How & What Growth-stage CEOs Are Ending 2011 & Planning for 2012

Below is the hyperlink to take the Q4 CEO peers speed-survey, exclusively for growth-stage CEOs. This survey focuses on “How & What Growth-stage CEOs are Ending 2011 & Planning for 2012″

This shouldn’t take more than 5 minutes of a busy CEO’s time–

We here at BSG Team Ventures periodically take the temperature of the markets we serve. The survey is no more than 15 questions, most simple multiple-choice.

These surveys are created and compiled by BSG Team Ventures as a courtesy to our executive ecosystem with the belief that knowledge is power. Aggregated peer-provided knowledge is “actionable power.”

To compare how you’re feeling a year later with the survey results from Q4 2010, titled “CEOs Plan for 2011”, go to http://www.bostonsearchgroup.com/blog/q4-2010-ceo-survey-of-growth-stage-companies/

We make an effort to survey only those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies). [Note, if you don't fit the aforementioned description, please refrain from responding.]

Feel free to forward to the qualified CEOs in your sphere of influence. The more data generated, the more accurate the trend lines.

All responses are anonymous due to the web-based survey technology employed.

We will forward the survey results within the next two weeks to the email address on file. Please let us know if there is another email address you wish us to send the results to as well.

Each quarter we survey growth stage CEOs who are running innovation driven companies.  This quarter,  we had more than 60 CEOs responding.  CEOs were running companies in broadly defined technology (software, hardware, semiconductor, telecom), Internet (e-commerce, media, social, entertainment), medical devices, biotech, and cleantech / renewable energy sectors.

A note on methodology.  We send these surveys only to those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies).    All responses were anonymous due to the web-based survey technology employed. The majority of respondents were in the United States, with the highest concentration on the East and West coasts (New York, Boston, and San Francisco/Silicon Valley areas).

For prior survey results from Q2 2010, titled “Impact of Economy and Renewed Growth”, go to http://www.bostonsearchgroup.com/blog/ceo-survey-results-q2-2010-%e2%80%93-impact-of-economy-renewed-growth/ .

ECONOMIC CLIMATE

The first set of questions was around the economic conditions in which each CEO felt s/he was operating.    One question we continue to ask and re-ask over the last six quarters or so targets the turbulence in the macro- economic climate.  It is interesting to compare CEO responses to the same question, “Do you anticipate a double dip in the near term future?”

* In Q3 2009, more than half  (54%) of CEOs polled were expecting a double dip, and planning accordingly

* In our Q2 2010 survey,  again 50% felt a second economic correction was likely, the biggest percentage of those CEOs believing it would be in either Q3 2010 or sometime in 2011.  The other half  of CEOs felt the specter of recession was behind them

* Currently in Q4 CEOs were consistent with prior quarters with a bit more than 50% indicating they didn’t feel a double dip was likely, and the other half of the CEOs saying either a 50/50 probability or greater (16% feeling more likely than not)

So less than 1 in 5 CEOs feel another economic dip is likely.  No CEOs selected the ” greater than 75%” probability.

It’s interesting to do a meta graph of the changing CEO sentiment on this question.  Surprisingly, the graph would be sloping downward, but not as much as many would hope.  The high point was certainly back in Q3 2009, but even throughout 2010, as many CEOs were fearful of a negative correction as those who felt it was behind us.  No doubt this “lack of confidence” index doesn’t inspire the CEO with a swashbuckling, damn-the-torpedoes-full-speed-ahead attitude toward growing their companies.  Rather, it makes CEOs think in short-term windows, perhaps 3 months at a time, with little appetite to make medium or long-term bets.

Those CEOs who felt another downturn was likey referenced several factors that might tip the scales negative–  gridlock in Congress due to midterm elections and likelihood that Democrats lose congressional majority, a belief that a bad Q4 holiday retail shopping was likely, and the persistent overhang of ongoing commercial and residential loan defaults.

As for when another economic dip might occur if it were to occur, the vast majority of CEOs pointed to Q1, 2011, with Q4 of this year and Q2 2011 tying for second at 18% each.

STRATEGY

Almost 50% of CEOs polled said that they had either made a shift in strategy in 2010, or were planning to in the near future.  Granted, growth-stage companies are prone to shifting strategy until they land upon the best formula for significant and sustainable growth.  However ~50% is a big number, and clearly a chunk of those companies have been driven to rethink their strategies because of the challenging economic climate, the concern over the future, and the possibility that 2010 might represent “the new normal” where with no economic “rising tide” no help generated to float all company boats as in periods of economic expansion in the past (1997-2000, 2005-2008, etc).

CASH FLOW

The majority of CEO survey respondents (49%) indicated that they were still planning on burning cash over the next 2 quarters.  24% indicated they would be profitable.  CEO comments regarding this question indicated an overwhelming drive toward cash flow break even.  That was the big push and focus for their companies in 2010, and if they hadn’t achieved it yet, they were gunning to by end of the first quarter of 2011.  CEOs also commented that they were trying to run their companies at break even, with any extra EBIT being reinvested back into the company for additional growth.

