JumpStart: IdeaExchange Blog

Larry Page and Sergey Brin did not invent their mathematical PageRank algorithm technology or build their company, Google, alone. They had a mentor, Rajiv Motwani, a Stanford professor of computer science. Brin wrote last year, “…Rajeev helped to coordinate a regular meeting group on [the subject of data mining]. Even though I was just one of hundreds of graduate students in the department, he always made time and effort to help.”

“…always made time and effort to help”: a true sign of a mentor, and Motwani left his mark as a mentor or advisor on many more Silicon Valley startups, among them one of our favorites at JumpStart, StumbleUpon.* In fact, most people know intuitively how important advisors, coaches, and mentors are to a startup’s development and success, but it’s rare indeed that we actually celebrate advisors, coaches, and mentors. Do we even know what a mentor is vs. an advisor vs. a coach is, never mind having an iconic image of a mentor like we do of an entrepreneur (the equivalent, mentor/advisor/coach-wise, of a Brin, Khosla, Gates, Jobs, Ellison)?   

Advisor
I think of an advisor as a professional who advises the company and not the individual entrepreneur, though this role is more informal than that of a Director. That said, it is not a totally casual role either. For instance, at JumpStart Ventures, we typically advise that companies that put together an Advisory Board should absolutely pay those advisors, albeit a very small, even token amount. $250 per meeting (plus expense reimbursement) is fine for a startup; the point is for the entrepreneur to show that she values what she is getting and to add a hint of formality to the advisory process. Paying in options or restricted units also works so long as an entrepreneur is able to issue those options with minimal administrative cost (ie, don’t spend $3K on legal fees to get the stock issuance mechanism right just for the BOA alone; if it’s part of a bigger strategy, then OK). .1% (that’s one tenth of one percent) per advisor is OK for a startup, and of course is probably rich for a company that is beyond startup stage.** Getting creative is smart too. If you’re a pet food company, pay advisors not with cash or equity, but with a year’s supply of pet food. If you’re a $5MM+ dollar travel company, then offer a free cruise or something like that.

With regard to coaches and mentors, I once heard an interesting differentiation between coach and mentor, specifically:

• A coach focuses more on results; a mentor focuses on attitude
• A coach focuses on skills; a mentor focuses on vision
• A coach encourages you to fix problems; a mentor encourages you to lead a great life
• A coach helps you understand the “hows” of your career; a mentor helps you understand the whys

Coach
The way I would also boil this down is that a coach focuses on the individual, but is also aware of the team and company overall. A coach is trying to get the most out of an entrepreneur for the benefit of the company. Some coaches are paid; executive coaching is a whole industry. In startup land, vs. big company executive land, cash is tighter (what a revelation, eh?) and so you see entrepreneurs finding creative mechanisms to get coaches. Sometimes they find a peer to coach them. Or, they find a group like YPO, EO, or Vistage International. Maybe they wait until they are past startup stage, more in positive cash flow stage, to get a coach. Occasionally, they are able to find a coach who will do the job at a significant discount or for free. Honestly, it’s all over the map.

Mentor
A mentor is the most personal connection. It is that person who will help you grow as an individual, and here I now reveal the answer to the question posed in the blog title: Obi, Dre, and Sir Laurence were all mentors to, respectively, Anakin Skywalker, Eminem, and Jack Nicholson. The idea of the mentor is to help the individual reach their fullest potential in life. That personal connection can be impactful enough that it ends up benefiting the company, but that is not necessarily the goal. I have had a mentor, coach and advisor and I can definitely attest to the fact that while the coaches and advisors helped the company and me, the mentor did have the biggest impact on me in life. In fact, I still have his three primary pieces of advice to me as the top Memo in my handheld device so that I see it every day, kind of a security blanket (or, a hair shirt perhaps, since it is also brutally honest) for the soul.

