Lots is changing, including where I’m blogging.
From now on you can find me at www.duncalfe.me
Email me at lucinda at duncalfe dot me.
Lots is changing, including where I’m blogging.
From now on you can find me at www.duncalfe.me
Email me at lucinda at duncalfe dot me.
I have a board and I’m on two boards right now, and I’ve served on many more in the past decade. This was a tough week in a few ways, and it leaves me thinking about how to handle diversity as a Director. Specifically, how should you react when the going get tough?
I think that there are two key things to do:
1) Be supportive. CEOs are motivated people who are used to succeeding and have a huge incentive to do so. When things are bad, they know they’re bad. Pointing out that they’re bad, asking for definition of exactly how bad they are, itemizing the terrible downstream ramifications, or reminding the CEO how prescient you when you said this was going to happen are not helpful. The CEO is under tremendous pressure – in addition to fixing the problem, they have to appear unflappable and in control for their staff, investors, customers, prospects, and everyone else they deal with. Your goal should be to reduce that burden, not add to it. You can talk about how to do things better later.
2) Help. The CEO has to solve the problem, and if you have anything to contribute, it’s time to offer it. (If you don’t have anything to offer, you might want to consider replacing yourself on the board with someone who does.) Have a forward-looking problem-solving conversation. Recommend an approach. Pull out your rolodex. Or your checkbook. At a minimum offer an “oh, that sucks.”
Or, fire the CEO.
Most directors do little to enable great CEO performance. It’s not about hand-holding – those problem-solving conversations can be hard-hitting – but it is about understanding. The way the Directors reacted to a key challenge facing one of the companies I’m involved in was very revealing. The most successful, and most experienced, directors reached out to the CEO quickly, and in exactly the manner I suggest. Because it works.
My friend Adrienne wrote a book, relevant to this series of posts, which is out for the Kindle and will be released as a real book on 9/11/2010 (the date isn’t accidental).
I was sleeping mostly normally, but starting to get run down. My first meeting was with my the first venture capitalist on my schedule, Sean Peng, Managing Director of the Beijing office of WI Harper. The fund was one of the earliest in China, starting in 2000. They invest in the Chinese version of “Early Stage”, which is more like early growth in the U.S. Their approach is typical of any VC in the U.S. – they look for a big market, a differentiated defensible product, and a great team. Sean echoed the same themes I’d been hearing everywhere – labor is never an issue, anything can be copied easily, but management is difficult to find. Another difference is how fast how many companies can grow. He gave me an example of a company that makes materials for wind farms that went from $2.8m in revenue in ‘08 to $30m in ‘09 and had $48m in the first half of ‘10.
WI Harper helps portfolio companies with business networking (which is more important here than in the U.S.) and with relations with the government (which is paramount here). They can help access policy-based advantages (getting free space etc), shorten approval processes (which can be a huge problem), and predict where the money will be spent.
We also had an interesting conversation about the government. He pointed out that the government is turning towards internal consumption. It is working to create an upward spiral of prosperity, pushing per capital GDP up so that the Chinese can afford to buy Chinese products, closing the consumption loop (the high tariffs on imported goods help drive domestic consumption too, of course). There is also a focus on development of Western China, supported by, for example, lower minimum wages there than in the East that encourage companies to locate there. The system works extraordinarily well. As much as there are extraordinarily objectionable aspects of authoritarianism (censorship, 1-child policy, etc…), it is highly effective economically. The Chinese can move with alacrity, and, as Nicholas Kristof points out, the Chinese protested in 1989 more for improved living conditions than for political freedom – and they’ve gotten that.
“…Many of those rickshaw drivers and bus drivers and others in 1989 were demanding not precisely a parliamentary democracy, but a better life — and they got it. The Communist Party has done an extraordinarily good job of managing China’s economy and of elevating economically the same people it oppresses politically.”