COST REDUCTION PLANS

When asked what were the top 3 areas CEOs were targeting for cost reduction, the following table summarizes their responses, representing a combination of spend reduction and staff reduction in non-core areas.  There was a preference by CEOs to favor non-staff cuts over cutting headcount if at all possible, but many acknowledged that in order to make meaningful cuts, staff had  to be considered in the equation.

CEO responses when asked about increasesin spend were logical.  The top three in order were sales, marketing, and R&D.  Many of the comments about this question noted the fact that outside of directly growing revenues, additional spend was hard to build in when many CEOs are driving toward a minimum cash-neutral mandate and economic uncertainties are driving CEOs to think conservatively rather than expansively.

[Click on "more" below for remaining 8 slides and narrative from Q4 2010 CEO survey]

RAISING CAPITAL

The largest segment of CEO survey respondents (40%) listed themselves as having raised capital in the last 12 months, and also planning on raising additional equity in the coming 12.  For those who indicated “other,” most of these CEOs had raised capital quite a while ago (2 or more years ago), were at cash flow positive, and some who were looking at liquidity event in the next few quarters, subject to market conditions.

OUTSOURCING & OFFSHORING

A quarter of CEOs surveyed responded that they were unlikely to ever use/need outsourcing or offshore resources to grow their businesses.

However, almost 70% of CEOs were using some combination of outsourced resources, whether domestic or offshore, full-time or project-based.  Those CEOs using domestic resources were the largest segment at 22%, while those with full-time offshore resources tallied at about 14%.  Nearly one in four CEOs had used contract (non-full-time) outsourced resources in the last 12 months.  A number of CEOs highlighted the fact that although they were users of offshore staff in some capacity, it was difficult to “get right,” and often the experience was less than positive early on in the relationship and took a great deal of work before CEOs could declare it truly accretive.

In answer to where global outsourced/offshore resources were being most utilized, manufacturing, product development, and customer service were the three biggest areas.  One in 5 CEOS (20%)  had already established an international sales presence located abroad.

GROWTH-COMPANY CLIMATE

Do CEOs feel it will be harder to grow companies in the future than in the recent past?  This is a question that many entrepreneurs who look to undertake a new venture (and venture capitalists looking to invest in them) are often quick to ask.

CEO responses were much more evenly distributed than one might think– slightly greater than a third of CEOs indicate “about the same” difficulty, a bit less than a third feel “somewhat more difficult,” and 27% indicating that they thought it would likely be “easier in the next 5 vs. the last 5 years.”  Many of the comments of CEOs responding “easier” pointed to the fact that advances in technology have allowed entrepreneurs to stand up companies for less cash and a lot faster than in years past.   Those CEOs who said it would be harder all pointed to the capital markets, and the medium-term challenges in both raising capital, and achieving liquidity.

DEBT LENDER APPETITE

CEOs were closely split on the question of whether debt has been harder, easier, or about the same to procure in the last few quarters.  37% indicated about the same,  33% responded that it feels worse, and 27% conceded that it appeared easier to get debt now than in the trailing 6 months or so.  However, CEOs commented that even if debt lending had stayed the same or improved slightly in the last six months, over the last year or two lenders have tightened up a great deal, and the lending climate today compared to 2008 is substantially worse.

FEDERAL POLICY IMPACTS

More than three-quarters of CEOs surveyed indicated that there was no impact on their companies due to  changes in federal policy, be it pending capital gains changes, mandatory healthcare, or potential tax increases.  Of those CEOs who did register an impact, the majority (10%) indicated that they would be offsetting any negative impact via headcount reduction.

CEO comments focused on the negative impact of rising healthcare costs as the biggest contributor to any decisions they were considering that were directly attributable to federal policy changes.

EQUITY INVESTOR APPETITE

CEO respondents reported that they saw equity investors as having become more bearish in their investing, with almost 37% holding that opinion.  In contrast, more than 25% of CEOs felt investors appear more willing to put money to work in the next two quarters than in recent past.  CEOs commented that investors don’t want to put money into B rounds, and the investing profile “is a barbell– 259,000 angels poured $17.6 billion into more than 57,000 startups last year, and there are a number of very well funded late-stage private equity firms looking to put $20-$40 million to work per opportunity. But almost nothing in between.”  Other comments indicated that even though investors may be more interested in putting their money to work, those same investors are squeezing valuations harder than ever and their expectations for return are increasingly difficult to meet as an operating CEO.

PRIMARY SURVEY INDUSTRY SECTORS

Of the 50+ CEOs who responded, 25% were running software companies, 16% cleantech, 15$ biotech, 10% interactive media/Internet, and 4% medical devices.  Much of the other 32% of CEO respondents were in the services sector across various industry sectors.

Location of the Companies Surveyed

The majority of responding CEOs were from the New England region (66%), 10% of CEOs’ companies were located in the Rocky Mountain region, with smaller numbers in Northern California (2%), Canada (4%) and the UK( 2%).

