Dear Mr. President, Two Wrongs Are Still Two Wrongs
Dear President Obama,
I can only imagine how busy you are these days, so let me be get to the point.
With all due respect, two wrongs will not make a right.
By responding to AIG’s bonus fiasco with exorbitant (extortionist?) tax rates on the bonuses of employees at banks with TARP money, a second wrong will most certainly only cause more harm to our very fragile financial system. In addition, it sets a precedent of using the tax system to punitively target minority groups of our country with excessive tax rates which is a very dangerous step for the government to take.
We all agree that the situation at AIG is a mess. Any company that needs a $170 billion government bailout is certainly a mess. And without knowing the facts, it is completely understandable why paying out bonuses of more than $165 million would ignite populist rage. (Whether any of those bonuses are deserved or needed is another question, but let’s put that aside for now).
However, the current taxation proposal is simply an emotional, populist driven reaction that will cause more problems than good. One of the lessons learned from the Great Depression is that populist driven, over-reactions such as the Smoot-Hawley act, which kicked off a global protectionist tariff war, severely worsened the length and depth of the economic meltdown.
The time is now to put aside emotion, ignore political polls, and to rise above party loyalties and partisan politics.
The time is now for you to Lead this Great Nation with integrity, respect and reason.
I strongly encourage you to immediately call for a stop to this legislative process for taxing certain employees of the banking industry and declare you will Veto the proposed legislation.
Yes, this “90% taxing of bonuses” might make some people feel better, but mob “justice” is never just and in this case it will only cause more harm and here are some of the reasons why:
1. AIG is the mess so deal with AIG.
AIG needs more oversight and governance. This administration should take some additional steps to put in place industry standard norms of governance for an investor with 80% ownership. These inlude:
- Appointing a set of board members, both industry executives and bureaucrats, to represent the taxpayers/shareholders interests as would any investor with 80% ownership in a company.
- Assigning at least one of the government appointed board members to the compensation committee.
- Setting requirements that certain expenses over a threshold (say the magical “$250,000″?) require board approval.
These are some basic rules of good corporate governance that even a start-up follows and I am more than happy to suggest additional ones if anyone is interested.
2. We need the best and brightest working hard to help drive growth in our economy.
We as a nation have prospered by unleashing the creative spirits of the best and brightest. And for that work, they should be paid a wage not set by the government but by the market itself. If we limit one’s ability to receive the value for their work because they are employed at US banks that have received TARP money, then it will lead to an exodus of the best and brightest from the places we need them most. We need them working day in and day out to help turn this economy around. And in the just announced Public-Private Investment Program to deal with the illiquid and “toxic” mortgage related assets, a key goal is to enlist the financial sector in helping to solve the problem.
3. It will lead to increased de-stabilization
Based on the resulting brain drain, banks will likely move aggressively to return all the TARP money they have received. While ultimately returning the money is what needs to happen, in some cases this will probably be done prematurely which will very likely lead to further de-stabilization. This will occur for two reasons. First, the banking system will simply be under capitalized. Secondly, those banks that return the TARP money will appear as better banks and could potentially lead to a run on the rest of the banks which do not return the TARP money. This will only serve to undo the improvements that are just now starting to take hold.
4. Lastly, this is simply an attack on the very foundation of our Great Nation.
One of our founding fathers, James Madison, is quoted as saying about taxation “…a national revenue must be obtained; but the system must be such a one, that, while it secures the object of revenue it shall not be oppressive to our constituents.”
The fact is that most of the employees at US Banks that have received TARP funding are good, hard working Americans that had nothing to do with the decisions at the banks that led to the issues we have today. It’s simply wrong to target all of them with exorbitant tax rates. It is wrong for a majority of any type – gender, race, creed, sexual orientation, or economic standing – to abuse the rule of law to oppress or limit the ability of a minority to achieve their full potential. It is a populist, anger driven attack on the basic foundation of our country’s principles of life, liberty, the sanctity of property and the pursuit of happiness.
As you stated in your inauguration speech:
We remain a young nation, but in the words of scripture, the time has come to set aside childish things. The time has come to reaffirm our enduring spirit; to choose our better history; to carry forward that precious gift, that noble idea, passed on from generation to generation: the God-given promise that all are equal, all are free, and all deserve a chance to pursue their full measure of happiness
The time is now for you to Lead. I truly do HOPE you are able to not only “proclaim”, as you did in your inauguration speech, but to bring about the CHANGE which results in “an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics.”
