“]

Rob Day, Black Coral Capital | Michael Balmuth, Edison Ventures | Alexis Borisy, Third Rock Ventures

Once or twice a year we as a firm gather CEOs from the Boston innovation ecosystem to share thoughts amongst themselves.  Often, the format is lubricated by a panel to kick things off.  Always, the format is lubricated by an open bar and dinner.

 This Fall’s CEO gathering in early November brought together 50 or so CEOs around the topic of planning for 2011, and what to expect as a CEO. 

Whether early-stage venture, or mid-stage growth, investors are adopting a different approach to what they are looking for, how much they are putting to work, and what they expect to see as an end result.  This is proving true not just in the tech sector, but cleantech, medical device, and biotech.

 If CEOs are looking for more investment, whether growth equity, seed capital, or something in between, what are the “new normals” to think about going into 2011.  And if CEOs aren’t looking for money, but looking for exits, what are the expectations of investors in 2011 and beyond? 

 We assembled a panel of venture capital investors who all had raised new funds in the last year or so.  These investors also represented a different flavor than traditional venture capital.

 On the panel? 

• Michael Balmuth, General Partner, Edison Venture Fund
• Alexis Borisy, Partner, Third Rock Ventures
• Rob Day, Partner, Black Coral Capital

 What were the “new normals” CEOs and VCs talked about?

 Here are a few that got some air time:

2011 is likely to be an economic “ground hog year.”  The current economic cycle of “flat is the new up” is here to stay for the medium term;  In taking a flash vote of the room, the overwhelming majority felt that the economic conditions in which companies are being created are not going to change for the better any time soon.  Simply turning the calendar over from 2010 to 2011 is not likely to yield a more fertile or forgiving economic climate in which to grow innovation-stage companies.  In our recent survey  of growth-stage CEOsfor Q4 2010, we noted in a prior blog post that the vast majority of CEOs had already shifted their strategies or were planning to in the near future as a direct result of an expectation that 2011 might look a lot more like the end of 2009 or 2010 than ‘07 [see CEO survey pie chart below]

Seed rounds are becoming pervasive compared to prior quarters.  And these aren’t for Web 2.0 companies only.  CB Insights in their Q3 2010 summary demonstrated that this is a trend that is occurring in cleantech / greentech as well as healthcare IT.  All 3 investors on the panel agreed that seed funding makes sense.  Alexis Borisy, Partner at Third Rock Ventures, talked about their approach to seeding, saying that they tend to help start the companies, not just fund them, often taking an interim role on the executive team to incubate to a point of value inflection.  Michael Balmuth mentioned that although Edison Ventures doesn’t do “seed stage investing” per se, he loves to see companies that get seed rounds, as it often is an effort to drive toward profitability faster.  At that point, Edison may be more interested in a seed-funded company that achieves an early positive cash flow position than a typical heavily syndicated, multi-series venture-backed portfolio company.  Black Coral’s Rob Day added that he felt that investing in capital-efficient companies, even in the cleantech sector, was something he has advocated for a long time.  [see CB Insights graph of growth in seed round funding over last 5 trailing quarters, 2009-2010]

• As an asset class, venture funds have lost money for a while now.  Limited partner investors in venture capital and even private equity believe that they still have to invest in this asset class because it does make money during economic or industry sector bubble periods, and to invest once a bubble has been established would mean missing the upside.  During other times, LPs try their best to pick the funds that outperform their peers.

• Using investment banks to raise equity capital  should be done selectively.  If the industry is a small one, and the network is well established (like biotech investing Alexis pointed out), using an i-bank at an early stage is not the best idea.  However, in the cleantech sector where there are more total number of investors, they are internationally distributed, the industry is younger and less well-networked, and there is an imbalance in demand-supply (more money chasing fewer good deals), the investment banking solution may be just the right one.  One CEO, Larry Letteney of Second Wind in the cleantech sector, shared just such a recent positive experience in going out for their next round. 

• Seek out funds that have real capital to invest, preferably “fresh.”  Each of the three funds represented on the panel had all raised funds in the last twelve months or so.  But there are a lot of funds that are at the end of their last fund.  Many are unlikely to raise another fund.  Many investors are taking meetings, but setting the bar exceedingly high because they have only an investment or two left, and they don’t want to get caught making a bad one given the challenge in delivering returns to LPs in the most recent investing vintages.  There was also a “beware” comment about funds who are making seed round investments at the end of their funds.  They are more likely to do so, as it is an easier story to message an investment mulligan to LPs if you can just say, “It was just a small seed investment, so no biggie.”  Caution was also expressed that an investor at the end of a fund making a seed investment will be less likely to have additional capital to invest even if the company is doing well.

We hope to post a video snippet of the the VC-CEO dialogue for a flavor of the evening’s conversation in the near future.

[originally written for Mass High Tech]

In our role as executive search consultants for growth-stage companies, one of the questions that seems to continually vex the CEO is how best to build out their team.   This question often narrows to a discussion around whether it would be better to hire a senior level person first in each of the key functional roles in the organization chart, or rather to hire a more junior level person and hire at a higher level once the company has built up some “traction.” For our purposes, traction can be defined as any or all of a number of indicators, including revenue, funding, or product development milestones.

Short answer, “It depends…”

When asked this question, the CEOs and venture capitalists we talked to universally responded, “It depends….” So then the question became, “On what?”  The answers came back and included the following key variables to balance when trying to decide on whether to hire high or low when you first fill a key position in your early-stage venture—