TOPIC: How & What Growth-stage CEOs Are Planning for 2011

Below is the hyperlink to take the Q4 CEO peers speed-survey, exclusively for growth-stage CEOs.  This survey focuses on “How & What Growth-stage CEOs are Planning for 2011″

This shouldn’t take more than 5 minutes of a busy CEO’s time–

We here at BSG Team Ventures periodically take the temperature of the markets we serve. The survey is no more than 15 questions, most simple multiple-choice.

These surveys are created and compiled by BSG Team Ventures as a courtesy to our executive ecosystem with the belief that knowledge is power.  Aggregated peer-provided knowledge is “actionable power.”

For the survey results from Q2 2010, titled “Impact of Economy & Renewed Growth Planning”, go to http://www.bostonsearchgroup.com/blog/ceo-survey-results-q2-2010-%E2%80%93-impact-of-economy-renewed-growth/

We make an effort to survey only those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies). [Note, if you don't fit the aforementioned description, please refrain from responding.]

Feel free to forward to the qualified CEOs in your sphere of influence. The more data generated, the more accurate the trend lines.

All responses are anonymous due to the web-based survey technology employed.

We will forward the survey results within the next two weeks to the email address on file. Please let us know if there is another email address you wish us to send the results to as well.

Registration is Now Open

4th Annual Benefit

VCs vs. Entrepreneurs – Davis Cup Challenge

Thursday, September 23, 2010
Longwood Grass Courts  /  2:00 – 7:30pm

Welcome Back!  BSG Team Ventures is proud to once again host the 4th Annual  Benefit: VC vs.  Entrepreneur Tennis Tournament – Davis Cup Challenge, and we are thrilled to have you join us.

The VC/Entrepreneur tennis community has been growing every year so please register now so we can build the teams early.

Entry is by donation of $175.00.  Please click here to register!

For questions, please email Cristina Vieira Abramson at cvieira@bsgtv.com or call 617.784.4987

Agenda Overview

VCs vs. Entrepreneurs - Thursday, September 23, 2010

Format - Round Robin, Doubles

Time - 2:00 – 7:30pm (includes tournament, finals, cocktails, dinner and networking)

Location – Longwood Cricket Club, Chestnut Hill, MA

REGISTER

I have it on good authority that  June has been declared New England Innovation Month, per Scott Kirsner who has been tireless tender of the innovation flame here in New England for years now (http://www.boston.com/innovation).  See the growing list of June events at http://neinnovation.com.

In honor, a few thoughts follow on Innovation in New England.  First, a pointer to a related concept, called National Entrepreneurs’ Day to recognize what entrepreneurs do for this country.  It’s an idea sparked by a fellow New Englander, David Hauser, founder & CEO of successful tech start-up Grasshopper.  The date being requested of the Obama administration happens to be the first day of spring each year.  [Coincidence that the French word for “start up” also references the spring season–“jeune pousse,” loosely translated as “young sprout” or seedling).

See the video clip below for serious entrepreneurial inspiration, and the other link to add your John Hancock (yes, yet another famous New England innovator) to the virtual petition.

* Killer link for entrepreneurial inspiration– http://grasshopper.com/idea

* Link to petition– http://www.entrepreneursday.org/dh

Now, back to June’s month-long celebration of innovation.   Indeed, New England  has a storied innovation past.  However,   what may begin as a strength in our region can at times turn to weakness, the metaphorical double-edged sword.   I’ve penned a wish list of five ideas for innovation here in New England along that thematic refrain, akin to “innovation on innovation”:

• #1 “Coopetition” in New England to foster national visibility
  New Englanders are known for their fierce independence and self-reliance.  We needed this when we came over as settlers 300+ years ago and put our MacGyver-esque skills to the test to survive (note, MacGyver was no doubt was an Irish immigrant from good New England pioneering stock).  It’s been said that unless you can trace your lineage to the Mayflower, you’re still considered an outsider.  New England has never been known for leaving fresh-baked pies for the neighbor who just moved in next door.  In fact, at times, neighbors live next to neighbors for years without getting to know each other, all in the name of “independence” and a desire to not meddle in others’ affairs.  However, New England could benefit a great deal if we pulled together and collaborated just a wee bit more.  Example, Peter Rothstein, recently named Director of the New England Clean Energy Council, has been driving for both State and Federal government resources (Department of Energy and other), to fund the concept of a “Regional Consortium” that would bring together all the components of the cleantech ecosystem in New England in a thoughtful, harnessed approach.    The only way New England can achieve this national recognition (and funding) is via collaboration.  OK, just to prove to hardy New England stock, we’ll call it “coopetition” just to retain a bit the independence streak that runs so deep up here.

• #2 Greater sense for openness for new ideas/ways of doing things
  New England also has a wonderful sense of tradition—Mayflower, Plymouth Rock, the Boston Marathon, Red Sox, clam chowder… we’ve pioneered our fair share of “we were first to….” And “we have the oldest of….”  I’d like to see us bring back a bit more of the revolution versus  evolution.  A bit more General George Washington and Lexington/Concord derring-do, rather than what has grown to be our reputation as conservative  in all things “blue sky”-oriented.  Wouldn’t it be great if we didn’t have to wait for the imprimatur from an MIT lab or a Harvard Business School professor before we tried something new?  New Englanders are possessed with pedigree.  And until something has been anointed with pedigree pixie dust, an innovation often languishes in ignominy.