There are about 60 million Communist Party members in China, from a population of 1.3 billion. The competition to rise within the party is fierce – officials who are promoted are generally very very good (corruption notwithstanding – and let’s recall our own issues in that vein and not get too high and mighty about it). One of the most striking things about China is how well their system works.
My favorite example of this is high-speed rail development in China, which has developed from nothing to the world’s largest network in the last 15 years. As you can see on the system map below, a key element in going fast is going straight, which isn’t a problem in an authoritarian state that values the collective over the individual.
In contrast, here’s what we end up with in the U.S. after spending half a billion dollars on a new train junction in 2003. You take Exit 15-X off of I-95, pass right by the station, then take that wacky giant hairpin to get back to the station. Not that it really mattered if you could get to the station by cars – there was no parking until 2009, when a private company opened a lot. New Jersey Transit acknowledges that not building parking was a mistake and they’re considering adding a lot. Duh.
Back to the day’s events… From that heady conversation, we went to IBM to visit with Dong Jinwei, Demand Program Manager in the Marketing & Communication Group of IBM China. Among his other responsibilities, he manages paid search, which he’s been doing since 2005, early in China. He has a very interesting background, including an attempt at a start-up and was very informative about how things actually work. Most is very similar to the rest of the world. The IBM office felt very familiar as well; lots of young people in nice clothes buzzed around carrying laptops, speaking mostly English.
From IBM we went to meet with Michael Xu at GridSum, a technology-based digital agency. GridSum does iCrossing’s search work in China. They’ve built their own cross between an analytics platform and a search management tool. We did demos of each other’s products and saw that there is the opportunity for a relationship, we’ll follow up in the next few months on that. The most surpirsing data point from this meeting was that click fraud is still in the 30-40% range in China!
Finally, we went to the (State-owned) China Construction Bank to meet with Mark Ma, the Chief Investment Officer. Mark is responsible for multiple investment funds totaling about 6b RMB. Mark reiterated the common theme: “The U.S. is about innovation, China is about application.” He, like most investors I spoke with, is short management talent – there’s endless opportunity and capital. His model is to identify a market in China that needs product, find a product in the U.S. or Europe, have a team of (50 or 500) Chinese engineers replicate and improve on the product, then go to market and go public. Mark is Mr. busy with two cell phones ringing constantly. Nonetheless, he made time to take us to a very enjoyable dinner. I have no idea why, since I rarely drink, but I asked for white wine. That caused quite a stir, as no one was clear if they had any (despite a decently long wine list). It was served from a creamer-sized decanter, about 1/2″ in each glass – I made the mistake when it was first poured of thinking that I was supposed to test it, so I swirled it around and downed it. I’m not sure what they thought of that. Mark went to Tsinghua University (the top University in China) and invited me to speak there when I’m back in November, quite an honor.
I’ve been actively using and thinking about social media and how to use it effectively as a tech start-up CEO for over a decade. Finally, in just the last month, I think that I have achieved a balance of channels that works. I use each for a specific type of communication with a specific audience.
I started this blog a year and a half ago, and hardly ever post. I find it difficult to prioritize the time and, more importantly, I usually can’t write about the things that consume me and that I think would be really valuable for those in my community. I’d like to write about how we think about strategy and our competition, corporate development and major deals, the capital raising process, the dynamics on our board and with our investors, and our culture and people issues. Mostly, what would be interesting and informative are the big opportunities and big problems. These are, however, exactly what I can’t share here. My conclusion is to keep the blog as a place for writing like this but not to worry about posting regularly.
In contrast, 347 updates ago I started using Twitter (@LucindaDH), which works a lot better for me than blogging – not that they’re the same thing at all. I started during the SXSW conference when everyone else did (as @LucindaH) but I couldn’t get going; I just didn’t get it. Then, afraid I was aging, I made a month-long commitment to Tweet. And I was hooked. It’s a terrific way to keep in touch with friends, get to know acquaintances and colleagues better, and connect with people beyond my network. I found that the most constructive effect was that it connected me better to other C360 people. And it gives me something to do when I’m sitting at red lights.
