You’re more than the Fucking Janitor: Thoughts on Startup Leadership

Last month, I had the honor of participating in the inaugural Foundry Group portfolio CEO summit where we had an enlightening discussion on leadership. To kick-off the conversation, one of the other CEOs volunteered the story of a time he felt he failed as a leader: he had a disagreement with some of the engineers on his team about the complexity of a given feature; and when their conversations reached an impasse, he took matters into his own hands and coded the feature himself.

I found the most interesting part of the ensuing discussion to be the disagreement over whether this CEO’s act of digging in and coding the feature himself was a leadership success or failure. We didn’t do a formal survey, but the group appeared to be divided into two camps: one that felt he should have focused on solving the communication and process (and possibly staffing) issues that prevented his team from executing as he desired; and the other that saw value in the example he set by showing he was capable of and prepared to do what he asked of others.

Earlier this week I read Zach Bruhnke’s excellent post You’re not the CEO – you’re the Fucking Janitor, and it took my mind back to that discussion about what good leadership looks like in a startup. My answer: it depends. It seemed to me that the folks at the summit who felt this CEO failed by doing instead of managing were leaders of more mature companies, while the ones who admired his leadership by example tended to be running earlier stage startups. As someone running a company that had recently raised our Series A and was growing from a team of 5 in January to 14 today, I found myself agreeing with both sides of the debate.

For a boot-strapped or even seed-funded startup, I think Zach’s post is spot on. The “CEO” in Zach’s story is a total douche, and my business cards say “Co-founder” precisely because calling myself the Chief Executive over 4 of my friends made me think of Yertle the Turtle. My dad always told me “the fish stinks from the head”, which is just his graphic way of saying great leaders lead by example. In my relatively short leadership career thus far, I’ve taken this to heart and always jump at the opportunity to do things myself.

In addition to the mutual respect and motivation Zach mentions in his post, one of the greatest advantages I’ve found in this approach is the intimate understanding a leader attains of how things are done within their team. Across the many failures of leadership I’ve observed (I was at Yahoo! for 4 years 😉 ), there’s a recurring theme of the leader being too removed from the actual doing. Especially in the technology world, the means of production can be just as important as the output. I can’t tell you the number of product and business leaders I’ve dealt with who treat engineering like a commodity instead of a potential competitive advantage. You only need to look to the world’s most valuable company to see what great supply chain management (i.e. caring how the sausage gets made) can do for your business. And when you’re a software company, every architectural decision your team makes has a bearing on essential business considerations like performance, reliability, time-to-market, and agility in responding to new threats and opportunities. That’s why is, above all else, an engineering-driven organization (and looking for even more great engineers 🙂 ).

But in a later stage company, the leadership challenge is greater because you need to figure out more scalable ways of achieving these same goals. There was one particular line of Zach’s post that stuck out for me in this regard:

If you want to be a CEO in the sense that you dream of then you should remember to be the Fucking Janitor too.

A couple months after raising our Series A, I was washing dishes in the office and caught myself feeling self-satisfied because here I was, CEO of a company that had just raised millions of dollars, doing the dishes. I thought about my dad’s smelly fish saying and how he’d be proud of me. Then I thought about our investors and what they’d think of this…and it struck me they’d be pissed. Here I was, CEO of a company in which they’d just invested millions of dollars, doing the dishes instead of the dozens of other things only I could be doing to make their investment successful.

In the few months since then, my leadership focus has shifted. I still do the dishes when it’s my turn; when AWS shits the bed at some inhuman hour, I’m in our IRC room doing what little I can to help; and I always want to understand the gory details about why we made one architectural decision over another even if I wouldn’t know how to implement either of them myself. I am proud to continue to be a colleague to my team above all else. But leadership in a larger organization requires more than that. Our goal is to achieve on a scale bigger than what one person can achieve alone, and that means the leader needs to lead not just do. Doing is good, but when it turns you into a micro-manager or takes you away from leading, it can be counter-productive.

Delegation is hard. I’m finding delegating well to be much more challenging than doing things myself. Leading purely by example just requires effort and a willingness to do things that aren’t fun or glamorous, and as the leader you’re usually the most incentivized to get those things done. But effective delegation requires much more than mere will, it is a skill set developed with patience and learning and painful trial and error. It requires finding great people, training them in the skills you need them to have, motivating them to share your goals, empowering them with the resources and information to be successful, trusting them to do their jobs, and then giving them feedback on how to improve. I have come to believe my primary job as a leader is to enable the members of our team to deliver what the company needs from them, and that’s a lot harder and even less glamorous than being the Fucking Janitor.