• #3 Be more “what you know” versus “who you know”:
  As an outgrowth of #1 and #2 above, New Englanders often suffer from an acute case of “who you know.”  This to some extent is a derivative of the circular logic involving #2 above on pedigree.   Despite our reputation as the nexus of sophistication and erudition, New England seems to grow more and more insular in letting outsiders into board rooms as well as bar rooms.  New England, despite being the original crucible of diverse cultures, has homogenized. Amazing ideas and innovations come from equally surprising and diverse sources.  One of the best examples of “what you know” is exemplified in one of my favorite recent Malcolm Gladwell articles in the New Yorker Magazine (dare we say also a New England masthead), chronicling a Silicon Valley entrepreneur from India who heretofore knew nothing about the sport of basketball, who—when tasked with coaching his daughter’s middle school basketball team—innovated game strategy to turn a weakness into a strength and a last place team into a near division winner (see http://www.bostonsearchgroup.com/blog/type-leaders-required-to-outpace-competitors-in-recovering-economy/ )

• #4 “Hold” vs. “Fold” or “Sold”
  OK, so I’m not pioneering this idea, but if imitation is the highest form of flattery, I’m a big fan of this growing mantra in the innovation community here in New England that goes like this.  Massachusetts used to have an incredible set of tech & science crown jewels:  in biotech, Genzyme, Biogen & Millennium Pharma.   In tech, companies in hardware and systems like Data General, Digital, Wang, 3COM, and Banyan Systems.  In software & Internet the likes of Lotus & Lycos.  However, over the years, these companies have either been sold or forced to fold.  One of the few remaining companies embracing the “hold” mentality is EMC, preferring to buy others than sell themselves out.  However, just one EMC, or even a handful more doesn’t make for a robust, sustainable innovation ecosystem.  Innovation can metaphorically be cast in the same light as combustion– that combination of spark, oxygen and fuel that powers innovation and drives creativity.  Spark is the new idea, fuel is the money provided from investors in the idea.  And oxygen is the people who take the idea and the money, the business-saavy entrepreneurs who partner as the steel to the innovator’s flint to spark the novel idea, tech innovation, or scientific breakthrough.  I wish we were making more oxygen in New England.  This type of oxygen only comes from the talent that grows up and makes small companies into big companies.  These bigger companies serve as a training ground for the next generation of entrepreneurs to cut their teeth, get their training, build their network.  These larger companies offer entrepreneurial training wheels.  When we sell companies too early, they never get the chance to develop a critical mass of next generation talent who can apprentice at the knee of others and with greater security to make mistakes without having each decision be a bet-the company-one that risks putting the company in mortal peril.  When there is no larger company safety net, fewer young talents practice jumping into the uncertainty of innovation acrobatics, often key experiences required to be able to drive younger companies to success later in their innovation careers.

• #5 Create a “Celebrate the student Week”
  I’ve always been in awe of many of the Asian countries who celebrate things that we in the U.S. might find odd.  I believe they have a day that celebrates children.  And a day that celebrates the elderly wise ones in their communities and cultures.  There is likely no region in the U.S. that has more undergraduate and graduate students than New England.  And these students are the equivalent to our regional “innovation fountain of youth.”  Undergrads, Masters students, PhDs, Post-docs, Fellows.    I wish we could celebrate them.  What better time to do it than during New England Innovation Month.  Make them feel welcome.  Give them social stature to counterbalance the grumblings around U-Haul vans that descend like locusts in late August, or parties that get a bit too raucous.   New England students should be lauded.  Perhaps a regional “student innovation awards” as capstone to this celebration.   OK, at minimum, a free scoop from yet another New England innovation legend, Ben & Jerry’s.  A  scoop of a new flavor in their honor, “College Cram Crunch.”

PharmaJet's innovative Needless Syring Technology

PharmaJet, Inc. (http://www.pharmajet.com) offers jet injection technology to deliver vaccines and drugs through skin. The company offers PharmaJet, a needle-free system that delivers liquid medications at high speed creating a ‘liquid jet’ that penetrates the skin and delivers the medicine through the skin in less than 1/3 of a second. It serves individual patients, as well as public health needs internationally. The company is based in Golden, Colorado with operations in

With approximately 23 employees currently,  PharmaJet was founded in 2007 and is currently headquartered in Golden, Colorado with other offices in San Francisco and  Baltimore.

As a privately held medical device design company, PharmaJet has developed an FDA 510 (k) cleared needle free jet injection technology.  It can be used to inject any liquid medicine into the body (human and animal), for fixed dosages ranging from 0.1cc to 0.5cc, into intra-dermal, subcutaneous, and intra-muscular tissue depths.  It is most appropriate for vaccine delivery, which is a standard 0.5 cc dose for nearly all human vaccines.  Since starting its first scientific collaboration 22 months ago, active pre-clinical and clinical testing of PharmaJet’s device is underway in 9 countries, with 18 partners for more than 25 vaccines and therapeutic medicines.

