Christine

Women, Ponytails, and Unconscious Bias

Social froth is thick with talk of unconscious bias in Silicon Valley. Amidst it, I was bemused to see that my last 500 Women lightning talk had inspired this Medium article from Deema Tamimi...on ponytails. (Photo credit: Swirl Ponytail Barbies by RomitaGirl67)

Every entrepreneur I know has worried about image, but asking if you should wear your hair up or down makes you feel like an idiot. It's not exactly covered by TechCrunch.

So I laughed out loud, then earnestly responded with why, in a valley swimming with complex social dynamics, a simple ponytail has impact.

First: Not everyone (male or female) needs to wear their hair back. But put it up if it’s distracting — your hair shouldn't mask facial expressions, block eye contact, or otherwise interfere with establishing trust and connection. More importantly, pin your hair back if it is remotely possible you will play with it, brush it away, or blow it back during a meeting. Nothing says “CEO” to an investor like fidgeting with your hair, earrings, etc. You don’t want us to pay attention to anything besides your pitch.

Or like your mama used to say, "keep your hands away from your face."

Second: Numerous studies show that for women, playing with hair is a common “preening” gesture to demonstrate sexual interest. Or it’s a nervous twitch. Neither screams "I'm a winning founder", and I imagine most women would be horrified to realize they sent either signal during a pitch. Body language reactions are almost impossible to change, so just remove the variable. If your hair is out of your unconscious reach, then you eliminate the risk of female-centric messaging that hurts your chance at funding.

When all is said and done, here's my advice for entrepreneurial ladies: if your hairline is high and back enough to keep your hair out of your face; if you don't fidget; or if you have gravitas, then wear your hair however the hell you like to. Otherwise, think about buying stock in Goody.

The *Other* Reason to Stop Using Booth Babes

There's a practical, less-controversial, economic reason for marketers to stop using booth babes...they are a hopelessly outdated marketing technique. Booth babes aren't targeted, can't be a personalized experience (wearable LEDs aside), and aren't strategic to my tech brand. (Unless, of course, I am running a modeling site.) Not to mention that I can't quantify the ROI, or optimize the results. If I were back in the marketing saddle, choosing from current platforms and techniques, I wouldn't allocate spend to decorative meat sacks...no matter how lovely.

Thanks to Raygun Brown for pointing this out (and in a much more entertaining manner), based upon his recent experience at PAX Australia:

"Don't you dare bring boobs into this. Don't try to deceive me with cheap and misguided arousal. This isn't an army base in the 1950's. I can get boobs at home. I don't need you trying to pathetically circumvent my genuine interest and pushing a marketing technique at me that has been around for several hundred years. More people are interested in video games in 2013 more than ever before. They are interested in video games, not your banal song-and-dance. Video games are exceedingly creative. You are not."

...and to the extent looks matter, maybe I could just hire professional hair and makeup for the good sales and marketing folk who *should* be on the front line with a potential customer. Just sayin'.

How to Compensate Next-Gen Venture Capitalists

 

It must be hiring season for venture capitalists - VC compensation talk has been coming up recently. If you're a partner, VC compensation is pretty straightforward - you get a piece of the partnership's profits, aka a "carried interest" in the fund. (See my presentation on VC 101 to dig in more on this.) But how can you provide the best incentives for your other investment staff? How can you get your analysts, associates, principals, and vice presidents to all contribute the success of the portfolio? In an ideal world, every person an entrepreneur talks to at a venture fund will have a stake in the entrepreneur's success.

I have the unique advantage of an inside view on non-partner compensation across multiple investment funds. There isn't one model established as best practice for the industry, but there are a few that are either common or make common sense. Not necessarily both at the same time. Here are the top three:

• Vested Interest. This model is very similar to stock options:
  • The fund creates a small pool of "carry points" that can be issued to associates (or other non-partner staff.)
  • An associate is a issued a set number of "carry points" each year. Like stock options, these points take four years to vest, have a one year cliff, and vest monthly or annually thereafter. They also disappear if unvested if/when the associate leaves the fund. Unlike stock options, the associate doesn't have to pay for them.
  • Each year is considered a vintage year, and each year the associate gets another batch of points that will correspond to the deals made in that year. Associate kicking butt? Increase the size of their grant. Slacking off? Decrease it.
  • The fund sets up the spreadsheet that keeps track of "vintage year" performance in addition to fund performance. (Most funds do this anyway.) 
  • Both during employment and after the associate leaves the fund, the associate gets payouts based upon their share of profitable, in-the-money (vintage year principal has been returned) exits.

