Boards That Rock

I help high tech companies with strategy day-in and day-out.  Strategy can appear in many forms, including:

• Business plans prepared for investors, acquirers, and employees.
• Presentations and white papers intended for customers, partners, and industry analysts.
• Messaging on a web site or in collateral.
• In presentations and position papers written for the Board of Directors.

In most growing tech companies, the Board of Directors approves the strategy and monitors the strategy and operations over time through periodic board meetings, committee meetings related to finance, strategy, and operations, and the delivery of monthly reports by management to the board.  This system has worked well for many companies; however, as a growth company CEO, you should ask yourself one fundamental question:

Are your outside Board Members paying attention?

You would think that answer would always be, "Yes, absolutely."  In fact, frequently, this isn't the case.  Here's why.  Time management issues and competing priorities get in the way.

Growth company boards typically have five or seven members that are divided like this:

• Two inside directors - usually the CEO and another senior executive, like the President, CTO, or CFO.  Obviously, the inside directors are very busy running the business; however, they also have the responsibility for dealing with the Board - both during and between meetings. 
• One or two outside investors, who frequently sit on many outside boards.  I know some investors who sit on 10 or more boards - each of which meets at least once per quarter.  It's a guarantee that at least one of these companies will be experiencing a "big time crisis or opportunity" that will suck up an inordinate amount of time.  Plus, your investors also have to look for and evaluate new investments.  Therefore, they are time management challenged.
• One to three independent directors, who typically have many other corporate responsibilities.

Given these constraints, here are my tips for operating a successful Board of Directors:

• Dealing with investors.  Generally, you won't be able to pick which investors sit on your board.  You will, however, want to establish a strong working relationship early.  Schedule regular communication through conference calls or lunches (if the investor lives in town).  Tell your investors about your successes and challenges between board meetings and ask for advice.  Script your conversations before your make them, but don't hold back material information.  Like in the operation of your business, casual communication is when the most information exchange and work gets done.
• Independent Directors.  You probably will have a say on who your independent directors are - either because you picked them before an investment was made or your consent was required as part of the investment.  Independent directors want to be helpful, and, operationally, they usually bring a ton to the table.  You should look for independent directors who can shadow the key functions in your business and who understand multiple business models - not just the business model that made them successful. For young startups and growth companies, there are three types of independent directors that are particularly valuable:
• Go-to-Market Monsters love selling and marketing and who can give you advice on how to organize and measure a sales force, generate demand, and position against the competition.
• Product and Technology Beasts know how to build and deliver things that businesses or consumers will buy. They understand technology, product management, and product roadmaps.  If you're lucky, they've launched successful products in multiple markets.
• Operations & Scaling Machines are valuable when your company starts to "cook with gas."  It turns cash flow positive, revenues double in a year, and you are hiring people faster than you can meet them.  If you thought the start up phase was hard, wait until you get here. The way you do almost everything from selling to customers to building products and providing aftermarket support will need to change.  You don't need this type of board member out of the gate, but, when you hit your stride, Scalers help you manage the Big Leap to a sustainable growth company.
• Your Management Team & the Board.  So why did I suggest those three types of independent directors?  It's pretty simple. The right directors can help you get to the next level in unexpected ways.  Certainly, your investors will be stewards of their investment, and they will push you to build your company so that you can sell or IPO at the right price down the road.  Your independent directors can serve an equally important purpose; they can work with you and your management team on key issues to avoid problems or seize on opportunities.  Here are some areas where independent directors can be valuable:
• Establishing the right incentive structures for salespeople.
• Working through competitive issues.
• Prioritizing product requirements.
• Resolving HR issues.

Let me just say that you shouldn't be bat phoning your Directors with every little question known to man.  You should organize your information concisely, get the right people in the room, and talk through issues efficiently.  Two hours is a long time for this type of conversation.  Getting to the point is the name of the game.

This approach has several advantages:

• Your directors get to know and appreciate your team.
• Your directors get to understand your business much better than if they were just coming to your board and committee meetings.
• Based on their advice, you can make progress much more quickly on key issues.
• You can identify unexpected issues early and deal with them.