• • Funding—Money is certainly a gaiting factor for most early-stage companies, and often the largest line item on the P&L is salaries & wages.  Putting in a leadership team too early all at cash compensation that runs north of $150,000 can certainly create a net-cash-burn that would rival the bubble days.   However, “talented people hire talented people,” says Lou Volpe, Managing General Partner of Kodiak Venture Partners.   And talent doesn’t necessarily mean ‘experienced.’ Talent alone is usually less expensive.”
• • Composition of the Incumbent Team— You need to have a balanced team.  Companies are often referred to as “engineering culture,” or sales, or finance-driven.  This speaks to an inherent imbalance in the leadership team.  Kodiak’s Volpe emphasized that, “you need to think of the entire picture, the entire team.  You need to have it balanced.  If you have too much strength in one function, you’ll be out-of balance and the company will suffer accordingly.”
• • Stage of Company— If too early-stage a company, it may be difficult to attract the world-class talent you need.   This conflicts to some extent with the current thinking today popularized by Jim Collins in his book, Good to Great.  In one of the areas Collins explored with the “great” companies he studied, he and his team learned that these companies focused on “getting the right people on the bus,” then deciding where they were going to drive it.  David Power, a Partner at Fidelity Ventures, qualified Collins’ observations, saying, “If you’re a charismatic enough leader, you might be able to get everyone on the bus BEFORE you start to drive, but every company doesn’t have that privilege, especially when young, and often capital-constrained/higher-risk.  You need to be able to give talented executives that you are seeking to attract some general direction, to be able to explain to a ‘hire-high’ A-player why the company and role should have great appeal to the candidate.”
• • Which Function It Is — There are certain functions in an early-stage company where hiring the best is critical early on.  One such critical area is hiring into the leadership roles responsible for the product development in the company—engineering in the case of technology product, or science in the case of biotechnology/life sciences.  CEO Tuan Ha-Ngoc  said that it was critical for Genpath’s success to get the best Chief Science Officer they could find, and they did.   One of the VC’s commented however that the finance function is a perfect example of where hiring low is often the right thing to do—the company only needs a part time finance person at its earliest stages, then a controller later on, and then if the company is looking to go public, a world class CFO.
• • Speed of Anticipated Growth— If the company is anticipated to grow slowly, it is possible that a person can grow in parallel with the company.  However, given the often-cannibalistic nature of technology and sciences companies, “slow” is often not an option due to fears of product obsolescence, time limits on patents, or pure competitive pressures.    Globespan’s David Fachetti put it clearly, saying, “Hire higher for fast growth companies.  The opportunity will grow into the people, rather than the people grow into the opportunity.  Talented and experienced executives will bring up the level of the opportunity to meet their needs, and in so doing will accelerate the company’s growth.”
• • Price point of Product /Service— Enterprise software or very expensive hardware sold into the C-levels within the Global 2000 may put pressure on the upside of the high/low spectrum.  Kodiak’s Lou Volpe feels that if price-points are high, it is likely the company will need more senior/experienced talent to get it to market.

Universal Truths

All those interviewed agreed on a number of best practices.  The one that stood out most is the need to hire what was referred to as “quality.” There are two primary axes on candidate qualifications briefly mentioned earlier—the first is quality or “talent,” and the second is experience.  If you hire someone with both, this defines the “hire high” approach.  If you hire someone with only quality, but less experience, it points to the “hire low” approach.

Hire quality

Those we spoke with also included several other must-have characteristics further define “quality.”  Fidelity Ventures’ David Power ticked off the first four:

• • Motivation
• • Intelligence
• • Integrity
• • Ability to produce results

Joel Rosen, veteran CEO and former venture capitalist  at Charles River Ventures added two more:

• • Passion about the business
• • Cultural fit with the rest of the team

One other CEO punctuated the list:

• • Work ethic

Though no doubt there are many more, these rose to the top of the list when trying to describe what “quality” in a hire looks like.

Hire experience

The other half of our working definition of “hiring high” we’ve termed earlier as “experience.”  David Fachetti at Globespan Capital articulated four key areas he probes to determine whether candidates he interviews have what he defines as experience:

1. 1. Lifecycle experience: prior experience at a similar stage of company development
2. 2. Domain experience:  prior experience in the same industry sector as the current company
3. 3. Functional experience: prior experience playing a similar functional role (marketing, sales, technology, finance, etc.)
4. 4. Relationships experience:  has the individual worked with others on the team before?

Don’t skimp when it comes to Leadership experience

One more key experience criterion, especially when “hiring high,” is leadership experience.  One CEO emphasized that, “experience and skills aren’t a surrogate for leadership.  If you’re going to be growing a team, you’ll fail without it.”

Determine where you need your best gene pool

Another common refrain was that–in an early stage company–there are at least three key roles where you want to hire high, rather than low.  Dave Fachetti, Principal at Globespan Capital Partners, summed it up, saying, “For a company to have a solid foundation for growth, bench strength needs to exist at the highest functional levels in technology (VP Engineering/CTO), sales, and the senior P&L role of CEO.  Scott Griffith, Zipcar CEO emphasized that each company can differ, so “get the strategy right, and THEN hire high into the key stress points of that strategy.”

One qualifier made by Genpath CEO Tuan Ha-Ngoc was the impact of the differences between technology companies and life sciences companies.  In pure technology companies, there is an additional emphasis on the importance of hiring a high level of experience into the position where the technology meets the customer, someone who has the pulse and understanding of the market into which the technology will be selling.    In life sciences, the pain of disease is more often self-evident, where technology can sometimes mistakenly be developed for technology’s sake, a “build it and they will come” approach.

Make sure executives can “zoom out and zoom in”

The individual has to be able to both lead a function and do the function.  In other words, if the decision is made to hire a VP Sales, that VP Sales has to be able to “carry the bag” and actually do the selling, as well as hire, train, motivate, and manage a sales force when the time comes.    Similarly, an early-stage VP Engineering should be able to code as well as architect early on, until more hands can be hired.  Early on at Yahoo!, the company determined that one of the key hiring criteria for any employee was that they could “zoom in and zoom out.”   Every new hire had to be able to think strategically at the 50,000 foot level, but also be able to go back to ground-zero and execute the strategy.   Zipcar’s Griffith—a licensed airplane pilot—added, “You have to be a pilot, willing to get under the plane and check all the equipment yourself, take off, navigate, AND safely land in order to get successfully from point of origin to destination.”

Biases & Cautions

Not surprisingly there were biases that had formed from the individual operating experiences of each CEO or VC with whom we talked.   And interestingly, despite these biases, many gave examples of a hiring circumstance that ran counter to their bias that worked out particularly well, or a hire that fit their bias that failed.   Following are some of the biases and cautions that stood out.