I do love that I can update Facebook with my Tweets. Facebook is purely secondary for me, but there are a lot of very active users, and I can keep my page fresh through Twitter. It’s a place that you have to be if you work on the Internet, it’s a great way to connect with old friends, but it’s not a main platform for me. There are many other networks that I use but don’t contribute to (Yelp), some I find intriguing but don’t use regularly (Tripit), and those I choose to ignore (MySpace).
Again in contrast, LinkedIn has become critical to my business life. I use it to find new employees, to get background on people I’m going to meet with, and to find paths to get to people I’m trying to meet. It’s great, but it’s more as a database than a social space.
So if I blog as an occasional way to publish long-ish thoughts, Twitter to connect a level deeper, maintain Facebook as a seat at the table, and leverage LinkedIn as a business tool, is that the right mix?
No. This all brings us to Yammer. I love Yammer. Yammer fills a key void in the social media mix to date. I introduced Yammer to Commerce360 a month ago and find it invaluable already. People post really interesting things (to me anyway) like what they’re working on, competitor announcements, industry news, client feedback, that there are cookies in the kitchen, or that they’re going to lunch. Our dev team updates Yammer automatically through our source control system so we can all see hour by hour what’s happening. It all adds up to giving me a finger on the pulse of the organization in a way that’s hard to get otherwise, particularly because I spend so much time out of the office. I also think that it helps people to have more visibility into what I’m doing. I post things like meetings that I’m in, what we’re talking about, what I’m reviewing, client and sales call outcomes, how the board meeting is going,… My hope is that this helps everyone stay excited about what we’re doing, and that how I spend my time is a signal about what is important to the organization.
Which, back full circle to the beginning of this post, is really the promise of social media for the CEO: it can help us connect to our constituencies in a more direct, genuine way.
So, with the addition of Yammer, I’ve finally developed a mix that works:
1. Yammer for inside the company
2. Twitter for quick exchanges with the tech community (and their spouses)
3. Facebook for a broader community
4. LinkedIn the business world workhorse
5. This blog for occasional longer posts
Ben Franklin Technology Partners created a series of videos with NFTE, which provides entrepreneurial education to young people in low-income communities. One of them was about me. And if you have a while and need a laugh, you can catch Josh and I dancing about half way through the First Round Capital holiday video.
I’m slow finding it, but Bill Burnham’s Why Your VC is Acting Crazy is a must-read for entrepreneurs with or wanting to have VCs in their lives. I’ve unfortunately experienced crazy vcs twice, once with one of my own investors and once with a potential acquiree’s investor. Bill outlines some of the things to watch for, but in practice much of his advice is hard to implement. For example, only one of the many funds I’ve dealt with has been open about the fund’s own performance issues – it just isn’t that easy to know what’s going on. I think that the sad part of this dynamic is that investors typically position themselves as “partners” in your business. But true partnerships are two-way, and vcs don’t welcome entrepreneurs as partners in their businesses. There is a fundamental imbalance of power in the dynamic between most VCs and most entrepreneurs that the entrepreneur has to accept because of the golden rule: he who has the gold rules. Deal terms formalize the hierarchical structure and interpersonal dynamics – vcs tend to be older, richer, and more arrogant than entrepreneurs – cement it. The only glimmer of hope is that things do even out a bit with performance. When a company is kicking butt, it has options, which means that a crazy vc may drive you crazy, but he (they are almost always hes) can’t really force you to do anything. And over time, as entrepreneurs are successful deal-to-deal, vcs start to view us as long-term investments and treat us more like peers. At the end of the day, though, it is critical that we are aware of where our vcs are sitting. Sometimes they’re on our side of the table and sometimes they’re on the other side. And it’s never in their best interest to point out when they switched sides.