Finally, there are some things you should avoid at all costs when dealing with your board:

• Avoiding Bad News.  Don't withhold bad news or try to spin it to make it look good.  Bad news is bad news.  You need to be straightforward and factual about it and have a plan for dealing with it.  If you need advice remediating a problem, make sure your board members weigh in.
• Behind the Scenes Gossip. It's a simple fact that board members talk to each other when you're not around.  When a company isn't doing well, these conversations happen more often.  You want to make sure that every board member has the same set of facts at roughly the same time and, whenever possible, you are involved in debates over company strategy.
• Star Directors that won't put in the time.  You might get the opportunity to attract a "star" director that would raise the profile of your company and attract investor, customer, and partner interest.  Beware of shiny objects in the form of directors.  The star still has to be willing to work - providing operations advice, coming to board meetings, and opening doors, when needed.  If your star is there to add a halo to your company and nothing more, you should probably think twice about the addition.

In closing, let me discuss something that can inevitable.  Your board might decide that your services as CEO are no longer needed.  Many CEOs are shocked when this happens, but, assuming that you're aren't grossly incompetent, you should just chalk this up to the vagaries of business cycle. There are CEOs that are great at starting, scaling, and driving exits for companies.  It's pretty rare that the same CEO fits in all three categories.  Recently, I came across a couple of statistics that really tell this story in spades:

• On average, newly IPOed companies were on their third CEO.
• On a $100 million exit (either sale or IPO), the founding CEO typically made $6 million.  On a $1 billion exit, the founding CEO also makes $6 million.  Partly, this is because the founding CEO was diluted over time, but, mostly, it's because, by the time a company achieves a $1 billion exit, the founding CEO is on to the next, big thing.

The Big Three - Of Technology

Over the last 50 years, there have been hundreds of substantial technology companies that, together, have transformed the world.  AT&T brought us the telephone for ubiquitous communications. SAP enabled us to run a big business much more efficiently and predictably. Cisco and Sun brought us the Internet.  HP created great technology for scientists, printers for office workers, and even calculators for finance geeks.  Digital Equipment Corporation democratized the data center by inventing the minicomputer. Google allows us to find almost anything. Yes, list of groundbreaking tech companies is long, and, in their day, each one of these companies were revered for their technical prowess.

In the history of technology companies, however, there are three that stand above all others:

• IBM, which defined computing.
• Microsoft, which democratized computing.
• Apple, which designs beautiful computers, devices, and software and lets evangelism and good will do the rest.

IBM.  Until the PC revolution of the 80s, which put tens of millions of IBM-compatible PCs into offices around the world, IBM was computing.  Like Apple, it was built upon a founder's vision for what computing can do. Thomas Watson, Sr., began Thomas Watson, Jr., begat the era of mainframe computing.  Big companies invested in Big Iron, and IBM delivered not only enormous computers that required raised flooring and cool temperatures but people to ensure that they worked.  In the 60s and 70s, IBM mainframes came with people who helped run them - for free, and the phrase, "Nobody ever got fired for buying IBM" was born.  IBM is still a great company, but it is no longer "the one" - just one of a select few.  IBM's descent was somewhat gradual:

• From 1969 to 1981, the US government and some smaller companies that lost the computer race to IBM spent their time suing IBM for anti-trust.  Eventually, IBM beat the feds, but also lost their way.  Lawyers ascended in influence.  Customers received a little less attention, and competitors took advantage.
• The IBM PC was born.  Originally, this provided  growth engine for IBM, but it also created clones from Compaq, HP, Dell, AST, and many others.  And it created the company that ruled the desktop across all "IBM compatible" makes and models, Microsoft.
• Microsoft was the ultimate arms merchant.  It ensured that IBM would never win the desktop war.

By the early 90s, IBM had lost its way.  Client-server allowed competitors to attack from all sides.  It took an outsider, Lou Gerstner, to right the ship. IBM is more of a services and software than hardware company today, and it no longer sells PCs.  It has its groove back.  The ocean, however, is full of many more dangerous fish than it was 30 years ago.

Microsoft.  Bill Gates & Company democratized computing - first by putting MS-DOS and then Windows on 90+ percent of PCs in the world.  Then Microsoft supplanted Novell and IBM in local area networks, desktop productivity software, development tools, and in large parts of the data center.  Most importantly, despite having big market share in several key markets, Microsoft created tens of thousands of millionaires by enabling the development and distribution of capable software for the Windows desktop and server platforms.  Microsoft was a channel-based company.  It focused better than any company before it on making the channel successful.