Delicious Bookmarks for September 24th through March 8th

These are my Delicious links for September 24th through March 8th:

Delicious Bookmarks for July 21st through August 31st

These are my Delicious links for July 21st through August 31st:

Delicious Bookmarks for June 22nd

These are my Delicious links for June 22nd:

  • Sorry, There’s No Way To Save The TV Business – A clear and concise overview of how the incumbent stakeholders in the TV business are oblivious to the fundamental changes being wrought by delivery of video over the Internet and how this rising tide will ultimately wash away the strategic underpinnings of their legacy business models, which ultimately cannot be translated to this new world.
  • Not safe for work: And we’ll tweet at the end of the tour | Technology | – "Looking around the hall at the same-old-same-old faces of microblogging – the people who have been around long enough to have usernames like @amanda and @drew and @mario – all given just enough stage time to remind everyone how awesome their little corner of Twitter is – I realised that 140 Characters was never supposed to be a conference about "the state of now" at all. Rather it's a conference about the state of "then". A conference designed to bring together those of us who have been using Twitter since the start and who now feel like we've lost control of it to celebrities like Aston Kutcher and Oprah. A chance for us all to sit around and talk about the good old days when Scoble and iJustine still mattered a damn and where having 50,000 geeks following you was the pinnacle of success…Or to put it another way, 140 Characters was like a meeting of Twitter Early Adopters Anonymous."

Delicious Bookmarks for May 28th through May 31st

These are my Delicious links for May 28th through May 31st:

  • Edward Sharpe & the Magnetic Zeros: A folk-rock revival with L.A. roots | Pop & Hiss | Los Angeles Times – LA Times write-up on one of my new favorite bands, Edward Sharpe and the Magnetic Zeros. They call them 'folk-rock', I think they're more 'folk-funk'. But we both agree their live show is not to be missed!
  • Why Advertising Is Failing On The Internet – The title of this piece is a bit of a red herring, and some of the arguments may be somewhat inflammatory. But I agree with the underlying premise, which is that the dynamics of the Internet are exposing the inherent flaws in conventional interruption marketing aka advertising. As a result, the author, a Wharton professor, argues online advertising will not be able to provide a broad-based revenue model to support the majority of web companies as commonly expected. He should have stopped there, but then goes on to examine other potential revenue models in a manner that detracts from his core point IMHO.

Delicious Bookmarks for May 19th through May 23rd

These are my Delicious links for May 19th through May 23rd:

Delicious Bookmarks for April 27th through April 29th

These are my Delicious links for April 27th through April 29th:

Delicious Bookmarks for April 17th through April 21st

These are my Delicious links for April 17th through April 21st:

Where’s the Bottom?

Like many investors right now, I’m spending a lot of time trying to figure out whether the stock market has actually hit a stable ‘bottom’ or whether it still has further to fall. My dad and I had a long discussion last night about different methodologies for calculating what  equity prices *should* be based on historical market behavior and the dynamics of the current situation. The two main factors that have driven the slide from the heights of October 2007 (DJIA @ 14,279.96 and S&P 500 @ 1,576.09) are the sudden de-leveraging of the financial markets (i.e. some major investors being forced to liquidate >75% of their positions) and the macroeconomic effects of a recessionary cycle (i.e. higher unemployment, lower consumer spending, deflation).

While theoretically possible, I believe modeling the impact of these two factors is a practical impossibility because they are so intertwined — de-leveraging sparked the recession and the recession is driving further de-leveraging. You could also do a technical analysis where you try to match current market behavior to past patterns and extrapolate what happens next based on what happened before. But that method requires making a bet on which past patterns to match against, i.e. is our current situation more similar to the Great Depression or all the recessions since. And that’s a big bet.

So, I propose a different (and much simpler) approach: assume a realistically sustainable growth rate over a long enough period and figure out where we would be if the market had grown at that pace. I picked 20 years as the period and charted the monthly percent change of the Dow Jones Industrial Average (DJIA) from 2,342.32 at the end of January 1989 to 8,131.33 at Friday’s close. The actual percent change is the blue line, and I plotted 3 other lines against it: 10% annualized growth in green; 6% annualized growth in orange; and 2% annualized growth in red.