• Phantom Carry. A less-common model that looks like cashless angel investing:
  • For each investment, the associate is given a 'phantom investment' amount, as if they were a invisible angel investor in the deal. So this doesn't show up on the investment's cap table, but rather lives in the fund's back end accounting.
  • The amount of phantom investment varies based upon the role the associate is playing. For example: Sourced the deal? You get $25K phantom carry. Helped close it? $15K. Just on the team at the time the deal closed? $5K.
  • The fund sets up the spreadsheet that keeps track of "phantom carry" amounts assigned to each investment.
  • Both during employment and after the associate leaves the fund, the associate gets payouts based upon the return for each individual investment.

• Exit Bonus. This popular model is most like a traditional bonus:
  • The associate is given a share of carried interest in the current fund, and any future funds that the associate works on.
  • When the current fund begins returning a profit during the asociate's employment, the associate receives distributions according to his/her carried interest.
  • After the associate leaves the fund, they no longer receive any distributions.

Of these three, I believe that the vested interest model provides the best outcomes - the associate has a long-term incentive to provide ongoing support for companies, which benefits both the entrepreneur and the fund. The longer the associate is working at the fund to support the investment, the greater his/her reward (larger amount vested) based upon the company's success. The phantom carry model comes close to this, however, and is easier to administer. Though common, I believe the exit bonus model to be flawed - an associate or vice president in a three-year program is more incented here to find new deals as vs. to work towards the success of deals that may exit after they are no longer working at the fund.

Net-net: Entrepreneurs - don't be shy about asking if the associate that cold-calls you has an incentive for you to be successful! VC partners - there's a real competitive advantage in having your entire team work for your portfolio's success. The argument isn't to pay staff more, but rather to tie more compensation to portfolio success. A thoughtful approach here will be worth the overhead.

What other good approaches have folks seen? Ideas and comments welcome.

Vote for my SXSW Idea! --> Not Just a Pretty Profile: Building Online Persona

Are you more than just a profile? Join me at SXSW to discuss how to build an online persona. Think about it: What does your twitter feed say about you? What reputation does your blog cultivate? Whether developing a public persona for yourself or for your business, establishing an authentic online persona is a key strategic decision. Be proactive and build an online persona that works, using the right blend of public and private identity.

Questions answered during the session:

1. What's my persona and why does it matter? How is that different from my identity?
2. How does my persona (and how I present myself/my brand) change from offline to online?
3. What steps should I take to build my online persona? How many personas do I need?
4. How much control can I realistically expect to have?
5. What are some concrete examples?

Thanks and a shout out to Amber Case, Cathy Brooks, and Kaliya Hamlin for their various seeds of inspiration. Please give the session your vote, and I hope to see you in Austin!

Think You'll Get Bought By Google? See How You Measure Up

Whether you're hoping to flip your business to Google in one year or planning long-term M&A, you should take a close look at this excellent infographic from Scores.org. One part Mythbusters and one part opportunity eye-opener, this Google acquisition analysis comes courtesy of Scores and ByJess. (Cheaper than hiring an MBA for sure!)

 

Research by Scores.org

 

Quick Followup: VCTips at Web 2.0 Expo

Just a quick post to take care of two VCTips housekeeping items:

1. A big thank-you to Amish Jani from FIRSTMARK Capital, Oren Netzer from DoubleVerify, and Avner Ronen from Boxee for joining me and Bryce Roberts at this week's VCTips workshop at Web 2.0 Expo New York.

2. If you'd like to get a copy of the workshop slides, you can download or view them below. (Though I uploaded them to the W2E web site, they still aren't appearing alongside the abstract. Grumble.)

Thanks again to everyone who participated, including all of the entrepreneurs in the audience!

VCTips Workshop 2009-11-16

View more presentations from spacejockeys.

What's the Secret Success of MINT.com? The Real Numbers Behind Aaron Patzer's Growth Strategy

Aaron Patzer, CEO of MINT.com, dropped by The Funded and Vator.tv's Juice Pitcher tonight to share some secrets of the company's success. (Just in case you don't plug the TechCrunch feed directly into your brain stem: MINT is the wildly successful, soon-to-be-acquired-by-Intuit, #1 personal finance site...and oh yes, full disclosure that First Round Capital is a thrilled investor.)