If you’re the CEO, don’t hire low in an area just because it’s your functional strength

There was a great deal of alignment on this issue, and it’s a chronic mistake the venture capitalists we talked to saw in their portfolio companies.   David Power at Fidelity Ventures elaborated saying that “If a CEO hires a weaker player into a function where that CEO has expertise, say the marketing function, the CEO ends up still managing marketing instead of doing what the CEO should be doing—running the company.  You want to hire at equal levels across the functional spectrum.”  Joel Rosen at Charles River Ventures added, “younger companies don’t have a lot of training infrastructure.  The company is running too fast to have the leeway to train much.  Although this isn’t a law of nature, the biggest gaiting factor to growth is often bandwidth, particularly that of the CEO.”

Don’t hire talent too late

Genpath CEO Tuan Ha-Ngoc put it simply and elegantly—“It is rare that the company fails because you hired high-caliber talent too early.  It’s usually that the company hired too late.”

If you hire high, think about assigning multiple roles

One of the ways you can often get top talent in early-stage companies is to offer multiple roles that will allow the higher-level executive an opportunity to stretch their wings.  Lou Volpe at Kodiak added, “If hiring a senior engineering executive early-on, think about giving them QA, support, and/or manufacturing, even product management.”

The probability of a successful high/low hire is predicated on the clarity of the task

Put another way, the murkier the goals, strategies, and tactics of a particular functional area, the more you will bias your hiring toward the high side of the spectrum of experience.  Conversely, if the responsibilities of the position are well defined and clear, a lower-hire might be just the right fit.  As EquipNet CEO Roger Gallo put it, “Is the hire going to be focused on fulfilling known initiatives,

or rather creating and forging entirely new ones?”

Think about making a “high-low sandwich”

To this point, no mention has been made of the obvious question when talking about whether to hire high or hire low—what about “hiring in the middle”?  Kodiak’s Lou Volpe admits a bias to a combination approach of hiring a low with a high—“Hire high, and then do a step function, and hire low.  In sales for example, hire the VP, and then hire one or two lower-level individual contributors, one or more of which can be step-up candidates into the middle role of manager or director further down the company development cycle.”

What about hiring high/low when it comes to hiring the CEO?

This question is complex enough to support itself as a single topic of discussion with the venture capitalists and CEOs we consulted.  However, Fidelity Ventures’ David Power listed three circumstances where hiring a step-up/“low” candidate into the CEO position can work—

1. 1. When a particular functional area is important to the stage of company growth (hiring a VP Sales or VP Marketing into the CEO position when the company is just entering its revenue stage)
2. 2. When continual technological innovation/engineering is inherent to an industry sector (hiring a VP Engineering or CTO into the CEO position because of the pressures for recurring and sustainable technology innovation)
3. 3. When you can get someone who is traditionally “out of reach” (hiring a superstar VP level candidate into the CEO position because a step-up is the only way you can attract that particular talent)

With all of the above thoughts on best practices regarding hiring for early-stage companies, an image formed to sum up some of the wisdom of the CEOs and VCs we consulted.   Perhaps it’s not too different from how many parents buy clothes for their fast growing child—you pick the color and the style, and then have them walk up the rack trying on increasingly larger sizes until the piece of clothing actually falls right off.  You then step it back one size, and buy that one.   It’s just small enough that it can be worn now, but it leaves plenty of room for future growth.

CEOs and executive leaders of innovation-stage companies often ask themselves what is the best approach to employee appreciation, productivity and retention.

We’ve all heard the stories around the lengths some venture capital-backed companies go in their efforts to service the needs of their employees.  What started as the water cooler and drip coffee pot, fast-growth companies have super-sized, continuing to up the employee pampering ante–  installing company-paid cappuccino machines and Kurig coffee makers with what appears to be an endless supply and variety of coffees and teas.  Keeping well-stocked office kitchen pantries with either favored junk food, healthy snack choices, or both.  Catering lunch, breakfast, dinner, sometimes all three meals plus a midnight snack that rivals food options found on luxe cruise liners.  Car valet services, onsite dry-cleaning pick-up/drop off, massages, yoga, concierge services, onsite daycare/nanny service, bring-your-pet-to-work options.  And on and on and on, the calories and comfort food arms race continues its grim march toward caffeine OD and adult-onset diabetes.

However, there’s a moral and dilemma CEOs often face when trying to strike the right balance of perks and austerity.

The argument for pampering:  In the new knowledge-worker driven economy, there is often precious little machinery or automation.  So every time an employee walks out the door to Starbucks, Dunkin’ Donuts, the sandwich shop, or the drycleaner, the corporate engine slows down a notch.  Therefore, the logic emerges that if you can remove all interruptions for employees, you’ll get far more in productivity out of them than junk food and pampering you put in to them.

The argument against:   It’s expensive.  It creates a sense of entitlement in employees.  It creates a false sense of prosperity in a company that may be pre-revenue and in need of several more rounds of funding before it can stand on it’s own two financial legs.

Some might say that economic recessions pound the potential for excess back to square one.   OK, so perks have slowed down a bit after each economic set-back in the last decade, starting with the Internet bubble bursting and post-Y2K malaise, the aftermath of 9/11 on the U.S. economy and, most recently, the banking sector melt-down.  However, after each setback it seems a new “floor” gets set that’s just a bit tonier than the last one.

So how do CEOs handle this arms race in employee perks you ask?

Below are a few lessons learned and secrets shared by a number of CEOs who know a bit about the word “value” in serving up employee perks-

Perks Case Study A: Intra-office “micropreneurship.” The secret of the concession license

One venture-backed CEO wanted to offer some of the perks, but not all when it came to stocking the pantry.    So, rather than facing an all-or-nothing approach, the CEO decided that a business principle was in play that could be exploited in a win-win-win fashion–  what the company had as an asset was the equivalent of a monopoly.  He reasoned that employees were a captive audience.  If the CEO offered the “vendor concession” contract to an aspiring employee who wanted to make a few bucks, the company would offer exclusive stocking/inventory rights to that employee to stock the pantry.  However, in trade, the employee had to agree to offer below-market pricing on food and beverages, and also manage the “SKU requests” that the employees would log from time to time regarding food selection and preferences.  His formula in a nutshell looked like this:

-          win for employees-as the got a below market food and beverage offering, the equivalent of a “company subsidized” pantry offering

-          win for the “intra-preneur”-who was given the food concession to run, and could make a few extra bucks running the business

-          win for the company-the company didn’t have to provide all the food gratis, nor had the headache of fielding all the requests from employees

Perks Case Study B:  Serving dinner not as an entitlement, but only to the truly meritorious

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One venture-backed CEO faced the challenge of a sense of creeping entitlement around having dinner served every night at the company.  It had become customary to provide engineering dinners to keep them on track and not leave the building.  It cost money (VC investor’s money) and the productivity gains were being questioned and balanced against real expense dollars.