Today Fred Wilson posted about VC-backed women entrepreneurs. Being one, I thought I’d weigh in.
First, let’s be clear about the numbers. Forbes says (emphasis mine):
“According to the Center for Women’s Business Research, the number of firms run by women grew at nearly twice the rate of all U.S. firms from 1997 to 2004. But a new study released this month by VentureOne, a unit of Dow Jones, shows that the number of women-owned or women-run businesses backed by venture capitalists has been on a slippery decline since 2002.
“To be clear, the number of venture-capital-backed,female-owned firms wasn’t very big to begin with. In 2002, only 7.55% of all venture-backed companies had women as chief executives. But in the first half of 2006, that number fell to 3.7% (the lowest percentage since 1997). The number of venture-backed companies with women in top management bottomed out at 29.7%–versus 34.8% in 2002.”
We received only 3.7% of the deals, and – even worse – only 2.7% of the dollars. My experiences anecdotally support those tremendously sad statistics. Just this week I was at one of our VC’s portfolio company conference. Other than the fund’s non-investment staff, there were two women. The second was a VP of Marketing. At another investor’s conference earlier this year the statistics were the same. In the many rounds I’ve raised I’ve pitched to a woman exactly twice.
Why? I don’t know. But here are two thoughts.
First, the VC-entrepreneur relationship is based on trust. (At least one way – the VCs have to trust that the entrepreneur is going to do well with the investment.) Most of the entrepreneurs I talk with view trusting a VC as 1) a nice-to-have and 2) naive. I’ll save that for a later post. The main point here is that VCs do have to trust the people managing their companies. I believe that people tend to trust those who they understand. It’s a lot easier to understand people who are like oneself. VCs are (white) men, so they’re more likely to trust (white) male entrepreneurs.
Second, expanding to a cultural divide, I think that most women are ill-suited to raise venture capital. Most VC pitch meetings are a jousting match. The first time I raised capital, I had a potential angel investor who wanted his VC friend to look at us and opine. I called the VC every day for about three weeks, and he kept ducking me. Finally, his secretary slipped and said “I’m sorry, he’s on the phone.”
“I’ll wait,” I replied.
That VC kept me on hold for almost an hour. Finally, he picked up the phone, and proceeded to drill in and belittle me. After too much of this, it became clear to even me that I wasn’t go to get anywhere, and i purposely, by mistake, referred to him as a vulture capitalist. “Ah,” he said, with a smile in his voice, “like I didn’t know I kept you on hold for 45 minutes. I come by my arrogance honestly, I was a cardiac surgeon before a venture capitalist.” And then, since I had established my machismo, we made nice. Many months later, I pitched that VC’s firm. Although he was health care and our deal was tech, he joined the meeting, recounted the story with gusto and recommended to his partners that they should back anyone with my persistence and “ability to go toe to toe.” It’s an extreme example, but it does illustrate the competitiveness in the environment. Women just aren’t brought up to be so in-your-face.
For me, the fact that there are so few women entrepreneurs is a huge positive. I’m memorable – I suspect that VCs I pitched for TurnTide in 2003 are 50 times more likely to remember me today than a male with as good a company. Being 6’ tall puts me on equal footing. Growing up surrounded by boys and spending my first 25 years consumed by highly competitive athletics taught me to be comfortable in the boys’ world without being a boy. But, although the status quo might be good for me, I can’t be selfish on this issue and wish that things stay the same.
Women and men are – at the peak of the bell curve – wired differently. We give birth, and we typically bear more family responsibility than men. We tend to be better with people and worse with machines than our husbands. But the sum of all of these differences, and more, cannot explain even half of the 26x difference between the number of men and women in whom venture capital invests.
Whatever is going on isn’t fair and it hurts everyone. Great women with great companies that fit the investment profile for venture capital are being passed over because they don’t fit the cultural profile. So the companies can’t take full advantage of their opportunities. And investment returns are suffering because good deals are being missed.
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