Microsoft was always fiercely competitive - beating back challenges from IBM, Compaq, Sun, Novell, Netscape, and others at critical times.  It's not that Microsoft executed perfectly - pundits pointed that out constantly - but it always outperformed its competitors at critical times.  I like to think of it this way:

Sometimes, you only have to suck the least.

Today, Microsoft is under siege - as IBM was before many years ago.  Like IBM, anti-trust litigation took its toll on Microsoft's aggressive and entrepreneurial corporate culture.  New Internet-based technologies have provided businesses and consumers with worthy alternatives to Microsoft products in virtually every area where Microsoft has been dominant.  The Company seems to be experiencing a product rennaissance in several important categories, and it is determined to be a winner in new Internet-based markets, like search, online advertising, and collaboration.  Plus, it still generates obscene profits despite losing billions of dollars a year on its new Internet ventures.  I wouldn't count them out, but rebuilding mojo takes a lot of time and markets are moving faster than ever.

Apple.  Apple isn't a Big Iron or enterprise software company.  It's a customer experience company.  IBM and Microsoft have always wanted to be essential - especially to businesses.  Apple has always wanted to be "insanely great."  Apple's first act from its birth in a garage in 1976 to 1996 when Steve Jobs retook the reigns showed a possible path for computing, but didn't close the deal.  The software was beautiful, but the hardware broke.  Or the file formats weren't compatible with PC.  Or management at the top didn't get the job done.  It was always something.

The last fifteen years are another story.  The greatness of Apple has been in its second act, not the first.  There are six, key elements to their success:

1. Know your core.  Apple fixed manufacturing by outsourcing to companies with more scale and expertise, but kept design close to home so that it wouldn't lose its edge.
2. Address weaknesses - particularly in management.  Having spent 12 years away from Apple working on NeXT and Pixar, Steve Jobs understood his own weaknesses, not just his strengths, and he hired world-class managers who could do things that he could not accomplish himself.
3. Pick the right markets.  Apple targeted markets that already existed but where transformation was possible - like MP3 players, laptop computing, music downloading, tablet computing, and smartphones.
4. Transformative products.  Apple has created devices, software, and services that are impossibly elegant and beautiful - consistently in market after market.  In each new product category, Apple products seem to make their predecessors old and tired instantly.  See Blackberry, Windows, the Creative Labs Nomad, Palm, and many others.
5. Let evangelism do the work.  Apple builds products for broad markets.  It lets its evangelists who build things for their products - like OS X and iOS developers - and consumers do the work.  Why do 92 percent of Fortune 500 companies support the iPhone and now the iPad?  Because their employees wanted them to.  Apple didn't do the heavy lifting.  Apple knows that, if you build products that people admire and the price/performance ratio is right, word of mouth will do the rest.
6. Maximize revenues and profits.  Lots companies are profitable but don't grow.  Some grow like crazy but can't make money.  Apple does both for several reasons:

• Their products command a premium price.
• Their component sourcing practices are world class.
• Their product designs use the same components across platforms.
• Options are limited, and customers are driven to the options that Apple wants them to buy.

Apple is the greatest second act ever.  It is what every company would love to be:

• The number one trendsetter in its industry.
• The largest and most profitable company.
• The company many talented people want to work for.
• The keeper of the flame in product design.
• A continual transformer of markets.

The death of Steve Jobs certainly creates uncertainty, and Apple's competitors are well capitalized and fighting hard.  Google, Microsoft, HP, Samsung, Nokia, and many others have a lot to lose if they finish far back in the race.  However, unlike IBM, which entered the PC market almost by accident, or Microsoft, which has felt the pain of a thousand cuts from competitors and governments in the US and Europe,

Unlike IBM or Microsoft, Apple seems to be ahead of the game in a time of great market upheaval. Apple is the thought leader.  Its thoughts go to market as beautiful products that command premium prices.  Competitors imitate but can't seem to do better, and, before his death, Steve Jobs and his team put in place a product roadmap that is said to stretch out for years. So, while Steve Jobs is gone, you'll see his genius and the genius of his team for many years to come.