What this CEO determined was that working hard in a start up was the price of admission for equity.  60 hours a week was expected.  What would earn merit-pay in the form of dinner?  They scheduled the meals for 9:30p for everyone in the company who was still there.  This removed the stigma of an engineering only benefit.  It also made sure that “real effort” was rewarded.  And it sure ended up generating significant cost savings since the number of employee dinner was demonstrably lower as a result of the dinner hour shift from early to late evening.

Perks Case Study C: The allure of the “exotic”

One CEO had seen a swelling food and beverage budget over several quarters.  Given that burn rate was still an issue, he decided he had to do something about it.  But what to do? If he cut the corporate gourmet lifestyle, he might lose employees, or start to hear grumbling about how the company “used to be generous to its hard working staff, but now seems more interested in penny-pinching.”   So, he devised a plan to attract a high-end coffee shop into the building in which the company was housed.  After landing a Starbucks down in the lobby, the food and beverage spend dropped precipitously, employees being lured away by what they perceived to be just a notch above what the company offered in its own pantry.

Perks Case Study Addendum (extra bonus points):

One CEO had determined that staying on plan or on schedule for technology companies is a chronic challenge.  At some point he decided to reward achievement with a champagne toast.  But it created a double-edged sword.  Once they truly scoped out the development schedule and locked in the Gantt Chart, the CEO would write it on the champagne bottle and have everyone on the team sign it.

Then on the date the goal or project was to be achieved the CEO opened the champagne no matter the outcome.  If team made the goal or were near it, it was a great celebration.  If the team missed, the champagne tasted like the worst thing you can imagine.  The CEO recounted that he even had one person refuse to drink it, stating that the thought of doing so was too distasteful!

The next time an opportunity for a champagne toast rolled around, the engineering team knew what was coming and they got much better planning and targeting their development goals.  The CEO mentioned that he still has many of the signed champagne bottles as mementos of past hard work and development team milestones but hit, and missed…..

***

Comments are welcome with other creative approaches to fueling the entrepreneurial engine.

What do they mean when they ask?  There’s actually a lot of nuance in the question-when are skills and experience most important to success in the role versus pure talent and aptitude?

• •    Just because a CEO is moving from one industry to another, does s/he lose his ability to successfully lead?
• •    If a VP Sales has been successful at one stage of company growth, can s/he take that same sales toolbox and be successful in another stage company, say either emerging-stage or mature-stage?
• •    Can a VP Engineering be equally effective managing in large companies and small?
• •    Do companies look for the same types of leadership in good economic cycles as well as bad?
• •    How does an executive’s move out of their wheelhouse of skills and experience impact their compensation and/or level in a new industry and company?

These questions are only a few of the factors that impact the answer.    The following discussion is aimed at trying to lend some clarity and context to question.

Let’s take a look at the hour-glass graph below to lay down some of these factors against our “expert or athlete” question:

1)     Level of management: The first factor is where an employee sits in the organizational chart.   In general, skills and experience are most critical at the “waist” of the hour-glass graph-mid-to-upper level management, starting at manager, through director- and VP-level.  At the top and bottom of the hour-glass, aptitude often ends up as the greater emphasis in “hireability.”  This may be fairly intuitive for many.

a.     Entry-level: When you first get out of school, employers often hire for a combination of attitude and intelligence and look for those who exhibit room to grow or “headroom.”   In fact, at entry-level, skills and experience for those roles are often a liability.  Employers may feel someone is overqualified, or a “flight risk” if that employee finds another better-paying and/or higher level position at another company.

b.     CEO-level: When you achieve P&L/CEO status, employers often will place more emphasis on the track record a CEO has in leading a company versus a tenured career history in a specific industry area.  Can a CEO move from rust-belt manufacturer to biotech?  Likely not.  However, there isn’t the same granularity of fit applied at the CEO-level as at the middle-management layer.  If a CEO has been broadly successful in in a number of software companies, it often becomes less important what type of software, or what industry vertical that software was developed for.  Certainly some screening is applied to industry, with some of the below more general industry characteristics takingi precedence-

i.      Experience in selling to similar customer base, B2B vs. B2C or government

ii.      Experience raising equity capital from venture capital or private equity

iii.      Experience creating exits for investors that have generated good returns for those investors

iv.      Experience taking a company from one industry into other industries, popularly referred to as “crossing the chasm”

c.     Mid-to-upper management:   Mid and upper management are where skills and experience over mere aptitude are often most sought after by employers.  Those who are hiring at this level will often even emphasize industry skills and experience above managerial experience, giving the edge to a candidate with industry-relevant background and a lesser degree of leadership experience, assuming that management is a learned skill and can be taught or picked up on the job.  Is this right?  That’s not the focus of our discussion here.  Rather, our goal here is to describe corporate hiring  norms from our observations.

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2)     Stage of company:  Does stage of company impact whether you hire a best athlete or domain expert?  Common practice dictates that yes, the later stage more mature company can be successful hiring a “best athlete,” where a faster-growth company needs to hire a candidate with more domain experience relevant to that industry.  Why?  The theory goes like this-

a.     Fast-growth companies: The faster a company is moving and growing, the less time there is to cross-train an employee on anythng. This applies to all candidate characteristics: level of industry knowledge, stage of company experience, and management experience.  In fact, if a fast growth company needs a VP, if anything that company may want to over-hire, looking for an executive who has managed larger teams over broader geography because it’s only a matter of time before this fast-growth company will experience its next growth spurt, and hiring an executive who’s seen what’s around that corner before is priceless in order to smooth out the growing pains inherent to all fast-paced companies.

b.     Slowing-growth companies: As a company matures,  hiring in a “best athlete” may make a lot of sense.  First, there is time to train up the executive being hired on the domain areas in which he or she has little/no experience-industry, geography, etc.   Also, best-athlete executives often like to learn new things, and be in continual learning-mode.  If they can take their business athletic ability and learn a new sport/industry, it keeps them motivated, excited, fresh, and leaning into the role rather than what can be called “career-coasting,” where an executive is just doing the same thing for a different company-same industry, same title, same goals, etc.