Sincerely,
Joseph Ansanelli
www.ansanelli.com
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Control Freaks Are Us
Let’s face it, startup entrepreneurs tend to be “control freaks”. I certainly have that tendency (Yes, that’s right, I admit I can be a control freak!).
The fact is that when you start something, sweating the details is important. By sweating the details, you establish a culture that important details matter and also that the highest quality of execution is expected. And sometimes, when the going gets tough, digging in is important to help ensure success. We all know this will drive the team quite crazy, and you have to know when to let go go, but that is the topic for a future post…
Control Freak Remote
Control Freaks vs Venture Freaks
Now, since most of us are all card carrying members of the Control Freaks Association (and the remaining folks don’t want to admit it) one of the biggest fears with losing control in a startup comes from raising money especially from venture capitalists (VCs).
So the question is once you raise money, can you be a control freak, or at least be in control of the company’s destiny? Or will the VCs take control and end up running the company?
Deliver
Well, the answer is quite simple. Deliver the results, and you are in control. That’s it. If you want to stay in control, give your investors a reasonable plan, and deliver the results. The very last thing a good venture capitalist (VC) wants to do is run a company.
Now you may be sitting here thinking about your last board meeting when the investors were adamant about telling you what to do. And yes, many VCs have their opinions, but at the end of the day, it’s your job to deliver the results. And how you deliver the results is ultimately up to you. And if you’re right and deliver, then, well, you are in control.
But if you’re wrong and don’t deliver results, then you should expect investors will get more involved and may ultimately fire you. And truth be told, if you don’t deliver, they should fire you. Just as you should fire anyone on the team that does not consistently deliver the expected results.
“You want to do what?!”
Let me give you an example of something that happened to me. There was a time in the early days of Vontu, when we had missed our first and second quarter sales results. And not a small miss, but a big miss. At this point we had raised $15 million from Benchmark, Venrock, and USVP. Needless to say the board meeting following the close of the second quarter was a little tense. And my proposal was that we needed to invest more money in sales and marketing as opposed to cutting expenses to manage our cash.
At first this proposal was received quite coldly – to put it mildly. The general mood from the investors was to conserve our cash. Yet, I believed that the right thing to do was invest. We were getting very real and very positive feedback from the market. We had concrete data on the number of product evaluations underway. And we believed that our issue was not having a high enough quantity of prospects in the pipeline given the long sales cycle in closing large enterprise deals.
While the investors were wary, they supported the decision (or maybe they simply relented?). I knew that if I was wrong, then I would be on a much shorter “leash”, and eventually possibly be fired.
Success breeds control
In this case, we over delivered on the next two quarters and caught up to the plan. And that was the first step in building trust. Over time the investors (and board) became even more trusting as we continued to deliver the results we promised. In other words, I was in control.
Not in a negative kind of way, but by delivering results, there was trust and respect. The board and investors gave advice and support, but ultimately we controlled our destiny on what and how we would run the company.
In summary, the first step for being in control once you raise money is to deliver the results. As a matter of fact, in almost any job you have, if you deliver, then you are in control. And the fact is that VCs would rather have you deliver the results than run the company. Same for a good manager. And of course, this makes all of us control freaks a lot happier too.
That being said, there is certainly the legal aspect of control in venture funded company from voting rights, to board representation, anti-dilution et al. And that will be the topic for a future post. And of course, as I’ve posted before, picking the right investors and board members is important too.
Thanks for reading. Feel free to sign up for email updates on new posts (no spam…) or to the RSS feed. And feel free to leave a comment or question.
Information on pictures used in this post:
(out of) control freak cartoon on main page
http://www.tomfishburne.com/tomfishburne/2008/04/out-of-control.html
Control Freak Remote
http://www.mcmorran.org/pages.php?page_id=317
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Can You Count?
Good execution is a corner stone for success. The following post is a little execution test. Let’s see how good you are at the simple task of counting
Your goal is to count how many times the team in white passes the ball. It’s going to get complicated so keep an eye on the white team. Click the video and start counting.
Now scroll down to read more once you’ve watched and help me answer the question, if you “can count”?
How many of you saw “it”? I’ll admit it. I missed it.
As I have previously written in “If you don’t know where you are going, well, you’re lost“, it is important to set goals, but as the video shows, the goal of counting may have caused something important to be missed.
