Guy Kawasaki – problems and solutions in a VC-backed company

If you work in a VC-backed company and you don’t read Guy Kawasaki’s blog, you should start. If you work in a startup that might be VC-backed someday, you should absolutely start reading Guy’s blog — for you, it might come in time to save your neck.

Guy’s latest entry is called After the Honeymoon, and it deals with problems that come up after you’ve got financing in place and you’re trying to make it to that great liquidity event in the sky. There’s only one problem: if you wait until you’re in trouble to read his article, you’re already dead.
When I read through his problems, it sounded like an eerie echo of the last four years at my last place of employment. We didn’t have all of these problems, but we had most of them. The funny thing is, though, I don’t think that merely having the answers to the problems would have been enough to fix them — at least not in our case.

When I look back at the events that unfolded over the course of the last few years, so many of the really fatal problems were put in place very early on — the rest were just harmonics of the fundamental injuries. We set in motion a game plan that directly caused some of the problems that killed us. Of course, we didn’t know it at the time — at least not in those black-and-white terms.

So what if someone had objected to the plan? What if they saw problems well in advance of the hurt and tried to route the company around them? In an environment where everyone looks bad if there are any problems, it’s dangerous to be the messenger. That’s what got our founder / CEO in trouble. So there’s problem #1 from Guy’s list. Not quite the same circumstances, but whatever, right?

Next up is problem #2. Let’s say just for grins that when you close your VC round, the round is supposed to fund sales and marketing ramp-up. Then, also hypothetically, of course, let’s say that the investors want to see you broaden your market. You’re gonna need product changes. You’re also going to need lots of Professional Services resources, because the new direction implies big sales, big implementations, and big support. There’s no funding for development, though, so make hay with what you’ve got. Or less, since you’re now training the new Sales & Marketing people, and your headcount is being funneled into PS. Oops … late product. That’s number 2.

Sales is problem #3, and it makes a certain amount of sense that it’s hard to ramp up sales in a market other than the one where the company and the product grew up. Nevertheless, you bring in all the best Rolodexes and light up the phones with news of the Great Elephant Hunt. If nothing else, it makes good Boardroom material for a couple of quarters. Later on, it starts turning into an uncomfortable conversation about, “just how long is our sales cycle, anyway??” Like Guy points out, chasing those big accouts is a rush when it’s hot, but the cricket noises in between deals gets old after a while.

Problems 6 and 7 are logical extentions of your other problems at this point, and problem 9 is inevitable when things are going this well.

So at what point do you bring this bad news to the Board, and who’s gonna bell that cat, anyway? Our founder would have given them the straight poop — in fact, she did, and got sacked. That’s a lesson that wasn’t lost on everyone else. That kind of environment breeds yes-men. Hard-working yes-men can right the ship if the list isn’t too bad, but if nobody can tell Captain Smith to slow down, well, you know what happened.

So read Guy’s list again. Print it out and tape it where you can see it from time to time. If you’re not in too deep already, heed his advice. If you are in too deep, I’ve got some great advice about using SugarCRM to help your job search. 😉

Epilogue

Although this post reads like an indictment of our VC’s, it’s not. They were remarkably tolerant and stood by us for a long time (maybe someday I’ll write about what sort of reward we got for sticking around to the end, but not today).

In fact, this is an indictment of the system. We were a couple of checks and balances short of a solid foundation. Until I lived through a VC-backed startup scenario, I never really understood the importance of independent directors on a Board. I do now. Maybe this is the state of the art for VC-backed companies (hence, “Venture”?). After all, how are you going to get a high-quality independent Board member to help a fledgling startup? Well, here’s an idea: it’s routine for VC’s to partner with other VC’s to do a deal. Broaden the partnership to include a VC that doesn’t have a stake in the deal. Structure it so it’s a swap – you watch over this deal for me, and I’ll watch over this deal for you.

I’d love to hear your thoughts and feedback – let me know what you think.