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A++++ : Is eBay’s Reputation System a Hidden Gem?

Imagine if 10 years ago eBay had opened up its account system to all commerce sites. By encouraging people to sign-in with eBay, any other site could have accessed eBay’s reputation system and, let’s say, discounted fee PayPal. For me it’s one of the biggest missed opportunities of the decade, one which could have put eBay at the center of P2P commerce.

So now, in 2015, having spun off PayPal is it too late? What if eBay opened up its reputation system today atop a Bitcoin wallet/exchange? Playing the bet that in a virtual currency environment, a realname (or pseudonym-based) reputation system could be valuable.

I’ve seen lots of startups pitch these sorts of reputation systems to me but they lack distribution or data to solve the coldstart problem. And I don’t believe P2P market leaders like Uber or airbnb want to either share data back into the ecosystem or adopt 3rd party reputation systems. Trust and ratings are a competitive advantage for them.

What creative steps could eBay take with its reputation system that thinks about the broader ecosystem, not just transactions on their platform? What if eBay decided it wasn’t in the transaction business, it was in the trust business?

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Sales Lessons From 13 Year Old Who Sold 22,000 Boxes of Girl Scout Cookies

I’ve got a term sheet waiting for this girl as soon as she’s ready!

How To Sell The Most Cookies (via NYTimes)

Smile. ‘‘No one wants to buy from a person who is frowning,’’ says Katie Francis, 13, who sold 22,200 boxes of Girl Scout cookies this year, breaking the world record she set last year. Look and act like a professional, even if you’re just a child. When making the rounds in Oklahoma City, Francis wears her troop uniform and passes out business cards. Don’t waste time trying to convince naysayers; instead, ‘‘move on and find the yesses.’’ On school days, Francis works past dark, and she logs 12- to 13-hour days on the weekends.

A saleswoman cannot know the heart of consumers at first glance. Whatever it takes, secure their attention first. Francis goes door to door even in snowstorms. When she sets up a booth in heavily trafficked areas — outside a Walmart, say — she sings songs from the movie ‘‘Frozen,’’ with lyrics adapted to praise the virtues of cookies. Once you have potential customers in earshot, your verbal pitch should appeal to multiple motivations simultaneously: their hunger, impulsiveness, pity, inner philanthropist, sweet tooth. ‘‘There is more than one way to sell a cookie,’’ Francis says. Know what you’re selling: Francis can rattle off lists of ingredients and point out which cookies are ­gluten- and nut-free. What Francis refers to as her ‘‘cookie-­selling career’’ has led to multiple job offers and motivational-­speaking gigs. She recently addressed a university’s entire business department and will be the July speaker at Oklahoma’s Professional Sales Association.

Don’t neglect to cultivate your behind-­the-­scenes support crew. Francis’ mother stores up to 10,000 boxes of cookies in her garage at a time during the two-month cookie-­selling season. At night, she helps Francis count money and load inventory into the family’s S.U.V. and drives her to prime selling locations that change with the time of day. (A saleswoman needs to be something like a predator tracking her prey’s movements.) When her mother is not available, Francis has recruited adults willing to shuttle her around.

As for snacking on cookies while on the job, which some girl scouts do, Francis disapproves. ‘‘It’s better,’’ she says, ‘‘not to eat your product.’’

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Fire Faster: Five Excuses Startup CEOs Give For Not Getting Rid of Low Performers

Letting someone go from your company because they’re failing to meet your expectations is emotional. It’s emotional the first time you do it and it’s still emotional the 100th (I’ve personally had to do it ~10 times). But, and leaders often don’t realize this until they’ve gone through it, turning over low performers is absolutely the right thing to do and in most cases you should have done it faster to benefit both you and them. At startups in particular there are a consistent set of false rationales I hear from founders as to why they haven’t addressed a low performing team member. Here they are. Avoid them.

1. We’ve got so much to do and they’re contributing something

Yes, they might not be a total zero. It’s not like they come to work, put their feet on the desk and eat crackers for 10 hours, but their underperformance is still a net negative. It usually creates work for the rest of your team to assist or fix their issues. Customers, partners, investors, candidates – anyone who touches them comes away likely less impressed with your company. You’re setting a low bar for performance and communicating that it’s acceptable. You’ve filled a seat and using dollars plus equity for someone who isn’t going to create the environment for the magic that startups require to find escape velocity. You want a horse-sized duck at your startup, not 100 duck-sized horses (I think).