Some recent academic articles, “Enhancing the Benefits and Overcoming the Pitfalls of Goal Setting” (Full PDF) and “Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal-Setting” (Summary and Full PDF) generally support the view that good goal setting increases performance. Yet, they also raise some great points about managing and avoiding pitfalls in the use of goals.
Importance of Goals
This post is not designed to say that goal setting is bad (even though the authors of Goals Gone Wild suggest that they are very overused). I propose that setting goals are key to long term success and not just for entrepreneurs and startups, but for any organization. It is generally true that setting good (and hard) goals for an individual or team is directly related to the performance towards and achievement of the goal. So what makes a good goal?
Without re-writing my previous post on goal setting, a quick summary is that you should have 3-5 “Wildly Important Goals” for a team or an individual. These goals should be aspirational to give the team a vision in which to believe, yet specific enough to support concrete strategies for how to achieve them. Lastly, there should measurable and time bound objectives to gauge success of achievement.
Like anything, though, the process of goal setting is not perfect and has some potential pitfalls.
“Goals Gone Wild”
President Kennedy’s 1961 speech to land a man on the moon before the end of a decade is a great example of a very aspirational goal that electrified a nation to succeed. There are however a number of goals that led to disasters. As highlighted in “Goals Gone Wild”, in late 1968 or early 1969, Lee Iaccoca set a goal for Ford to make a new car that would be “under 2000 pounds and under $2,000” and available by 1970. Horrifically, the resulting Pinto was unsafe, a market failure and led to the death of 53 people. So what are some of the risks leading to “goals going wild”?
- Blindness
- People
- Being absolutely wrong
- Success
- Lather, rinse repeat
Blindness
As demonstrated by our friendly moon walking bear, a risk to goal setting is blindness. While used as a cycling safety add, the video is based on research from the 1970′s by Ulrich Neisser, PhD at Cornell and followed up in 1999 by Harvard psychologists, Daniel Simons, PhD and Christopher Chabris, PhD. The point in this post is that it’s important when setting a goal that organizations do not become blind to either other more important goals or blind to negative consequences of the goal. As mentioned with the goal for the Ford Pinto, the goals led the organization to not adhere, or worse, ignore, strict safety and quality tests with deadly results. Other examples of goal setting can even lead to unethical and illegal activity as has been witnessed in the current financial crisis, Enron, and others. It is important for leaders and everyone on the team to keep one eye on the goal without losing sight of the big picture and of course the law.
People
Another of the biggest risks in setting goals, is that all too often the organization does not have the right people (or any people for that matter) or the tools and resources to achieve the goal. When setting a goal, a leader’s first job is to make sure that the required resources are made available to the team. This includes the ability to hire (and fire!) the needed team, dollars needed for investments including training for the team, and access to any other tools to achieve the goal. If you don’t have the right people, or a plan to build the right team, a goal is doomed from the start.
Absolutely Wrong
Additionally sometimes the goal may not have the right measure of success. While more of a fan of Milton Friedman than John Maynard Keynes, I think Keynes had a point when he said that it’s better to be roughly right than absolutely wrong. For example, at Vontu we had been growing our sales at triple digit percentages for our first few years. As the law of large numbers set in, we planned one year to grow 70% based on rough estimates that the market would be growing somewhere between 50-100%. We ended up growing more than 50% and maintained dominant market leadership yet missed our goal and many people felt we failed. It turned out that we maintained our competitive win rate and achieved an even greater market share in our target markets. Yet, an unintended consequence is that people felt we had failed, yet in many ways we were very successful.
Managing failure is a balancing act as encouraging good risk taking and the failure is important for the evolution of an organization and its long term success. On one hand the goal is designed to set a minimum bar to achieve yet you want to encourage, if not even celebrate good risk taking and failure in efforts to achieve success. In success we tend to celebrate, yet it is through failure that we reflect and learn. And sometimes not achieving the exact goal is still success.
Success kills motivation
Another challenge and unintended consequence is that achievement of goals often leads to new, more challenging and potentially unattainable goals. A great example is a successful sales person. Typically a sales person is given an annual sales quota and increasing bonuses for overachieving on the quota. If a sales rep has a spectacular year, then it’s pretty likely that their following year’s quota will be higher. It’s important to not base goals solely on past performance but what’s realistic given the current and expected future situation. Do not create goals which give people a sense of being on the treadmill constantly being sped up with additional success as one day, they just might jump off it.