Happy iPhone Day

October 5, 2011


9:39 AM ET:
Today is the day.  By Noon Pacific Time, the world will know just what the new iPhone 5 will bring to mobile computing and communications.  There are plenty of rumors:

• A bigger screen with glass all the way to the edge.  Developers will have to update their apps to take advantage of it - gasp.  Somehow, I think they'll get right on that.
• The Home button might move or get smaller or something.  As long as finger can easily find and press it, I think I can handle that one.
• More storage, which would be welcome for music lovers like me and app users.  Apps seem to be getting bigger in size and needing more processing power.
• It's a good thing there's supposed to be a faster, dual-core chip in there, too.
• Then there's the hope for 4g Internet speeds, which would make surfing the Net through an iPhone faster than most home broadband connections - provided that every 4g smartphone user didn't decide to all "4g surf" at the same time.
• There's also hope that you'll be able to talk to your iPhone and get it to do almost anything.  You can talk to it now, but only to dial contacts and phone numbers and maybe play songs.  Apparently, Apple wants you to be able to text, search, and generally control almost any aspect of the phone verbally.  Sounds cool.
• Some people want Near Field Communications, which would allow you to use your smartphone as a credit card in stores that support that.  There aren't very many of those yet, but PayPal, Google, and many others are working hard to fix that problem.
• It's supposed to look like a mini iPad now, too.  Is it me, or did the iPhone become like an annoying little brother when it is sitting next to an iPad?  "Pick me! Pick me!"  "No, sorry, son. The apps are much bigger and better on this one."

Then there's the pressure that's supposed to be a heavy burden on Tim Cook, the new Apple CEO.  He has to "perform" in his first solo appearance on the big stage.  Sorry, but Tim Cook has the best job in the world.  He has a great team, the world loves his products, his revenues and profits are going through the roof, and, apparently, Apple has a really deep product pipeline that's sure to produce hits for years to come.  I'd like some of that pressure.  In fact, I'll take two.

The Wall Street Journal is reporting this morning that Sprint has bet the farm on Apple iPhones - agreeing to spend $20 billion on iPhones and other Apple products over the next four years.  Hmmm.... $5 billion per year in guaranteed revenues, and, by the way, the iPhone is now available on 228 carriers worldwide, but not T-Mobile in the US.  WTF?

By mid next year, you're likely to see:

• New Macbook Pros that look and feel a lot like Macbook Airs.
• A 4g iPad 3.
• A fully functioning iCloud, which will sync just about anything to anything else, including music libraries across devices.
• Possibly big updates to Apple TV.

11:40 AM ET
It seems that every large technology news source, including CNet, AllThingsD, Mashable, San Jose Mercury News, and Engadget, will be live blogging the show.  Other reporters will be writing finished stories that will debut online only minutes after Mr. Cook wraps things up, and I guarantee that CNet will have a "First Look" at the new phones online by tonight. it's just the way it is.

12:20
I am on the subway now on my way to a meeting in Alexandria, which is about an hour and 20 minutes away.  I'll be underground for most of it, so I won't be following one or more of the Live Blogs, which is kind of disappointing.

14:00
My meeting is about to start.  Tim Cook is probably about halfway through the show now; however, business is business.  Gadget lust will have to wait. They have lemon-flavored sparkling water here. Excellent.

15:30
I am at Starbucks now - re-caffeinating for the long ride home.  Beautiful day outside and an underwhelming announcement from Apple - at least according to the Wall Street Journal.  Most of the changes to the iPhone 4S are under the hood, not on the outside:

• Faster processor - check.
• Faster data speeds - yes, if you're on AT&T or another GSM carrier, but no 4G.
• More storage - check.
• Better camera - big check.
• Bigger screen + slimmer - no check.  It's the same size and shape as the last model, and, yes, it still comes in white.  It most definitely doesn't look like a mini iPad.
• Moved home button - obviously not.
• Talk to your iPhone features - yes, called Siri.  It looks promising.
• Near Field Communications - nope.
• Global phone - the article doesn't say.
• Sprint did get the iPhone, but that won't make me switch to them.

Steve Jobs did not participate.  Apparently, Tim Cook did a bang up job the ringmaster, and the members of the cast were equally good.