Everyone knows that MINT has a great product, but few know the strategic moves. To the point, what did it take to get there? How much did it cost to get started? When and how was it smart to raise money such that both the founder and the investors walked away happy? Aaron opened up MINT.com's books - and his old slide decks - tonight to share some shockingly frank details with the startups in attendance. Even more generously, he was happy to have his lessons be blogged for a more public audience:

The straight shot: Why should you raise money, and how much?

• Step 1: When you're ready with an Idea: Raise $100K from friends and family, and use it to build a prototype.
• Step 2: Once the prototype is done: Raise < $1M in seed capital, and get into market with an alpha launch.
• Step 3: After that initial launch has traction: Raise $5-10M, and use it to prove/scale the model.

Garage Phase: What are the costs and milestones?

Here's how MINT spent its $100K of garage money:

• Founders: $30K/year living expenses
• Engineering 1st hires: $30-50K/year
• Office: $400/cube/month
• Tech: $10K
• Legal: Deferred payments for 0.50 - 0.75% of company

Roughly, 2 founders + 1 engineer/contractor = $150K/year burn. This gives you 6 - 9 months of runway before you need to raise a seed round.

In order to get that seed round, you'll need to understand your competition, and come up with projections. Everyone knows this will change...but you need to show your thinking around it anyway. As an example, MINT originally projected $30/user/year for lead-gen and CPA. (Aaron noted that the company is pretty close to this today. But this is the exception rather than the rule.) Know how the business model works. People do X behavior and it turns into $Y income, add up those $Ys and it's a $Z business. If you can walk people through these assumptions convincingly, you'll get that seed round.

Seed Round: What are the next costs and milestones?

• Salaries: $50 - 90K/year ($450K/year for 5 people)
• Overhead: +20% ($100K/year)
• Legal: $25K + $2K/month ($50K/year)

MINT.com raised $750K in its seed round to cover these expenses for 12 months, which is about how much time you'll need to develop into the Series A stage. [UPDATE: when the funding market is moving slowly, you need more time, and therefore more seed $. The 2009 market is moving more slowly than is the market in which MINT raised its Series A.]

What model do you build next in order to raise the Series A? Testing and learning from your seed model, show user growth, retention, COGS, revenue per sale/user, and profit. The accumulated loss is how much you need to raise, and a well-thought-out funding strategy combined with an understanding of (hopefully good) business economics is what will speed the Series A process along.

Series A: Now what?

• Salaries + Overhead: $200K/year/person
• COGS: Varies, but even one-time expenses magically add up to $150K/month
• Legal: $10-50K/month

Total burn for a 30-person team: $6M/year. Naturally you don't start out burning this much, as it takes time to grow the team. However the numbers work out, your goals should be the same: Get profitable within 2 years. Raise the capital you need to do this without much distraction.

If you want to raise more after this in order to grow more aggressively or extend otherwise, your success in achieving those first two goals will speak for itself.

Quick & Dirty How-To: Employee Stock Option Allocations

A great question came up recently in discussion with one of First Round's CEOs: how much equity should I allocate for hiring my next round of employees? For a company that has raised a first institutional round of capital, this question is important not only when making competitive job offers, but also when calculating what size option pool the company will need before raising the next round of capital.

Stock option comparables are hard to come by, so I thought I should post what I dug up for our CEO. Here's the best quick and dirty breakdown that I was able to find, courtesy of Venture Hacks - the ranges are from two years ago, but they still seem about right given what I see in the range of cap tables hitting my desk.

"To allocate the option pool from the hiring plan, use these current ranges for option grants in Silicon Valley:

Title Range (%)

• CEO 5 - 10
• COO 2 - 5
• VP 1 - 2
• Independent Board Member 1
• Director 0.4 - 1.25
• Lead Engineer 0.5 - 1
• 5+ years experience Engineer 0.33 - 0.66
• Manager or Junior Engineer 0.2 - 0.33

"These are rough ranges – not bell curves – for new hires once a company has raised its Series A. Option grants go down as the company gets closer to its Series B, starts making money, and otherwise reduces risk.

"The top end of these ranges are for proven elite contributors. Most option grants are near the bottom of the ranges. Many factors affect option allocations including the quality of the existing team, the size of the opportunity, and the experience of the new hire."

