored it for a long time.

I pulled up Google Trends and entered search terms like "startup" and "venture capital" – the results were surprising to me – here's the chart from Google Trends on "startup":

Google Trends (startup) – All regions

Google Trends lets you drill down by region – the results for "startup" are fractal – as you drill down the data looks the same (except for regions like China and India).

A search for "venture capital" looks more pronounced…

Google Trends (venture capital) – All regions

I've debated these trends for several months – it's possible that the trend is a result of knowledge about startups and venture capital becomes increasingly well known and so people don't search for it. That could explain the difference in the regional data for countries like China and India.

To counter this, I look at the number of friends and business professionals returning to work in major corporations. One of my friends remarked that after working for 10 years in 3 startups, all he had to show for it was long work hours, an under market paycheck and weak benefits. He has a point.

Hard to know!

VC 1.0 was the beginning of venture capital where experienced investors carefully nurtured companies with modest capital. Markets were just beginning to emerge as new technology developments provided productivity improvements or solved critical business problems.

VC2.0 was the Internet and resulting bubble.

So what will VC3.0 bring? This architectural re-design is "in play" and uncertain.

While this is underway I think there are two areas that deserve your attention… I characterize these as Fire and Water.

Big problems or unmet needs create a fire – big pain and urgent need. If you decide to play with fire you must execute with perfection and precision. You won't get a second chance and VC investors should quit funding the moment execution becomes flawed or someone else does a better job.

Difficult problems or emerging trends benefit from an approach like the erosion of water. Relentless and slow like a river or getting into the cracks and freezing to break down the problem faster like ice. Build entry barriers with fundamental IP, good execution and careful deployment of capital – together with deep and meaningful strategic relationships with established companies that realize they need your help.

Pick one!


Did Oracle buy SUN to stop Cisco getting software?

Startup ideas tend to come in waves.

Generally (but not always! the ultimate winner tends to be one of the early entrants so I'm always alert for emerging trends. One of the latest trends I see is of tighter coupling between application and data - streamlined access to all sources of data whether on the network or storage. This holds true for both virtualized and high performance applications – at least so far!

I'm still connecting the dots to see how the trend matures, but it got me thinking about Oracle's acquisition of Sun Microsystems.

Given Cisco's entry into the server world and with their sights so obviously set on the Data Center, did Oracle acquire SUN to stop Cisco getting it's hands on software like MySQL and Linux?

If the trend for tighter integration between application and data continues, new leaders could emerge in both the virtualized and high performance spaces. The odds favor an incumbent vendor like a Cisco or Oracle moving into an adjacent segment and extending their dominance – however, a startup has a chance assuming it can leverage agility, deliver overwhelming benefits and overcome the enterprise manta of "I don't buy from startups".

For Cisco to extend its dominance, it needs to leverage its ability to develop solutions that benefit from tighter integration with the network – the ultimate source of all data whether from remote locations or storage (memory or disk). It doesn't take too much imagination to see the benefits that could have extended from taking MySQL, a stable Linux implementation plus a lot of networking/high performance know-how to build a killer data center solution.

Ironically, several of the early stage companies I work with have migrated away from MySQL because of changes the SUN made to the license agreement. PostgresSQL emerged as a very viable alternative for many of these companies. Perhaps this is a viable alternative for Cisco – time will tell!

If I'm right about the trend, Oracle will need to extend it solution set by acquiring substantial networking experience – just as Cisco still needs to get higher level software and expertise.

Assuming this is a trend and not a line drawn between two data points, the future M&A market for startups in this space could be very lucrative!

We will see!

[Apologies if you saw an incomplete version of this post earlier! Finger trouble with the iPhone TypePad application on my part!]

Why plan B should be your new plan A

I wrote the original draft of this post over a month ago… and decided to sit on it and see how the first quarter finished off. While there are some signs that the economy is no longer plummeting downwards like an elevator with a broken cable, there is still plenty of cause for concern.

We're heading into the reporting period for Q1 – already you can feel the storm clouds gathering. Remember that many companies chose to give no guidance at all for this quarter so there's no warning flurry of pre-announcements to provide a harbinger of things to come. I don't believe it's going to be an out and out disaster but I don't expect many to outperform.

With that comforting thought in mind, I offer you the following – if you haven't already done what I suggest below, you might want to give it some serious thought. The road out of the current economic wreck is going to be long and slow – a slog if you will.


Many companies have two plans…

Plan A – the plan of record (POR) that defines how the company will execute over the next year or so to achieve its goals. The POR acknowledges the assumptions, risks and future capital requirements for the company to continue to expand.

Plan B – the contingency plan that says what the company will do if plan A falls apart due to external factors (the economy? Duh!) or failures in execution, customer demand, external vendor screw ups etc.


This is the time to make that plan B your plan A.

Invert the psychology – instead of having a set of assumption that IF NOT MET cause you to take corrective actions (often with not so happy consequences like layoffs, a down round, going into hibernation…), do the opposite.

Put in a base case and then factor in what you would do when you have met or achieved the base case. Meet milestones that give you confidence on the business – spend more money to expand. Remove product or sales risk – move aggressively to the next phase.

In a nutshell, plan based on achieving confidence not having to sweep up the broken glass.

Apart for giving you more stability in your company, it will expand your cash runway and give your investors more confidence to boot.

Take out plan B, put it into action and use the original plan A to expand as your progress.

No plan B? Time to go back and read about Darwin…

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Intense Brit, lived in Silicon Valley since 1984. Avid pilot, like digital photography, ham radio and a bunch of other stuff. Official Geek.

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