3)     Large versus small companies: Similar to fast-growth versus mature companies above, common wisdom dictates that large companies can support the “best athlete” better.  Often, large companies have an established internal employee training group tasked with taking new and existing employees and helping to round them out, whether that be by offering management or leadership training, functional skills education, or industry knowledge and education.  Smaller companies rarely have this pre-existing infrastructure.  Yes, an executive can go outside the company for supplemental business education by taking courses offered by industry trade groups and universities. However, the fear by the employer is that it will take time, cost precious budget resources, and detract from the time an employee has to give to achieving critical company goals and objectives.

4)     Impact on hiring of macro-economic cycles:  It’s worth noting that the prevailing economic cycle creates another impact on whether a company may be willing to consider a best athlete versus a domain expert.   From our experience, in a growing economy companies are more willing to consider best athletes for the following two reasons:

a.     Supply/demand of domain experts-In a flourishing economy, demand for talent often outstrips supply.  We saw this in the Internet bubble where talent available was so scarse that it became a serious constraint on new company formation and venture creation.

b.     Cost of domain experts-as a growing economy impacts the supply-demand equation, this also drives up price.  Even if you can find the domain expert, it may simply be considered too expensive, and the company instead decides to take a “wean-and-train” approach to filling the need,  favoring the hire of a best athlete.

***

Related to the question of experience versus aptitude is how this may impact executive compensation and management level for the employee considering a change out of their area of domain expertise and into the new.

Below is a bull’s-eye diagram that represents what we believe to be the inverse relationship in play.  When an executive decides to change any of the following characteristics in their employer, they are likely to move out at least one ring:

• •    Impact of size of company on title/level: If an executive wants to move from a smaller company to a larger company and they were a VP at the smaller, they should expect that they will move out a managerial ring, from VP in a smaller company to a director-level or even manger-level title.
• •    Impact of industry shift on compensation: If an executive wants to move from one industry to another (say software and/or tech to cleantech / renewable energy), often this will have to come at the expense of a reduction in compensation. Of course, if this is a CEO candidate, compensation may be less impacted than if it’s a middle management employee.
• •    Impact of functional shift on compensation: If an executive wants to move from sales to marketing, or technology development to sales, or any of those to an operations-focused role, this too is likely to negatively impact compensation.

If you try to combine more than one shift above into two or more, expect that with each compounding factor you’re likely to move out another ring on the bull’s-eye.

Impact of industry & function shift on compensation & level

]]> http://www.bostonsearchgroup.com/blog/aptitude-experience-important-hiring-equation/feed/ 0 http://www.bostonsearchgroup.com/blog/interviewing-tips-dos-donts-collected-scott-kirsner/ http://www.bostonsearchgroup.com/blog/interviewing-tips-dos-donts-collected-scott-kirsner/#comments Tue, 12 Jan 2010 04:01:29 +0000 Clark Waterfall http://www.bostonsearchgroup.com/blog/?p=941 Scott Kirsner recently penned an article in the Boston Globe on interviewing tips, what not to do.  Great compendium (our contributions excepted perhaps but for you to judge in the article sidebar on page 2) of what some might think intuitively as “faux pas”, but many simply may not think of at all, and are at risk of committing.

http://www.boston.com/business/articles/2010/01/10/you_have_your_foot_in_the_door_how_to_keep_it_there_1263010162/?page=1

My itinerary?  Starting from home base of Boston, then to New York’s JFK, through London, with the ultimate destination– Singapore.  Total air time one way? 18 hours.  Total air and waiting in airport time one way? 24 hours.

What earned me the opportunity?  First, membership in the Entrepreneurs’ Organization (“EO,” www.eonetwork.org, formerly known as YEO, or Young Entrepreneurs’ Organization ) a global membership organization that is nearing 10,000 members across more than a 100 chapters.  EO is one of a group of leadership organizations, including YPO, WPO, CEO, and several others.  Qualifications for EO membership include annual revenues of $1 million or more, and either founder or majority ownership status in your business.

Hailing from the Boston chapter of 100 or so EO members made up of computer software and hardware entrepreneurs, legal and staffing professional services business owners, and a host of other small business founders  including franchising, travel, consulting, real estate, and medical devices, I was made aware of the strategic partnership between British Airways and the EO organization.  The following paragraph, detailing what a face-to-face opportunity would mean to the growth and expansion of our boutique retained executive search firm, BSG Team Ventures, was what I jotted down–

We have a presence in Boston, New York, Silicon Valley, and London. These are key global innovation centers. However, there is clearly a fifth and/or sixth  location to round out our client value proposition of “on the ground coverage in the key innovation centers in the world”– and those are India and Asia. Although there is a term sometimes used that combines the two (“Chindia”), we feel that there is perhaps a need to be able to service our growth-stage clients in each. One alternative is a meaningful position in a location like Singapore, which is equidistant from both these key innovation markets.

The ability to set up a series of meetings with potential partners, and then bring pre-meeting calls and video conferences to an in-person, face-to-face setting, would be extremely meaningful in taking our business from EU-American only, to truly global, capable of better servicing the needs of our clients who continue to demand the need to themselves expand globally.

I had been to Singapore and Hong Kong in 2008 on business, and knew that another trip there would allow us to cement some developing relationships “face-to-face.”  In 2008, we completed a VP Worldwide Sales search based out of Singapore, and are now working on another General Manager search based out of Tokyo for a leading global technology innovator.  And with the recession of 2008-2009 projected to recover in west-bound fashion this time (Asia first, Europe second, and the U.S. last), China, Japan, and the rest of the Asia-Pacific corridor is important to every business, both large or small like ours.