If you'd like to get more precise information on total compensation (both cash and equity, by specific title), you can get very robust data from the Radford technical job survey. Survey data is free in exchange for participating in the survey, so you can't beat the cost if you're on a tight budget. If I remember correctly from my own founder days, their 'small company' compensation ranges were appropriate for 25+ employees but a little off-market for a seed company. So if you get hold of a Radford survey, you may want to swing some comp from the cash to the equity side if your startup is still seed-stage.

If anyone else has good comparables to share, please do post them in the comments.

If Sigmund Freud and Gautama Buddha Ran Marketing: Six Simple Rules for Campaigning

Mark Rovner and Katya Andresen shared an unusual take on online outreach at today’s Nonprofit Technology Conference: what can Freud and Buddha teach us about marketing communications? Together, Rovner and Andresen came up with these six simple rules for campaigning:

1. Crap offline is still crap online. ‘If you put crap on Twitter, it won’t smell any better.’ Really no need to elaborate further on this point.
2. Your audience is not an audience. Recognize that they’re people, and find common ground if you want them to respond to your call to action. Both Microsoft and Brian Solis have articulated this quite nicely. Net-net: If you don’t need a conversation, then don’t use social media. If you don’t want a shallow relationship, then don’t use broadcast media.
3. Convey a humbling vision. Or in Buddhist terms, ‘give profit and gain to others, take the loss upon yourself.’ Can you share credit with your supporters and clients? Put the members of your community – your customers and clients – at the center of your marketing story.
4. Emotions rule. Why do technologists suck at storytelling? Stories are fundamentally emotional, and technologists work in a left-brain community. (I must admit, I was surprised to come up 'right-brain' in the controversial spinning dancer test, though the Hemispheric Dominance quiz claims I'm split-brain.) But overcome your fear of feeling - the consumer’s right brain decides, while the left brain justifies decisions. And for nonprofits, ‘emotion powers the fundraising engine.’ By telling stories with emotional (rather than statistical) impact, you’ll be more likely to connect with your supporters.
5. Humor is a basic human need. Have you noticed how easily humor can form a personal connection? Try using humor in your next campaign...but make sure to test it out on a funny person before springing your attempt on the general public. There’s a lot to be gained by making people laugh. And even if humor isn’t a fit for you, it’s still a good idea to lighten up in your campaigns. 'If you can’t be hilarious, be hopeful.' Fear messaging only works if there’s a clear and simple solution being offered. Intractable problems are paralyzing.
6. Keep it simple. Lots of choices + too much noise = paralysis. No matter how many balls (marketing messages) you throw at someone, they will still just catch one...or if you throw too many, they’ll catch none. If you want someone to catch multiple balls, try throwing them one at a time.

John Doerr's 11 Tips to Help Survive the Downturn

As crisply shared by John Doerr at today's Web 2.0 Summit...requiring no embellishment:

Board of Directors 101: How to Run a Meeting

Josh Kopelman recently pointed out an excellent post by Guy Kawasaki on the Art of the Board Meeting. Kawasaki's recommendations are to the point, and right on. These three recommendations in particular struck home, so I wanted to share them:

Quick Picks on How to Market via Social Media

Stopping in to an overcapacity panel on 'Marketing Without Marketing' at SXSW 2008, I picked up a few great sound bites on how to reach out to customers 'without being skeevy':

Top 5 Tips for Hosting a Customer Community

Brian Oberkirch of Small Good Thing moderated a wide-ranging exploration of customer service communities at yesterday's Customer Service is the New Marketing summit. (Flickr photo by dougfl07.) Matt Mullenweg of Automattic  summed up the panel's threads well with a single metaphor: If everyone showed up to your house for a party, would you stay away? Probably not. You'd stay at home, make sure that everyone had a drink, keep weirdos from doing strange things off in the corner, and herd guests into the right room given their numbers and general mood.

How does this simple concept apply to hosting a customer community? Based on the panel discussion, I've brought together these 5 key success factors:

Alex Frankel on How Employees Create Brand

How are brands defined by their internal culture? How are customer-facing employees defining and marketing their company's brand? Alex Frankel, author of Punching In, came to Customer Service is the New Marketing to share his undercover experiences as a corporate culture chameleon.