Whether service providers, professors, investors, serial entrepreneurs, or big company executives, these forces behind the forces — these advisors, coaches, and mentors – are really important to a company’s, and/or an entrepreneur’s, and/or an individual’s success. What’s common about them is that they take more initiative than they need to take, really believed in the company, concept or individual in some way, and expect little (and deserve much) in return.

At JumpStart Ventures, we have nearly 50 portfolio companies run by nearly 50 diverse entrepreneurs, so I have been able to see tons of great advisors, coaches, and mentors. I have a running list of some tops, and it’s surprising how different one is from another other than their genuine desire to help, just like Motwani — but I would love to know who you think is top. Drop me a line or better yet reply to this blog with your thoughts on some top entrepreneurial advisors, mentors, and coaches. Celebrate them.*** They deserve it. By the way, they don’t need to be based in Northeast Ohio: I am, alas, open to the possibility that there may be some entrepreneurial passion, talent and skills beyond the NEO area…

Notes:

* Actually, I’m not sure whether he was advisor, mentor, or (the more mercenary, mortal) investor, or all three, in StumbleUpon

** Full disclosure: the “math” here is very back of the envelope. Say the average high growth start-up nationally is valued at inception at $1MM total. .1%=$1000. I suggested that $250 per meeting might be a good token cash amount. Board of Advisors might meet 4X/year = $250 per meeting = $1000 in cash. On the one hand, the options are not liquid and are slightly an administrative pain to deal with (accounting, vesting, remembering you have them). On the other hand, they ostensibly have big upside and one wouldn’t be on a board if one didn’t believe that. In a very scientific manner worthy of a blog, I figured those two pros and cons equaled each other, and so came out at .1%. Also, I saw somewhere that someone else expert-like recommended approximately this amount, which only reinforced my back-of-the-envelope, non-Black-Scholes calculation. Also, I have not to-date seen anyone recommend >1% for a member of an Advisory board (BOD is different) so that may set an upper bound. 

*** Twinsburg, Ohio celebrates twins every year with a festival that draws national crowds. Maybe Mentor, Ohio — beautiful, and right here on Lake Erie — ought to celebrate mentors every year with a similarly large event.

Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.

It’s natural to want to like the people leading the companies in which we invest. But it may not be profitable.

When I read Jim Collins’ Good to Great, ten years ago, I found it compelling. I loved the mystery novel-ish sense of suspense of the McKinsey-style analytical team trying to figure out what truly differentiates great companies from good ones. Ultimately, they found that a CEO who exhibits Level 5 Leadership was a core differentiator. And, basically, Level 5 Leadership described someone whom I thought I might like: unflinching willingness to face the truth, participative style, and vast humility. I loved that description; it spoke to me.

But, shortly after I read it, I found that I was not finding that type of leader in entrepreneur world, even in very successful entrepreneurs. I then listened to a compelling seminar hosted by ghSmart, the firm that co-owns Topgrading. Their findings were different. They had studied investor-backed company teams, and they found that something called the “lion” profile is best. A “lion” is someone who, in summary, is very aggressive (often considered over aggressive), pushes boundaries, and goes for winning as a top goal. Conversely, their “lamb” CEO — someone who is patient, participative, makes people feel that they are the best that they can be, etc. — did not, statistically speaking, generate higher returns.

That jived with what I had seen work more consistently in entrepreneur world. So, at a seminar JumpStart put on a couple years ago to discuss this dichotomy, an audience member raised his hand and said, “But patience has to be a virtue. It simply must be.” A seasoned, nationally known executive recruiter on the panel, one who had no connection to Good to Great or Topgrading, responded firmly and without hesitation.  “Our best recruiters,” she said, “always say ‘Patience is not a virtue’.” Why? Because they had found, over time, that the best leadership candidates were not those who were patient and deliberate but rather those who ‘pressed’ …for excellence, for results, and for the highest quality in all they do and in what they expect of their teams.