Market Opportunity

History & Genesis

PharmaJet’s technology was developed to address a need for safe and clean delivery of liquid vaccines, without a needle, in view of the massive infection rates caused from within the healthcare system of hepatitis B, hepatitis C, and HIV (and an additional 17 other blood borne diseases) due to syringe needle reuse and needle stick injury during vaccination (estimated at 22 million injuries per year world-wide).   With the World Health Organization’s (WHO) guidelines in mind, the Founders created a needle-free injection technology that is simple, robust, and inexpensive.  Besides getting rid of needles, however, there are a host of other sustainable competitive advantages and attractive features making it a value added device that can improve the lives of people, reduce the cost of healthcare, all the while generating profitability for PharmaJet and its partners.

Product  Potential

PharmaJet’s features help address the developing world problem of re-use (as much as 40-70% in some countries) which contributes to growth in disease and epidemic.  Further, the intra-dermal application (0.1 – 0.2cc volume) may contribute to stretching vaccine supply (reduced dosage, but similar immune response to standard 0.5cc dosage) where there is shortage so that the health net can be spread among a larger population, ultimately benefiting their group welfare and economy.  At the same time, it is perfectly appropriate for the sophisticated healthcare market, and eliminates needle-stick injury which is prevalent everywhere.  As a technology platform, there are a variety of additional product extensions that allow it to be useful in other injection segments, user groups, and processes.

Initial Markets

• Human vaccine market: >1.75 billion needle-syringes being used annually for injection of vaccines, for children and adult populations.
• Animal vaccine market: Even larger by volume than the human vaccine market, PharmaJet’s device has been used successfully in a range of species (mice, rabbits, guinea pigs, dogs, cats, goats, sheep, horses, cattle), making it suitable for:
  • For pre-clinical research and antibody production
  • To keep companion animals from spreading disease to their owners (i.e. rabies), and;
  • To keep animals productive, so that populations do not starve (developing world), industries are not financially devastated (i.e. culling for foot & mouth disease), and producers maintain efficiency (i.e. dairy).

The Position

As PharmaJet, Inc. seeks to substantially expand it’s product user base, exposure and revenues in 2010, the PharmaJet Regional Business Development position plays a vital role in product introduction, demonstration and sales within several key market segments.  Leveraging their industry experience, this sales and business development leader will systematically identify and develop key new market opportunities and represent product sales to all public and private healthcare providers currently utilizing needle injection delivery of vaccines and select drugs to patients and the general public. Based upon a pre-defined region, such product introduction will use a team approach for product adoption and use support, in conjunction with PharmaJet Certified Trainers and Technical Support. This position will thus serve as the overall regional business manager of these services.  The role will be focused on integrating PharmaJet’s product capabilities into all relevant regional public health networks, private clinics, and hospitals, thereby participating in all key mass vaccination events at the city, county and regional levels.  Such efforts shall include attendance and representation at all relevant user’s groups and regional conferences of professional healthcare providers

PharmaJet Candidate Competencies Venn Diagram

Financial Backing

PharmaJet has raised a Series A and B equity financing from angels and strategic investors, and is well capitalized to enter their next phase of commercialization.

Compensation

Compensation is competitive with the position’s requirements.  In a performance-based environment, this will include base salary, incentive bonus structure based on both quantitative revenue goals and qualitative MBOs, and a potential stakeholder position in the company.

We’re often asked how to establish fair market compensation when it comes to CEOs of privately held companies, often with venture capital or private equity backing.

Below is one method that can be employed as a jumping off point for this calculus:

1)     “De-risked,” how much is a CEO worth?  Is  $500 -$1M a year too much?  For our purposes here, we’re talking about a talented CEO.  Not someone below average, but above the average, one that a retained executive search firm, venture or private equity investor, or board of directors would be proud to put in the role.   Rather than pick some arbitrary number, this should be  ”market set,” by looking at what someone working for any global 2000 company (i.e. General Electric or other similar) earns annually.  From our executive search experience and database of compensation comparables in these companies, base salary is usually between 250K and 400K, depending upon how big the divisional P&L responsibility is, there is usually a bonus that is between 50-100% of base, and an LTIP (long term incentive plan) that-once partial vesting begins-can generate from 100K up to 250K or more a year in cash.

2)     So, the cash component of a comparable, including average base, annual average bonus, and yearly LTIP pay-out looks something like this:

Base ~ 300K

Bonus ~250K

LTIP (cash only) ~ 200K

TOTAL: 750K

* This does not include any meaningful RSUs (restricted stock units) that are usually also part of that package, which could add another 200K or more per year in value to a general manager’s package with true P&L responsibility for their division, group, or sector/segment.