2. The team really likes them and I don’t want to risk our culture

No, you’re risking your culture by keeping them. Their teammates invariably know they’re an under-performer and wondering why you won’t address it. Each day you delay is both an opportunity for the contagion to spread or for your team to flee. And wondering why you’re having trouble closing new hires? Because they’re underwhelmed by the dude you should be firing.

3. It’s my fault and a better CEO would coach them up

No, good CEOs realize that action beats inaction in this situation. You should be spending time inspiring your highest performers and helping to bring more talent into the startup. Are there things you did incorrectly during the hiring or on-boarding process which contributed to this? Maybe, but distill those learnings from a post-mortem, don’t compound the errors by delaying. Longterm it’s actually more humane for the person to give them the feedback and let them move on into a new situation where they can succeed.

4. I’m so busy and want to do this right so….

Oh the excuses – waiting for the lawyers to get back to me about a separation agreement. It’s a bad week to do this because of XYZ blah blah blah. Seriously, treat this issue as your highest priority and close it out now. Direct. Quick. Fair. Do consult your counsel to make sure you’ve got the right docs and don’t say anything stupid. If the person was there for 10 months consider accelerating them to their one-year cliff or giving them 10 mths of stock. Don’t be emotional. Don’t be foolish. You want a clean break where no one speaks ill of each other.

5. Will send the wrong signal to my investors because means we made a bad hire

Nope, your investors like to see you holding everyone to a high standard. You can tell us after – don’t sweep it under the rug – but unless it’s someone who you previously identified as a big hire or being critical to the company, you don’t need to get approval or anything. That said, most investors have seen this happen lots of times so if you want advice, feel free to reach out. Now if you turnover the entire team annually, we might start thinking the problem is with you, but there’s always going to be some amount of unregretted attrition and we expect that. In fact, a startup gets to a certain scale without have turned anyone, that’s actually a rarity (and sometimes evidence of a problem).

But Remember, Don’t Fire Someone Just Because They Disappointed You Once

Unless someone has behaved unethically or otherwise misrepresented their skills, they should be given feedback regarding their underperformance plus the opportunity to articulate to you that they understand and can correct quickly.

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The Three Types of “Second Seed” Rounds: Too Cold, Too Hot and Just Right

For a founder, the first few million dollars you raise are likely to be the messiest in the history of your company. For some they come in a single round, meant to last you 12, 18, 24 months – a straight trajectory towards the milestones you’ll use to raise a Series A. But for most it’s a lumpy mixture of bootstrapping, friends and family, hackathon prizes, angels, incubators/accelerators and venture capital which combine over a period of months or years.

Accordingly it doesn’t surprise me that we’re seeing an increased number of companies raising a “second seed” – that is, an additional $1-2 million matching a similar total sum raised previously. I don’t think these rounds are evidence of a Series A crunch or anything quite so structural. There have been a tremendous number of seed companies funded in the past few years and trajectories are hard to predict. Some number of those early ventures require (and deserve) additional investor support before they are ready to raise the institutional A that they modeled.

While Homebrew is quite often the first money in (and certainly the first VC round), we don’t dismiss out of hand the idea that a company raising additional seed financing could be a wonderful investment. However as we saw the inbound volume increase we needed a framework to understand the opportunities in order to make good decisions of how to spend our – and founder – time. In reviewing the types of second seeds we were seeing, Satya and I broke them into three segments, two of which we have little interest in and one which whips me into a full-on funding lather (pause so that reader can create visual in their head).

Too Cold: Smart Team Still Wandering in the Desert

The founders have a pedigree and the problem space is a big one, but the team just hasn’t managed to nail a true MVP (let alone product<>market fit) and needs more funding to continue building. Maybe they’re just two months away from a launch. There’s always something tantalizing just. around. the. corner. They can sell investors really well but if you go deeper, it’s just not clicking. The first million was a party round and now those investors aren’t really responding and never really pushed the team to get beyond the problem definition from the original pitch. Given our model of making 8-10 lead/co-lead seed investments per year, getting behind this team doesn’t mean throwing $200k in, betting that at worst it’s an acquihire, but rather having the conviction to write a $700k+ check. Not a good fit so when we see these we typically pass quickly.