Having won the right to cash in the BA offer, a plane load of entrepreneurs amassed down at JFK airport in New York.  BA was everything they’ve built their reputation on-service-oriented and courteous, only as the British can be-with a send off in the first-class lounge that was rich in food, spirit(s), networking with other entrepreneurs, and a few humor-filled greetings speeches by both British Airways officials and the British government.   Example of the power-networking in the BA lounge? I met up with Morgen Newman, co-founder of IdeaPaint, another Boston-based start-up that was a BA travel recipient, with a company out of Babson (my alma mater so plugging here) that has formulated a special paint that can be applied on any work surface that then functions as a “whiteboard,” completely erasable when using dry-erase markers.  IdeaPaint is a tool for entrepreneurs that simply brilliant.  Most entrepreneurs are visual thinkers, and this now allows us to scribble on every surface…. (“Beware office cleaners-these walls aren’t “dirty”…. DO NOT ERASE!”)

My itinerary and goals for the trip looked like the following:

-          Tuesday:  Departure from JFK New York on flight into Heathrow, England, arriving at 9:30pm, with champagne reception at the end at the hip Sofitel Hotel in the new BA swanky Terminal 5.  “Bubbly” is the right term for a plane load of entrepreneurs bottled up for 5-hour trans-Atlantic flight….

-          Tuesday eve: Trip into London to stay at one of BSG Team Ventures’ partner’s flats, Simon Haworth, for early meetings the following morning

-          Wednesday morning: Meetings with an affiliated venture fund Dr. Haworth is a partner of, IPSO Ventures, focused on zero-stage technology transfer out of UK universities

-          Wednesday lunch: meeting with Simon and additional BSG Team Ventures staff in UK to review firm-wide global priorities

-          Wednesday dinner: Meeting with Sean Sean-Rogers, venture capitalist originally based in Boston with Commonwealth Ventures, then London with Benchmark Capital, and now out with his first cool media start-up venture fund of his own, called PROfounders Capital .

-          Wednesday late eve: Flight out of Heathrow to Singapore

-          Thurs eve: arrive in Singapore 13 hours later but given time zones crossed, a full calendar day later.  On way to hotel, bump into another fellow EO Boston chapter member, Warren Katz, who’s military software simulation company MAK Technologies based in Cambridge, MA was recently bought by a Singaporean company and where he had meetings completely unrelated to anything to do with EO, British Airways etc.  The probability of bumping into a fellow Bostonian and dear friend 9,500 miles and 15 hours away from home in the same hotel lobby in Singapore is….. rough math? Zero.  If anything proved Thomas Friedman’s claim that “the world is flat,” this certain did.  Serendipity works in strange ways.

-          Thurs late eve: After a run on the treadmill and a shower at the hotel to shake off the jet lag, meet-up with Warren at the hip Equinox Bar at the top of the SwissHotel in downtown Singapore for a nightcap on the 70^th floor overlooking the city (Warren holding porcelein statue of a lion, the symbol of Singapore, as proof of authenticity and handy memory jogger for old age).

-          Friday day: Meetings with the Singapore Economic Development Board regarding the state of the cleantech industry in Singapore, and the Ignite Clean Energy Competition I currently chair.  Potential partnership with Singapore on global cleantech competition expansion.  This was followed by three meetings with boutique retained executive search firms with a similar focus and specialization to our own firm.  Great meetings.  All three firms turned out to be potential partner-caliber opportunities.  And each of them had active retained executive recruiting practices that did search work in India, Singapore, Mainland China, Hong Kong and Korea.

-          Saturday:  Meeting with existing technology client who went public earlier in 2009 for lunch to discuss current and future expansion searches both in the U.S. and Asia

-          Sunday:  Originally, I had booked the trip to try to squeeze in one more business day by staying the weekend and leaving late Monday eve to allow for more business meetings.   However, once there, was greeted with the fact that Monday was a holiday, the end of Ramadan for the Muslim religion, and business was closed.  It’s a great example of Singapore as an Indo-Chinese melting pot not dissimilar to that of the United States.  However, in Singapore, it is a fusion of Chinese, Malay, and Indian cultures that co-exist and create not only incredible cuisine, but a vibrant cultural diversity where all three associated religions are celebrated and many languages spoken.   Moved from hotel in downtown Singapore out to a small island just 15 minutes out of the city called Sentosa, a former military base built by the British half a century ago to protect the island, now converted to a natural wildlife habitat and recreational weekend playground for Singaporeans with several resorts anchoring each end of the island, dotted with golf courses, tennis, beach, dolphin petting, and lots of beach and water sports.  Note to self-keep windows of hotel room closed….

Ran back into Singapore the city to do some late Sunday shopping, and again bumped into the cultural diversity of Singapore, with a street celebration capping off the end of a period in Chinese culture and I believe Tao religion that starts In May, and ends in September, often referred to as the “Moon Cake” festival.  This is a festival  and celebration on the streets of Singapore and many other parts of Chinese Asia I’m told that celebrates the return of all the ghosts to the underworld who each year are let out to roam the earth and make trouble for their living relatives.  At the end of September, these ghosts are all returned behind the gates to the underworld, rendering the earth safe again until the following May.  The Chinese celebrate with parades, demonstrations, the burning of special urns the night before on the streets, and the Chinese pastry called “Moon Cakes” made up of a bean paste with some sort of frosting over the top.

Below is a picture of several groups of Chinese children rehearsing before the start of the parade.  The boys were part of a martial arts school; not sure what the girls were part depicting.

All said and done,  in 4 business days the dash across the globe was a great opportunity, albeit an exhausting one.

Here’s to entrepreneurship and the pioneers in all facets of enterprise who take on the unknown every day, week, and month, in an effort to forge new business value.  Whether those pioneers are in the U.S., UK, Singapore, or India, we’re all very much the same, driven by a like urge to grow and nurture an emerging idea.  Hats off to the rest of that planeload of globe-trotting entrepreneurs.  Can’t wait to hear their stories no doubt more compelling and inspirational than mine….

There’s a lot written about the entrepreneur, entrepreneurship, and what ingredients make for success over failure in the industry of business venturing.  Much of it is pretty shallow, pop psych fodder, meant to be read in a short trip to the commode, and disposed of similarly.

Books like Malcolm Gladwell’s Outliers takes a much more thoughtful approach, one of myth-busting versus myth-making.

Another similarly thoughtful deconstruction of entrepreneurship was brought to my attention via Babson College’s new president, Len Schlesinger, and his efforts to better match entrepreneurship’s leading institution for  higher education and its curriculum with a more effective toolbox for start-up success [full disclosure, Babson is my MBA alma mater].