Yet again, recently, this concept that you don’t need to be likeable or patient or any of those things to be a great entrepreneurial CEO arose. At the Angel Capital Association annual meeting earlier this month, Adeo Ressi, of the Founder Institute, sat on a panel. An audience member asked him about entrepreneur profiles. He responded that the Founder Institute has consulted with a number of sociologists and others to try to drill down into what characteristics are truly most correlated with successful entrepreneurship. After discussing a couple of other characteristics, his conclusion was this: “It turns out that you really can be a real [jerk]* and still be a great startup CEO.”

The author, Malcolm Gladwell, semi-reinforced this idea in a recent New Yorker article, “The Sure Thing”. He wrote that great entrepreneurs are predators. He wrote about how they are cold-blooded bargainers and that they time and time again “swooped down, like perfect predators…” on opportunities. So, take your pick: Lion, Jerk, Predator. Each is slightly different, but none is what I would call the humble, participatory-style Level 5 Leader. They’re Larry Ellison, who wants to win at all costs. They’re Bill Gates, who has perhaps grown into a benevolent-ish philanthropist, but he built Microsoft by being an aggressive jerk; you might quarrel with the use of that word, but from what I can tell, he was solidly at some lion/predator/jerk intersection. They’re Ted Turner, who turned raw combativeness, into marketplace competitiveness, into a cable empire.

This all gels with what we have increasingly come to believe at JumpStart, which is that Level 5 leaders don’t quite describe the type of entrepreneurial leader we should invest in, nor do we even need to like the CEO of a company we invest in. Don’t get me wrong. We prefer to actually like the CEO of the company in which we invest. We don’t actively seek to invest in CEOs who are lions/jerks/predators. But, whether we like them or not, whether we want to hang out at an airport bar with them for five hours (a classic test of whether to hire someone), is not much of a criterion. First and foremost, we look for Adaptive Excellence which is, basically, someone who rises to the top of whatever they do.

If they do lack humility and nice-ness and various other people skills that are increasingly required as a company grows and employs hundreds and thousands, then we will still invest. We may, however, look to supplement their non-people skills as they grow. See, it’s one thing to be an investor in a company led by a lion/jerk/predator. But, being a manager every single day at a company with a lion/jerk/predator for a CEO can be demoralizing, and company growth stalls when employees or managers are departing in droves. The predator, it often turns out, needs help building a great and enduring culture, the type of culture that say, Netflix has; a place where employees love coming to work.**

Here’s the point: the CEO of an early-stage company can be a jerk. Take Larry Ellison, Bill Gates, Ted Turner (the list goes on and on). They bent rules, they agitated. Really, they might not have endeared you, at all, if you met them in a presentation in your offices. Investors should look first for individuals who are impatient, non-conformist, smart, and strive to win. Look for predators. Seek the lions and lionesses. Don’t let the jerk turn you off to the possibility of the greatness of their aggressive, non-conformist insight. I have done so a couple of times and I regret it. Because what I believe is that whether I actually want to roam the metaphorical plains with the lion(ess) telling jokes, drinking from the oasis, and being participative and humble together may well be a moot point, when it comes to returns and IRR.

(Note: ghSMART will be delivering a seminar at JumpStart this Thursday - Hiring Smart: How to Hire & Retain A+ Players. Learn more and register now - It’s a can’t-miss event.)