Too Hot: Early, but Delayed, Traction

Ooh, these are tough ones. This startup usually has a chart that’s up and to the right, but with just 2-5 months of data because it took them longer to find product<>market fit than they originally anticipated. The best Series A investors are telling them there’s lots of potential here but would want to see 6-9 months of data to better assess cohorts and repeatability of whatever seems to be working. So the team is off to find some more money beyond the 25-75% that current investors are willing to re-up for.

It hits our inbox and there’s a lot to like. However after going down the path on these a few times we’ve actually become less excited about entering at this midway point. First, it can be really hard to tell whether growth is actual traction or just a mirage. Second, the existing investors have already built a relationship and influenced the cadence of the company, whereas we like to have a chance to see the journey from the beginning. And third, the founders and current investors often overestimate the value of what’s been created so they’re seeking a meaningful step-up from the seed round (for example, an uncapped note at a small discount to the A Round). As a result we’re declining the majority of these conversations unless we really understand the market vertical and the founders are familiar to us.

Just Right: Team Delaying an A to Bet on Themselves

Every once in a while we find the second seed opportunity which is JUST RIGHT. It involves a team which may already be able to raise an A Round, or is trending towards one, but after assessing their startup, has decided to put some more money in the bank and push out the next raise. Maybe they want to hit some quantitative milestones which will give them better terms. Or, even better, they have some hypotheses to test out and prove before they feel comfortable committing to an extended plan. Our investment in ManagedByQ kind of looked like a Just Right.

In fall 2014 the Q cofounders Dan and Saman were already fending off Series A VCs who wanted to start poking at their data. But despite the inbound interest, they felt Q wasn’t ready. Operationally they sought to ensure they could scale supply to meet the demand they were seeing. And after launching in NYC, the team wanted to really understand what it would look like to expand into other cities – the speed and cost of success. So we led an additional financing which gave them time to accomplish these goals — in fact to exceed them by launching into Chicago before the A Round was even completed. And as they recently announced, this momentum and confidence helped them put together a plan they felt great about — to the tune of a $15m Series A!

While these situations are rare – and sometimes we need to source them proactively – man, it’s exciting to see. Not Too Cold. Not Too Hot. Jussssssst Right.

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The One Thing VCs Shouldn’t Hand Over to Their Firm’s Talent Partners

I’ve been meaning to write about how thrilled we are to have Beth Scheer join Homebrew as our Head of Talent. But Memento style, I want to work backwards and instead start with one responsibility that Satya and I believe we’ll always do ourselves: helping founders close potential hires.

Here’s what we stress to our CEOs:

  • Helping you bring the most talented people on to your team is an evergreen top priority for us. If you believe having someone with a job offer hear from your lead VC, never hesitate to reach out.
  • We don’t care how senior or junior this person is. If you want to use us to close someone, do it. Don’t “save us” for execs only.
  • Asking us to help close someone who might still have doubts isn’t a show of weakness, it’s a show of strength in that you know when to get us involved. Caveat, if you need us to close every candidate that might be a show of weakness ;)
  • We’re not going to tell a candidate what they want to hear, we’re going to listen to what they’re trying to understand and give them our best answer. This means being straight up, when directly asked, about what we think is going well and where the next phase of growth/learning needs to come from. It doesn’t help anyone if the new team member is surprised on Day One by a bunch of things you didn’t tell them.

Here’s what we stress to the potential hire:

  • We believe people choose companies, not the other way around, so let’s talk and make sure you know why this is the best choice for you.
  • Joining a startup should ALWAYS be a bet on yourself and ability to make a difference. Yes, in many cases you’re joining a team with momentum, but it’s still very early. You’re joining not because you want a lottery ticket, not because you want to “work for a startup” but because you want to help a small team solve a big problem. And your contribution will increase the probability, velocity and scale of that success.
  • Do right by a startup we’ve funded and we’ll always have your back. Look, we get it, startups are riskier than just doing another year at Google or Twitter. Well here’s a safety net: if you work hard and do right by any company we’ve funded we’ll ALWAYS have your back. If for some reason the gig wasn’t a great fit for you, we’ll work our butts off finding you another opportunity in our portfolio – or beyond.

So I can’t wait to share more backstory about what led us to ask Beth to join our partnership, but at the end of the day, part of the VC value add should be their willingness to jump on the phone or grab a coffee with a potential hire and get them to sign on the line that is dotted.