Dr. Saras Sarasvathy, Professor at the Darden Graduate School of Business, is the author of this piece, written back in the dark corners of the 2001 post-Bubble recession, when entrepreneurship was the worst nightmare of those smart enough to avoid its allure while clinging to safety in their day jobs.    The full piece can be found at www.effectuation.org/ftp/effectua.pdf.

As a foundation for the suppositions Sarasvathy makes in her article, she interviewed 30 founders of U.S. companies ranging in size from $200M to $6.5B across the spectrum of industries.  She also had them each tackle the same case study to see how each founder approached the problem-solving required.  Her goal was to try to determine whether there was a common denominator in the way entrepreneurs thought, and if so, could it be distilled to several core nuggets of “teaching wisdom” to help aspiring entrepreneurs.

After Sarasvathy completed her interviews, she transcribed the tapes in search of a common set of principles each entrepreneur operated from in problem-solving.  Sarasvathy strings the principles she identified together into what she terms “effectual reasoning” of the entrepreneur.  Effectual reasoning is a different approach to problem solving than what is used in large corporations, or already successful and established enterprises.  She refers to the mature company’s approach to problem solving as the inverse, or predictive, “causal reasoning” -

Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. – alternative to achieve the given goal.

However, effectual reasoning takes a very different approach, and the metaphor Sarasvathy uses paints an evocative image of the difference-

It does not begin with a specific goal.  Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they interact with. While causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world), effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world).

Sarasvathy identified that there is no question that creativity is the cornerstone of effectual reasoning.  Another metaphor she uses is that of cooking – a chef given a recipe, versus a chef given the ingredients.  The chef given the recipe can go out and shop for what they need, compare cost versus quality versus convenience given the time allowed to prepare the meal, and create a very “causal” approach to the preparation.  However, the chef given the ingredients must use his or her creativity and invent a dish out of a combination of what raw materials they were given, and the background and experience they have had in cooking across their career.  Sarasvathy refers to this creative chef as having three categories of means:

1.      Who they are – their traits, tastes and abilities

2.      What they know – their education, training, expertise, and experience; and

3.      Whom they know – their social and professional networks.

From these means, they start to cook up their idea, be it a product, service or invention.  One of the big initial differences between causal and effectual reasoning is that causal reasoning demands a rigorous analysis before any test-marketing of a product begins.  MBA curricula herald that a best practice for starting a business is extensive market research before any products are actually offered up for public consumption.  Conversely, effectual reasoning relies on very early market and customer feedback to guide product development.  This interaction with the actual market and its users is a very iterative process.  Using this approach, at some point a clear path evolves, and one or more achievable goals (new products, services etc. that the customer likes) make themselves apparent.
At a deeper layer of analysis, Sarasvathy identifies three underlying principles at work in the process of effectual reasoning and how it is distinguished from the causal reasoning approach:

1.      While causal reasoning focuses on expected return, effectual reasoning emphasizes affordable loss. The key way to do this is to try to sell the product  before you’ve even made it.  See if you can get someone to buy something that doesn’t exist yet. “I will have “x” available in the near future, will you buy it?”  There is no sunk cost of manufacturing or development; a simple conditional close is used on a prospective customer.  If they say no, there is very little lost.  However, there is a lot gained regarding information, and perhaps a different product or service is articulated by the customer that they would buy.

2.      While causal reasoning depends upon competitive analyses, effectual reasoning is built upon strategic partnerships. Effectual reasoning dictates that once you find something a customer will buy, you then identify a few key players in that market, and establish deep strategic partnerships with them.  Make them premier or “flagship” customers, and dig into their further needs while selling them your first product to help refine, expand, and augment the value of your existing and future offerings.

3.      While causal reasoning urges the exploitation of pre-existing knowledge and prediction, effectual reasoning stresses the leveraging of contingencies. Sarasvathy puts it best, referring to it as “the ability to turn the unexpected into the profitable.”   One of the entrepreneurs she interviewed phrased it this way – “I always live by the motto of Ready-fire-aim.  I think if you spend too much time doing ready, aim-aim-aim-aim, you’re never gonna see all the good things that would happen if you actually start doing it and then aim.  And find out where your target is.”   It is similar to an old artillery approach to hitting a target. You would take your first shot, and then adjust the canon accordingly.  Causal reasoning on the other hand, tends to focus on the avoidance of surprises as much as possible.

Sarasvathy goes on to distill further the differences in the logic that underpins causal and effectual reasoning -

Causal reasoning is based on the  logic, To the extent that we can predict the future, we can control it.   Effectual reasoning, however, is based on the logic, To the extent that we can control the future, we do not need to predict it.

Sarasvathy gives several examples of how causal versus effectual reasoning might play out in different scenarios.  However, entrepreneurs all preferred to be in markets that were not predictable.  In unpredictable markets, the entrepreneur can shape the outcome rather than a predictable market where vast resources would be required to accurately render the predictive analytics required to succeed and win.  Business schools often teach the following mantra for sales:  you should sell either new products to existing markets, or existing products to new markets, but never sell new products to new markets.  For entrepreneurs however, effectual reasoning specifically targets new products for new markets.

Sarasvathy wraps up her research and results, concluding -

Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectually; they believe in a yet-to-be-made future that can substantially be shaped by human action;  and they realize that to the extent that this human action can control the future, they need not expend energies trying to predict it.  In fact, to the extent that the future is shaped by human action, it is not much use trying to predict it – it is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence.

Also in her paper and of particular interest to our firm as executive recruiters, Sarasvathy makes the point that entrepreneurs –  whether the founders of a company, or those who join start-ups early in their existence –  need to feel emotional ownership in the goals and objectives of the start-up company and its mission, “…and can only be incentivized by the belief that the effects they create will embody their deepest passions and aspirations while enabling them to achieve their best potential.”  When we recruit executives for our clients, not only should they have the requisite resume experience with in the technology, medical devices, software, cleantech, or mobile, but we interview deeply against the less visible characteristics Sarasvathy refers to in her research.  We have adopted the term “eductive reasoning” for what Sarasvathy refers to as pattern recognition where patterns are not immediately obvious (see http://en.wikipedia.org/wiki/Fluid_and_crystallized_intelligence).  When selecting an executive, resume is just the starting point, with thorough assessment of entrepreneurial DNA actually the more predictive of success in any given executive role in growth-stage companies.