 

Virgin: 200 Businesses, One Culture and One Brand

As the company lore goes, Virgin started in the 1970's as a student newspaper. As Richard Branson decided to also mail out records, he quickly moved into retail after seeing how easy it was to break 33" LPs in the post. Then? Producing records. And then? The airline business. Today? Communications, money, health, renewables, and charity, with over 200 companies and 48,500 employees. Michael Murphy came to Customer Service is the New Marketing to talk about how to provide the same Virgin customer experience across all of them.

Google, Flickr, Rackspace, and Socialtext Agree: Community is Key to Scaling Customer Service

An impressive lineup of mission- and consumer-critical online services discussed scalability today at Customer Service is the New Marketing. Marc Hedlund of Wesabe encouraged these market leaders to trot out their own best practices and practical suggestions for handling success. The conversation boiled down to two recommendations: #1: Get your community involved. #2: Integrate your community's voice into your internal operations.

How The Geek Squad Propagates a Service Culture

The mercurial Robert Stephens is not only a two-time college dropout, he's also the founder of The Geek Squad. Stephens flew out to Customer Service is the New Marketing this week to discuss how his company's culture dictates not just customer service, but the entire customer experience.

Zappos Shares Secrets of 75% Repeat Business

Zappos was started in 1999 when the founder saw that there wasn't anything as easy as Amazon.com for buying shoes. But how did it survive the bubble? And why does it continue to enjoy steady growth? Tony Hsieh, Zappos CEO, shared some company secrets at today's Customer Service is the New Marketing summit.

Leading Brands Demonstrate Best Practices in Customer Service

The emerging top topic for customer service professionals is how technology enables genuine, two-way conversations between companies and customers. Customer Service is the New Marketing (streaming live today) is an important catalyst for this industry-wide conversation.

Company-Customer Pact Needs Your Support

We all need to trust the people with whom we do business. Unfortunately, most of us don’t – and since this is so frustrating, I was happy to work with Get Satisfaction this month to draft a provisional “Company-Customer Pact.” Our intention was to create a simple, usable framework for company-customer interaction. Ideally, one that could be recommended and adopted by consumers and companies alike.

The provisional draft will be publicly announced today at Customer Service is the New Marketing, and has been posted at CCPact.com. We're actively seeking community support, as well as public comments. Support and comments can be voiced right on the wiki pages. Having your voice included would be terrific.

Please do forward this post to folks that you’d like to hear in the conversation, or that you think would be interested in building better company-customer relationships. With time and shared good intentions, we can together change how business is done.

Quick Post on Philanthropy and Microlending

Brad Garland posted a question earlier this evening on how to best apply his small company's burgeoning interest in charitable works. A quick Seesmic exchange that followed touched on not only what his team had to give (some time and cash on an ongoing basis, and a one-time donation of equipment and hardware), but also what outcomes they were interested in. What change do they want to see in world? Given that change, how can they contribute towards making it? More time and effort will be going into this topic for the team, since that's a big question.

Zappos Sets the Bar for Customer Service

I've always been a fan of Zappos, both as a longtime paying customer, and as an admirer of their ability to tough it out during the Bad Times. Tonight, I followed Fred Wilson's post and discovered just how far their exemplary customer service team will go - Zappos not only takes great care of its customers, but also supports the personal touches of its people as they remember to be human.

So, here's my small contribution to word of mouth marketing and grassroots brand development: Shop Zappos.

Key Strategic Lessons for Facebook App Developers

Several successful Facebook app developers shared their experiences at the recent Community Next gathering. After listening to the early F8 cohort, here are the strategic lessons that stand out:

Sobering, Joyful Life Lessons: Last Lecture of Prof. Randy Pausch

"We cannot change the cards we are dealt, just how we play the hand." So speaks Carnegie-Mellon computer science professor Randy Pausch, who delivered his final lecture in anticipation of dying next month from pancreatic cancer. "I'm in excellent health right now -- It's the greatest thing of cognitive dissonance that we will ever see...I'm in better shape than most of you." Prof. Pausch, who is the 46-year-old director of the Alice Software Project, co-founder of the Entertainment Technology Center, a husband, and a father of three, has lived life both richly and well.

Digg Shares Lessons on User Revolt Management

Over time, it's been primarily civil within the digg community. Recently, however, there was a minor furor around the HD-DVD encryption key being distributed via digg. Visits to the site were dominated by a vocal minority on one side, regulators on the other, and digg stuck in the middle with its hijacked home page. Digg CEO Jay Adelson hosted a conversation today at Foo Camp to discuss their experience.