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“I Wanted to Do the Deal But Couldn’t Convince My Partners:” A Handy Explainer

An entrepreneur raising their A Round recently shared that one potential VC passed while telling them they wanted to do the deal “but couldn’t convince my partners.” This (and other variations such as “our partnership couldn’t get aligned around this one”) can be confusing. Here’s my guide on how to interpret:

1) “I Didn’t Want to Do This Deal & Never Even Showed It To My Partners”

Ahh, the soft pass. Didn’t really want to tell you know so blamed “the process” even though it was never even shown to the partnership. Bad VC.

2) “I Did Want to Do the Deal but Got Pushback & Didn’t Have Conviction/Time/Political Capital to Spend”

Ok, this one can be a little more complicated. It’s more like Frustrating VC, not Bad VC. Partnerships are supposed to have a constructive tension to these sorts of discussions and consensus deals rarely turn out to be the most successful, so it’s not the “pushback” that’s annoying, it’s whether or not your VC rolled over right away and how they’re portraying it to you. If your potential investor went in fired up and came out with questions/pushback which changed their conviction in the deal, that’s different than still having conviction in the entrepreneur but not the ability to get the deal done from a process-standpoint. Or maybe their partners are right and you’re just a bad deal :)

3) “I Couldn’t Get Enough Support from Partnership Even Though I Tried Really Hard”

It happens. Just wish the VC would say “we passed” rather than the passive aggressive blaming of partners – getting deals done require some support (but not necessarily consensus). Forcing it through wouldn’t be good for the founder because they’d be left with a fund that is only half-committed. That said, with Homebrew I’ve started to see that the best VC partner don’t get “surprised” at the last minute by their partnership. And they don’t see it as a question of approval or not, but rather is the VC partnership working well together to help collectively make better decisions?

So general advice for founders raising capital from VCs

  • Understand the decision making process at the firm
  • Use your lead partner to help you understand the firm’s general sentiment towards deals like yours (partnerships have long histories and they will/won’t like deals because it reminds them of successes/failures in the past)
  • Help your lead partner with their partners. You want as many advocates in the partner meeting as possible. Work with, but not around, your lead partner to ID backchannel references you can be providing, etc
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Near Zero Employee & Customer Churn? That’s ManagedByQ (Now Fueled With $15m Series A)

Stay objective Hunter, stay objective. I CAN’T STAY OBJECTIVE ON THIS ONE, I F’IN LOVE MANAGEDBYQ!

Ok, now that I got that out of the ole’ system, it was great to see ManagedByQ launch in SF this past week (previously just CHI, NYC) and announce a strong $15m Series A by Steve Schlafman at RRE. We put a short note on the Homebrew blog.

What is Q?

Q combines people, process and technology to deliver the operating system for physical office space.  Via an iPad installed in your office, Q centralizes stellar office cleaning and other smart services to help office operations run smoothly. Hundreds of offices in New York, Chicago, and as of today, San Francisco, are using Q to clean and manage their offices efficiently and cost effectively.  

There are a whole bunch of reasons for me to love Q from a business standpoint. Their growth numbers are great great great. It was a nice writeup of our seed investment. Yadda yadda.

But what gets me so excited about Q is the way they’re building this business to be amazing for both customers and employees, especially their Field Operators, the office cleaners and maintenance workers who are used to being nameless, faceless. Not at Q. At Q they’re diverse, celebrated, employed (W-2s w benefits) and valued. That’s why there’s been less than 1% turnover among the hundreds of people they employee.

“We realized fairly early on that in order to deliver the best quality of service, we needed to be the best employer,” said Q co-founder Dan Teran, 26.

It’s also one reason I can’t wait for the fast follower, VC-incubated Q competition I keep hearing about to debut. You can copy a spreadsheet, you can’t copy culture.

“The mainstream [model] is to use contract workers, but it’s hard in an environment like Managed by Q,” said Zeynep Ton, a professor at MIT Sloan School of Management.

Ton researches how organizations can best run their businesses to suit needs of employees, customers, and investors, which she refers to as “operational excellence.” She was so intrigued by Q that she is now an adviser to the company.

Saman, Dan, the Office Operators at Q HQ and the Field Operators working across SF, NYC and CHI, we couldn’t be more thrilled by this milestone.

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