* This is also not indexed to geography/cost of living.  If the position is in New York City tri-state area (New York, northern New Jersey, southern Connecticut), San Francisco, Boston, London, Singapore, Hong Kong, or Tokyo, a multiplier factor needs to be used to level-set for cost of living increase required for those metropolitan areas.

3)      Now, back out the cash portion of a CEO’s compensation for the company that they’re stepping into (say 250K a year in cash in smaller companies as all base, or combination of base + cash bonus).  So you’re left with say 500K that needs to be made up in equity, on a per anum basis.

4)      Over how many years is the liquidity horizon (and/or vesting rate, 3, 4 ,5 years)? Let’s say it’s 4 years, at net 500K, equals ~$2 million

5)      Now, this is with ZERO beta risk factor.  Add back the beta risk of an earlier stage company.  Let’s assume a global 200 company equals “1.”  A CEO role in a privately held, externally backed company is not “1″.  It’s probably a multiplier of 1.5, or 2.  For a pre-revenue, VC-backed company with high burn rate, it could be as much as in the 3 to 5 range.  Note that any illiquid company is inherently risky in terms of cashing in any equity at a reasonable price.  Let’s pick a beta risk multiplier of 2.5 times riskier than “average.” So, 2M * 2.5 = 5M.  Note that when there are preferences for the investors that create an exit hurdle rate before any common shareholders get paid, beta risk goes up accordingly unless the CEO participates in any exit event via cash carve out or other instrument.   As mentioned above, a recent IPO that represents a reasonable market comparable netted a CEO who joined the company 4 years ago $20M.  Using this number, the CEO’s compensation was $5M a year, or a beta multiplier of approximately 5.

6)     Then, are there any combat pay provisions you need to add in (warts that a CEO or executive team member is required to overcome and vanquish in their role that are above and beyond the normal call of duty)-reconstituting the executive team, or raising an outside round of capital because existing investors are tapped out, or starting up an Asia manufacturing capability that will require the CEO to take a dozen 15-hour flights one-way to get up and running.

7)      Finally, you have to look at what likely dilution there is going to be to an initial options grant for the CEO.  If you start with a 6% stake in an early stage company in a Series A funding, and you then raise a series B and C, depending upon valuation for those rounds, the CEO will likely end up below 3% as a “fully diluted” stakeholder.  There is an argument to be made that any of the management team critical to the success of the company will be “topped off” at later funding events in order to keep them motivated.  However, there is no guarantee that this happens.  It’s only good business sense to do it.  For the CEO, it is more important what s/he ends up with, not how much with which they start.

8)     Add water, and stir…

Notes & disclaimers:

• * This is not intended to be biased in any direction, to any party, neither CEO candidate, nor company and/or investor.
• * This is only one way of calculating compensation, indeed there are many others.
• * There is no way an earl- stage emerging/growth company will be able to compensate a CEO in all cash, nor truly be able to offset the risks inherent in this stage of venture.  The CEO either accepts this, or is not truly capable of working successfully in this milieu.
• * Other than the impact of cost of living  adjustments to base compensation, each CEO candidate comes with what we refer to as their own subjective “keep the lights on” cash needs.  We calculate this simply as the amount of cash required on a yearly basis to cover their living/family obligations without having to write checks out of savings to cover it.  Some CEO candidates may have 3 children in private school or college, while others may have no children and no mortgage.  Cash needs therefore may range widely, and need to be adjusted for using equity as a “leveler” (less cash-needy, higher the equity, and vice versa)
• * Alternatives to paying bonuses in cash might be to pay bonuses in equity, upon achievement of key milestones for the company
• * This same calculus can be applied to the Vice President level as well, subject to appropriate adjustments downward in cash and equity
• * In a circumstance where there is a “turn-around” required, equity may not be enough of a certainly to attract a competent CEO for the challenge ahead.  In these circumstances, a cash carve-out may be warranted in addition and/or in substitution for a stakeholder role.  The cash carve-out may be just for the CEO, or for the key management team required to achieve the turn-around.  Often, the cash-carve out structure is a percentage of total sale price over a certain amount, with the possibility for an accelerator depending upon exit/liquidity circumstances/outcome.
• * Often the question of anti-dilution comes up in an effort to assure a CEO of a certain percentage of equity upon liquidity.  Granting 5% equity to a CEO at a Series A financing with anti-dilution would ensure that the CEO retained his or her stake across the growth and additional funding needs of the company.  However, this is rarely a good mechanism, as the CEO becomes less interested in new company valuations at subsequent funding events, and becomes misaligned with the company’s investors.

Below is the hyperlink to our latest CEO peers “speed-survey,” exclusively for growth-stage CEOs.  Topic– “Preparing for Recovery?”

http://surveys.polldaddy.com/s/D3642F14267CCC14/

We at BSG Team Ventures periodically take the temperature of the markets we serve. This speed survey is no more than 10 questions, simple multiple-choice.

Knowledge is power.  Aggregated peer-provided knowledge is “actionable power.”

We make an effort to survey only those who fit the category (in this case, sitting CEOs or board member/founders of technology/science-driven growth-stage companies). [Note, if you don't fit the aforementioned description, please refrain from responding.]