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Saras D. Sarasvathy is a member of the Strategy, Entrepreneurship and Ethics area and teaches courses in entrepreneurship and ethics in Darden’s MBA program. In addition, she teaches in the doctoral program and the research seminar on Markets in Human Hope. In 2007, Saras was named one of the top 18 entrepreneurship professors by Fortune Small Business Magazine.

Saras is a leading scholar on the cognitive basis for high-performance entrepreneurship and is the author of Effectuation: Elements of Entrepreneurial Expertise (book overview). Effectuation is widely acclaimed as a rigorous framework for understanding the creation and growth of new organizations and markets. The research program based on effectuation involves over a dozen scholars from around the world whose published and working papers can be found at www.effectuation.org.

Below is a partial list of Jude’s lessons learned, selected for those that carry strong correlation both to a natural disaster such as Katrina as well as an economic disaster.  Following it is some interesting Q&A in dialoging with him about the experience.  And to learn more about Jude Olinger’s firm, go to www.olingergroup.com.

After crisis strikes…

-         Lesson #1 - Don’t panic but act quickly.  Stay focused on the tasks that you have to accomplish to recover.  Prioritize tasks and act upon them immediately.  Time, or rather lack of time, is your enemy.  Everyone is going to want your time… so have to prioritize and think ahead.  Anticipate things that might happen and prepare for them.  If you know you have to lay people off, and it’s a reality, then do it.

-         Lesson #2 - [In knowledge worker industries] Don’t lose your greatest asset – your employees.  Be decisive.  Communicate with employees quickly and frequently.  Be a leader and let them know the plans and intentions of the company and how they fit in.  Evaluate what you can do for them immediately and provide as much assistance as possible.  Don’t lose the key people that make you successful every day

-         Lesson #3 - Communicate with your clients and vendors quickly.  Let them know that you are still in business and intend to fulfill your obligations.  There often is  client empathy and understanding for about a week.  Then clients start to look to mitigate their risk by moving business-all or at least part of it-to another provider just to reduce their risk.   Keep them from defecting.  IF they don’t hear from you, then they’ll assume that risk is real in continuing to work with your firm..

-         Lesson #4 - Locate your advisors (accountant, insurance agent, banker, attorney) quickly and leverage their knowledge/expertise in the recovery.  These relationships should become PERSONAL…  you need to know your banker’s wife, husband, and children….  For accountant/bankers, questions like:  ”Should I do a 25% paycut?” (accountant/CPA), or “Will banks offer any forebearance in the interim?”

-         Lesson #5 – Be selfish with your time - everyone will want it, and you won’t have enough of it to go around.  Tend to your personal relationships and yourself.  Crisis will test you mentally, physically, and emotionally and you will need all of your strength and energy to survive it.

-         Lesson #6 - Get the facts - not things reported as fact by the media – before making any major life or business decisions.  Lots of false rumors will abound.  Filter information carefully.  Be as close to the information as possible – the further you are away from it, the less accurate it is.

-         Lesson #7 - Don’t consume too much media.  It will discourage you and take away from your focus.  Expect lots of inaccuracies in the news – see Lesson #8.

-         Lesson #8 - CASH is KING – even more so in a crisis.  Build up cash reserves.  Manage cash flow very wisely.  Be prepared for a 3 to 6 months cash flow crunch and figure out how to survive it.

-         Lesson #9 - Don’t count on ANY government assistance (FEMA assistance, SBA loans, or other federal/state assistance).  By the time you get it, if you get it, it may already be too late.

-         Lesson #10 - Keep a positive attitude - no matter how bad your situation – or you are done.  It’s the one thing that you have total control over and is critical for you to persevere.

-         Lesson #11 - Don’t expect things to be what they were before.  They won’t be the same.  Adapt, adjust, and keep moving.  It will never be “what it was before.” And don’t expect it to be.

Times of crisis test us in ways that we can never imagine.  It’s these times that makes us stronger and more determined.  Don’t let ANYTHING, not even a catastrophe, get in the way of reaching your goals and achieving success.

In further discussing the lessons Jude took away from the Katrina experience as an entrepreneur/business owner, here are some of Jude’s sentiments some three years out from ground zero:

Q: How are you entrepreneurs in New Orleans different after than before?

A: We’re smarter.  We had a chance to start from scratch, and can be anything we wanted to be (operationally).  When you lose everything, you have an opportunity to start all over again, and you can do it better the second time you build the house versus the first.  All of us have gotten smarter about who we want as clients, focusing on more profitable clients that fit the core value proposition of the company, versus taking on all comers.

Q: Has it permanently changed, or only temporarily changed your prioritization of work, family, and personal?

A: Jude said that one word was crucial on keeping balance…. “perspective.”  It’s all about perspective, keep proper perspective, and realizing that not everything may be as bad as you might think it is.  Put all things in perspective.   Events like Katrina [or the current economic crisis] create incredible stress.  Perspective is critical to subdue this stress.

Q: And “that which doesn’t kill you makes you stronger”?

A: True.  But it’s an unfinished sentence.  The end of the sentence is “but leaves deep scars.”  Think about PTSS (Post-Traumatic Stress Syndrome… Vietnam/Iraq…) Your life is turned upside down, you spend 3 years re-building it, and you always will fear that something will happen again.  “I cry a lot more.  Am much more empathetic… in a good way.   I believe the Katrina experience has allowed me to can connect to people better than before.”

• Developing a component is really difficult. Developing an end user complete solution is by far the better way to go.
• Components are often harder to visualize as displacing current technologies or sciences. In particular, VERY hard for consumers to visualize.
• Those who may be most interested in the innovation may be so interested because they stand the most to lose. Therefore, to get control of the technology might be important, but to further develop and deploy it may be exactly the opposite of what they had in mind.
• Kevin Johnson, CEO of Manifold Products, mechanical engineer and serial entrepreneur, had one of the best sports metaphors for it-

“It’s not enough to be the Harlem Globe Trotters and show off fancy ball tricks in the back court, expecting that others will notice and say, ‘Hey pass me the ball and I’ll take it to the basket.’ Instead, you have to take it all the way to the hoop yourself and demonstrate the value/viability/feasibility before anyone else will sign on….”