Here’s what that period looks like in annual percent change for the DJIA and S&P 500:

And here’s the annualized rate of return for both the S&P 500 and the DJIA since 1989:

Over the course of this 20 year period, there were only 6 years in which the market declined *at all* (one of which, 2005, was basically break-even) and there were 10 years in which the market gained *more than 10%* and in 7 of those it gained *more than 20%*. Even after the tech bubble “burst” taking the market from 11,497.12 at the end of 1999 to 8,341.63 at the end of 2002 (a 27.4% decline in 3 years), the market would still have delivered a *10.1%* annualized rate of return over the prior 12 years. From where we sit today, it’s no wonder the DJIA declined 33.85% in 2008 (taking us to a still very respectable annualized rate of return since 1989 of 7.24%). But that doesn’t answer the question of how much further down it needs to go before we can consider the value of the equity markets stable. 

That’s where the annual growth rate analysis comes in. It is still highly subjective — depending on what one believes to be a representative sample period and sustainable annualized growth over that period. But I like it because it helps me think about the broader market in terms I feel more comfortable making assumptions about, like what do I think is a reasonable rate of value creation for the economy as a whole over a given period. In the case of the 20 years since 1989, do I believe there’s a reason that the equity markets should have averaged ~10% annual growth while our Real GNP achieved only 2.76% annual growth over the same period? No, and obviously neither does the market at this point.

So, what is a reasonable expectation for a bottom? Your guess on the underlying assumptions is as good as mine. But if one believes technical advancements over the last 20 year period enabled us to double efficiency (i.e. extract twice as much profit from the same revenues), then the markets *should* have grown at around twice the rate of Real GNP. In that case, we would be expecting 5.51% annualized growth in the markets since 1989 as of the end of 2008. Starting from 1989 closing prices of 2,753 on the DJIA and 353.4 on the S&P 500, 19 years of organic equity growth pegged at 2x GNP growth should have closed 2008 at 7,634.38 and 979.95, respectively (actuals were 8,766.39 and 903.25).

Update: Dad accurately points out that GNP is a trailing indicator and equity prices are leading indicators. So, this analysis shouldn’t be considered anything other than directional. I find it helpful as one factor in my overall assessment of the current situation, but as Howard reminds us no one really has all the answers.

This final chart shows the actual level of the DJIA (blue) compared to what it would be if it was pegged at 1x GNP Growth (red), 2x GNP Growth (orange), and 3x GNP Growth (green). It is essentially the same as the chart at the top but now instead of arbitrarily picking annual growth rates, we have pegged them as multiples of Real GNP (i.e. ratios of business efficiency). As you can see, for most of the last 20 years the markets were assuming >300% improvements in business efficiency.

All the above charts and underlying analysis can be found in this spreadsheet.

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Delicious Bookmarks for April 5th through April 9th

These are my Delicious links for April 5th through April 9th:

  • Digg support, Brazilian shortener, and all sorts of other « feed your blog to twitter – Announcement of the first third-party tool to officially support 😀
  • L.A. starts buying up foreclosed homes with federal aid – Los Angeles Times – This is the best use of federal bailout money I've heard yet: the city of Los Angeles is buying up foreclosed residential properties and turning them into low-income housing. This is toxic-asset relief (buying foreclosed properties puts a value on their mortgages) with real equity for the government and a social benefit. I hope more funding goes towards programs like this.
  • The Banker Who Said No – – A fascinating profile of banker D. Andrew Beal, who runs Texas-based Beal Bank. Beal Bank is privately held and approaching $7 billion. But the most interesting part is how they got there: by essentially sitting out the market 2004-2007. Seeing the state of the lending market in 2004, Beal essentially put his bank into hibernation by suspending new loans, hoarding cash, laying off half his workforce, and working half-days. Over the next 3 years, he was mocked by mortgage brokers and scrutinized by regulators for sitting on the sidelines. But his intuition, conviction, and self-restraint have paid off in a big way as he is now using his cash stockpile to acquire assets at pennies on the dollar. IMHO, no publicly traded bank would have been able to pull this off even if they had wanted to.