Feel free to forward to the qualified CEOs in your sphere of influence.  The more data generated, the more accurate the trend lines.

All responses are anonymous due to the web-based survey technology employed.

We will forward the survey results within the next two weeks to the email address on file.  Please let us know if there is another email address you wish us to send the results to as well.

INmobile.org released their first collective intelligence research paper today, titled “Harnessing Collective Wisdom to Forecast the Near Future of Mobility.”

INmobile.org – Harnessing Collective Wisdom to Forecast the Near Future of Mobility Aug 2009

The Idea in Brief

A problem presents an opportunity: Periods of economic slowdown such as the one we are currently operating within offers us the unique and incredibly valuable opportunity to reflect upon past periods of expansion and prepare strategically about the upcoming period of recovery and growth.�This practice should be universal but often is not and too often the methodologies used are flawed, outdated, or both. The remarkable opportunity for assessment and planning may in part be unintentionally squandered when companies continue to rely upon the same perspectives and methodologies that have disappointed in the past regardless of where they are in the economic cycle.Previous techniques to forecast vary historically based upon cost and theory.Some rely upon internal perspectives, outside or analyst input, and market data.Often they range greatly in their level of sophistication, objectivity, and conjecture.While many remain valuable, they are perhaps too often relied upon.Here we begin to offer a more innovate and arguably more accurate means to acquire that knowledge.It is the tool of collective intelligence.

The idea of collective intelligence: Collective intelligence can perhaps be best understood as the intelligence which results�from the competitive collaboration of a group of individuals. Published in 2004, The Wisdom of Crowds � Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations by James Surowiecki argues that the aggregations of information in groups results in decisions that are better than those which could have been made by any single member of the group. In Surowiecki�s book, he argues that under the right circumstances, groups are remarkably intelligent and often smarter than the smartest individuals within them. When faced with a cognition problem such as, Who will win?, the idea of posing it to 100 experts was suggested as a collective �wisdom of the smart crowds exercise.As we currently seek to gain more informative and credible insights into the next five years of mobile technology, we should begin to take hold of this incredibly useful and adept tool called collective intelligence and apply it to the task.

The power of INmobile.org: INmobile.org is a private, global community of senior executives focused on mobility and convergence.This vital community of global wireless industry leaders enjoys both on-line and in-person events. Its private forum is fueled by a genuine and generous exchange of ideas, informed observations, timely information, empirical knowledge, and analysis.

The opportunity taken:In order to harness the collective intelligence and predictive abilities of INmobile.org, we interviewed one hundred senior executives from within this on-line community.We independently asked these executives the identical question during a one on one conversation and under similar circumstances.No previous conversations or predictions were referred to during these interviews in order to avoid the potential problem of group think.Based upon this methodology, it is our expectation that the whole of the INmobile.org community represented by these one hundred executives will show itself to be significantly more than the sum of its many parts.

The question:We posed the question, What industries will be most affected by the growth of wireless technology over the next five years? This question was suggested during the INmobile.org member reception held on March 31^st at the Wynn Hotel in Las Vegas, NV.�Over 200 senior executives attended the private reception where the concept of �capturing the collective intelligence� of INmobile.org was initially discussed.

The executives who answered:�The identification and selection of the 100 interviewees was done in two stages.The initial selection targeted fifty senior executives to represent the vital components of the mobile ecosystem with the broadest and most relevant perspectives for this specific question.These included mobile carriers, handset OEMs, OS vendors, and mobility focused venture capital and private equity.A call to action was then sent out to the INmobile.org membership requesting additional participants in this research project. Those additional participants provided increased geographical reach and diverse areas of mobility.Telephone interviews were conducted from April to June of 2009 and were conducted by either Matthew Corbett or Mark Newhall.

The results:Consensus predicts industries most likely affected by mobility because the predictive likelihood is heightened if and when a majority of experts independently think the same industry will be affected. These findings have been aggregated and documented in the report.

For more imformation, contact Matthew Corbett at mcorbett@bsgtv.com or at 1-617-266-4333 x241.

www.bsgtv.com

www.inmobile.org

A few months back in the New Yorker Magazine (May, 2009, http://www.newyorker.com/reporting/2009/05/11/090511fa_fact_gladwell ), Malcolm Gladwell penned a really interesting article on the subject of how underdogs-when they change the rules of the game-can beat stronger, bigger rivals. This is a story told many times over, starting with the Biblical story of David beating Goliath, which Gladwell uses in his article as the first of two fulcrums to work the concept out. The other fulcrum he uses is a girls basketball team on the West Coast that had as its coach a successful entrepreneur, Vivek Ranadivé, accustomed to innovating the rulebook to a start-up’s advantage as founder, Chairman and CEO of TIBCO Software, $1+B enterprise value publicly traded start-up success.

In the case of Gladwell’s article, the girls basketball coach was not given any special “talent” as an asset to build around. In fact, kids’ teams at younger ages are most often randomly assembled, with no “draft picking” involved. So, Randivé had to play with the hand he was dealt. He ended up with no tall girls, nor good shooters, just moldable clay, where a winning strategy would have to prevail over a special selection of talent.