18:10
I just read the CNet first look article. It's a global phone. That's very good since we'll be going to Italy in a few weeks for our 25th anniversary trip. It's time for dinner now.  I'll be watching the keynote later.  And, yes, I know that I already know everything I need to know to buy the product or not, but I've watched every keynote since Keynotes came online.  Why would I stop now?  Is this obsessive?  Yes, and I don't care.  This morning, someone posted the Keynote for the iPod from ten years ago.  Jobs was thicker, younger, and just as passionate as he was this past June.

20:01
The Keynote begins.  Tim Cook does an excellent Steve Jobs - more laid back maybe and with a slight Southern accent.  It turns out there are many things to learn about today:

• Mac sales continue to go through the roof.  They now represent 23 percent of all computers sold in the US retail channel.
• Consumers have now downloaded 16 billion songs.
• Apple has paid over $3 billion in sales to application developers.
• There are now over 225 million iOS devices in circulation.

By any measure, the metrics are impressive.  So are the product updates leading up to the anticipated iPhone launch:

• The features in the iPod Touch continue to advance, which is great for music lovers.  It isn't great, however, that there will no longer be a high capacity iPod Classic.  Carrying around 160 gigabytes of music is simply tremendous for a music guy like me.  Now I'm just hoping that mine lasts forever.
• iCloud promises to be a worthy replacement for MobileMe.  Let's hope it works well out of the gate.  I am particularly happy about the MusicMatch service, which will sync tunes across all of my iOS devices.
• iOS 5 has a lot of important enhancements.  The best is Siri, the intelligent speech recognition application that lets you ask your iOS device almost anything and get an answer or perform a task.  The Scott Forrestal demo was very impressive. I really want to try it out.  I also will probably use the Messenger service heavily.  It's the equivalent of Blackberry Messenger but with more features.

The crowd of press, pundits, and fanboys didn't react well to the new iPhone 4S. People are complaining about the lack for 4g networking and NFC and a big screen and other niggling things, but wait a minute:  The iPhone 4S supports HSPDA+, the GSM data standard, which can transmit data at up to 14.4 megabits per second. Most of Apple's 228 carriers are GSM-based, and, even with congestion, for carriers that support this standard, data speeds will increase 3-5x over current levels with minimal investment when compared to investing in a whole new LTE infrastructure in short-term. That's a big jump, and it buys carriers time to upgrade their infrastructure to LTE while providing a better data experience in the meantime.  It makes me wonder whether it's wise to switch to Verizon right now - my current plan - or stick with AT&T to gain access to those higher speeds immediately. I guess it depends on how much I want great service while I am riding the Metro here in Washington, DC.

The market did not react well to Apple's iPhone announcement.  Apple stock was down 5 percent before rallying at the close of the market, and some key pundits piled on.  This tells me that many analysts are missing the key points:

1. It's all about the ecosystem, not just the phone.  Think app stores, iCloud, MusicMatch, iTunes, Macs, iPad, and iPhone all working together.  Once you're committed, it's very hard to escape.
2. Context-based voice recognition will change the fame.  I bet Siri improves dramatically over the next 12 to 24 months.  Right now, it's in Beta.  She'll probably be pretty rock solid by next summer.
3. With so many people buying tablets, a bigger screen on a phone isn't as necessary, and the current Apple screen is fabulous.
4. Apple believes that battery life trumps network speed, and the iPhone continues to improve - 9 hours of talk time, 6 hours of surfing time, 10 hours of video watching, and 40 hours of music listening.

Apple changes the form factor of its devices every 3 to 5 releases.  This is only the second release of the current iPhone form factor.  It actually would have been unusual for them to switch now.

October 6, 2011


12:05

Today is like Boxing Day.  That's the holiday that comes one day after Christmas in many parts of the world.  It's a good holiday, but not as good as Christmas.  For Apple, sentiment is swinging back their way.  Columnists and other pundits have had time to think through Apple's announcements, and sentiment is swinging in their favor.  The importance of that ecosystem thing is becoming apparent.  AllThings D has about 5 articles on subject, and so does CNet's News.com.

I am an Apple guy.  I am getting more excited about it.  I'll probably pre-order on Friday. Now it's time to get back to work.