Lather, Rinse and Repeat
An often cited issue of strict goal setting is that there is little room for innovation, risk taking or learning. This is a problem as sometimes once a strategy works, it is often re-applied to similar goals such as achieving sales targets year after year. What works at one stage of the market, might not work for a future or different stage. As an example, when establishing a new market, the initial marketing strategy will be very evangelistic and target early adopters and influencers yet as the market grows, the strategy will need to evolve to maybe focus more on a reference selling model or to expand into new geographies or market segments.
Additionally, as referenced in Latham and Locke’s article on avoiding the pitfalls of goal setting, sometimes a goal needs to simply be to invest or learn something new. For example, when targeting a new market, the goal might not be market share, leadership or even a dollar amount. It might simply be to understand if the market is a good one to target in the following year. Or it might be to release a prototype and see the reaction. Innovation, risk taking, and trial and error can be goals in and of themselves.
Success Gone Wild
In summary, these are just a few of the things to watch out for in goal setting. The articles cover a number of others. Yet while there are risks to goal setting, it’s ultimately a question of leadership and in properly managing the goals so you don’t miss the moonwalking bear.
I am a firm believer in the power of goals to help a leader and teams achieve wild success.
As I wrote, “If you don’t know where you are going, well, you’re lost.”
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Startup Life 103: Love
Successful startups (or any other successful company or adventure) cause memory loss. Yes, memory loss. It’s fascinating how success tends to make all the late nights, struggles, frustrations, fears, anxiety and stress fade away. Yet the fact is that startup life is hard and not for the faint of heart.
Failure is the norm
Let’s face it, most startups fail. Not just 50% but probably more like 90 or even 99% fail. I remember reading somewhere from a reputable venture capital firm that they would get about 10,000 (yes ten thousand!) business plan submissions in a year. And would invest in 2 to 5. And of the investments, odds are that 1 out of 10 is successful. in a way that employees and founders make reasonable money as opposed to simply the investors. The math on that is 5 plans out of 10,000 get funded and 1 out of 10 of the 5 is a success. 5/10,000*.1=0.00005 or in other words a failure rate of 99.995%.
So as Tina Turner asked “What’s love go to do with it?”
Love
As part of thinking about success and happiness in all aspects of your startup life, it’s important to be sure that you love it. You have to love the challenge of building great teams, creating killer products, competing with other aggressive startups or corporate behemoths and figuring out how to make a sustaining and profitable company. And you need to be able to demonstrate a lot of grace under considerable pressure. Startups are an emotional roller coaster. In any given month, week or even day, the highs are high and the lows are low. As a CEO or founder, the stress level is very high as I was always thinking about the families of the team and what it would mean for them if we failed. As a member of the team, the expectations are high and the demands on your time can be overwhelming. So be sure you love all the positive aspects of startup life and can “forget” the tough parts.
Steve Jobs gave a great commencement speech at Stanford titled “You’ve got to find what you love”. You can watch it below or read the text here. He talked about how he was fired from Apple at the age of 30 and that his love for building products and companies kept him going. And it was that love that made it possible for him to stick it out and keep going even though he was totally embarrassed and felt like he had failed. He ended up acquiring a little known company from Pixar from George Lucas and turning it from a software company into the world’s largest animation studio later acquired by Disney. And he started Next, which in a strange turn of events, was acquired by Apple and he then ended up leading Apple’s renaissance. The idea is find what you love and do it. It’s not easy but you should never stop looking or settling.
Many of you are probably saying, “Well, sure that sounds nice but its easy once you’ve made a gazillion dollars like Steve”. And yes that’s true, success makes loving startup life a lot easier. And in these difficult if not harrowing economic times it’s even more challenging as many of us are simply concerned about keeping or finding a job, never mind whether they love it. And in the short term, “Maslow’s hierarcy of needs” takes precedent over everything. You have to have food and shelter.
However, in the long term you should never stop searching for what you love. And if working in a startup, make sure you love it. If you don’t love startup life, you might not be cut out for that kind of work. It’s a shame when people join a startup for the sole goal of the proverbial pot of gold at the end of the rainbow. Considering that most startups fail, it’s important to enjoy the “journey” which is often times the only destination.
Steve Jobs speech summarized it best when he said:
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”
In summary, to be happy in all aspects of your startup life, keep in mind the ideas from previous posts about startup life as a marathon, the importance of leadership and this post about loving what you do.
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