In professional sports as well as business, however, coaches/CEOs get to pick their teams. And for business, there is no more crucial time to think about executive team-building than now. According to most analyst reports, markets are preparing for growth. The strongest competitors in each industry were the first to streamline operations at the beginning of the downturn and make sure their financial houses were in order. Now these leaner and meaner companies are looking to leapfrog their competition as recovery sets in. If a rising tide floats all boats, the top companies in each industry sector are looking for a way to rise at a faster rate than their weaker rivals. A recent McKinsey report framed this competitive dynamic, saying:

Roughly one in three industry leaders was toppled during the previous recession as attackers used the downturn to their advantage. Recent big acquisitions in sectors such as pharmaceuticals and information technology suggest that the current slump will be no different.

Our research shows that while all companies in an industry typically suffer during a recession, the performance gap between strong and weak rivals tends to widen. This gives strong players more opportunities to reshape their competitive environment. [http://blogs.harvardbusiness.org/hbr/hbr-now/2009/07/trend-to-watch-industries-taki.html]

But, how should these companies go about accelerating around the executive curve into the straight-away of economic expansion?

Sticking with basketball as a parallel for what one business can do to accelerate their rise over their peers, is it possible to consider hiring a superstar in a key area of the business?  A Michael Jordan of the Bulls, or Kevin Garnett of the Boston Celtics, or L.A. Lakers’ Kobe Bryant?  However, what should the latest definition of “superstar” be in light of all the change the recession has wrought in the business landscape?  McKinsey’s article went on to chronicle 10 key changes in the global competitive topography that are “must-be- aware-of’s” when re-engaging in strategic planning for the recovery in 2009 and beyond.  In July’s issue of Harvard Business Review, one answer is to bring on an executive with what Ron Heifetz and Marty Linsky call “adaptive leadership” ability-

The current economic crisis is not just another rough spell. Today’s mix of urgency, high stakes, and uncertainty will continue even after the recession ends….

Instead of hunkering down and relying on their familiar expertise to deal with the sustained crisis, people in positions of authority-whether they are CEOs or managers heading up a company initiative-must practice what the authors call adaptive leadership. They must, of course, tackle the underlying causes of the crisis, but they must also simultaneously make the changes that will allow their organizations to thrive in turbulent environments.

Adaptive leadership is an improvisational and experimental art, requiring some new practices.

[http://hbr.harvardbusiness.org/2009/07/leadership-in-a-permanent-crisis/ar/1 ]

The adaptive leader has a greater agility than other leadership types. The adaptive-leader type also allows for optimal breakthrough performance coming out of a down cycle.  Generic adaptive leadership is not enough, however.  You still need to figure out where you topgrade your executive team to best capitalize on the upside afforded in an executive change.  Do you seek this new “adaptive leader” for marketing, strategy, operations, sales? General management of one business unit that’s high growth versus another that’s slower growth but lower risk? Or is it in new product development, R&D, or international/global specialization?  At the risk of overplaying a metaphor, coming back to basketball for a moment, it’s interesting to note that each successful professional team has often been built around one “superstar” player, but not always playing the same position.   There are 3 traditional positions in basketball-guard (2), forwards (2), and a center.  Magic Johnson was a guard (point guard to be specific) and he took the Lakers to several championships.  A current L.A. Lakers superstar, Koby Bryant, as well as the Boston Celtics Paul Pierce are also guards.  However, Larry Bird and Julius “Dr. J” Irving were forwards.  And not to leave out the third successful superstar permutation, Shaquille O’Neal, Wilt Chamberlain, Kareem Abdul-Jabbar, and Patrick Ewing were all “superstar” centers who repeatedly drove their teams to pennant victories.

Once you identify where the biggest impact can be made via topgrading your current executive team, and you pre-select for a leader with proven adaptive leadership skills and experience, the final question presents itself-where are adaptive leaders most frequently bred?  Where should you look for them, what ecosystem have they been building there leadership toolbox within?

Our experience indicates that a disproportionate  number of adaptive leaders come from professional backgrounds they’ve honed in two specific stages of the company lifecycle-

At our firm, where we specialize in recruiting adaptive leaders, we’ve broadly referred to the executives who are best equipped at leading the green-highlighted columns above of emerging and growth-stage as “Builder-Leaders.” However, whether we refer to them as “builder-leaders” or “adaptive leaders,” their experiences creating and growing companies in these stages are the foundational criteria for success for those companies looking to outpace their competitors as we come out of a down cycle and head into the next growth phase.

The winning formula for extra-ordinary company performance in this next economic expansion is a combination of good internal executive assessment as to which role(s) will give you the biggest step-function impact if you topgrade them, and a key attribute of “adaptive leadership” in the new executive you bring. This is the very same leadership characteristic Malcolm Gladwell’s Vivek Ranadivé demonstrated when he was coaching his daughter’s basketball team to compete and win against the rest of their basketball league.