NOTES

* What Ressi actually said was a word for the male anatomy. Problem is — I cannot use this word on a non-profit venture development web site. On a related note, Ressi pondered, along with other panelists, why there weren’t more women in entrepreneurship. Several audience members dared suggest that perhaps using male body parts to describe entrepreneurs wasn’t particularly helpful to the cause. Indeed, our entrepreneurship language is almost entirely oriented towards males, and that is a problem, if you ask me. I understand the arguments for it. Trust me, as a person whose first love was linguistics and who spent her senior year of college not hanging out watching Seinfeld and chugging pints but instead writing a 100 page thesis about the pronoun “I” — I am deeply passionate about language and versed in the arguments about how language simply describes culture. I also am versed in the arguments against this, which is that indeed language does help shape culture. So, one of my dreams for this world is that some nonconformist investors will switch the discourse to using slightly more female words. It’s a risk, because IRR is all that matters, not language, right? But, think about a world where we use much more female language in describing entrepreneurs. “Gals” instead of “guys”. “Lioness” instead of “Lion”. “Queen” instead of “King” (in the Rich vs. King paradigm). Jerkette instead of Jerk. I’ll stop short of suggesting an alternative for Ressi’s actual term (which was not “jerk”), but review the Kinsey Report and you’ll get some good ideas. I haven’t done statistically significant field work, run the Monte Carlo simulation, completed the double blind study, crunched the numbers, or any other such thing, but this I believe: this more female-oriented discourse would be powerful to our daughters, our future generation of entrepreneurs. 

** Our Entrepreneurial Talent guy, Robert Hatta worked there. By the way, the use of Netflix culture as a positive is not intended to imply that their CEO is or is not a jerk. I haven’t got the slightest clue about Reed Hastings, though he certainly appears to have Adaptive Excellence.

Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.

Position: CEO of a breakthrough idea/company

Hours: 60-90 hours per week

Reports to: Board of Directors: 3-5 people who are great and supportive but will also drive you nuts because the whole reason you quit your job to start a company was to not have a boss and now you have 3-5 bosses. Technically speaking, they also could possibly hire in your replacement. (Hey, they’re not your friends; nor are they even the shareholders’ friends; their legal obligation is to consider the best interests of the company as a whole). For the high growth route, a Board is totally worth it because the right Board of Directors extends your reach and knowledge immeasurably.

Company Description: Acme Startup is a totally new, breakthrough idea that will grow to $50 million or more in revenues and will fundamentally change the industry in question. It will be in its industry what Southwest was to airlines, Starbucks was to coffee, Facebook was to social networking, and Amgen is to therapeutics.

Position Description: Since this is mostly an idea trying to become a company, and no one has tried to commercialize this breakthrough idea, you will spend half your time evangelizing about the product and the need, the other half trying to raise money, and the other half (yes, three halves; our executive recruiter isn’t very good with math) dealing with hiring people, outsourcing for skills your company needs, and managing your board of directors and advisors. More specifically, the job entails:

• Developing the breakthrough product
• Evangelizing the need, product, market, and team that’s going to grow it to be great
• Finding cheap office space, and doing this several times over — each time you outgrow the office space you’re in
• Outsourcing for as much help as possible, as cheaply as possible, but without sacrificing quality**
• Creating lots of elevator pitches, executive summaries, and PowerPoint presentations of a gagillion different formats for 50-100 investor meetings, of which only 2-3 investors will end up investing;  Listening to “no” in 18 different ways and for reasons that make no sense, and using the “no’s” to make you stronger; Figuring out how to create “coopetition” with the yes’s in a way that is aggressive and maximizes value but isn’t straight-out slime ball city
• Hiring team members who are also entrepreneurial (and so also don’t deal well with the whole “boss” thing) and strive for excellence in all that they do, and working through with them the whole compensation thing too (see below)
• Holding monthly or bi-monthly board meetings plus regularly talking or meeting with board members individually
• Figuring out who is going to want to acquire this company, and when, and why, so that you and others can make money off of it; Meeting with those potential acquirers, and building something that they want
• Travel is 50% or greater, usually in coach class (unless you have upgrade miles), watching big-company executives sip cocktails in Business Class while trying to rearrange your seat tray in a way that you can see your computer screen so you can create yet another investor presentation.

Background and Skills:

• Adaptive Excellence – Whatever you do, you do it well and this clearly shows in your resume. Doesn’t mean you take the straight and narrow “achievement path” but does mean that, like cream, you rise to the top of whatever you do: video gaming, sports, hobbies are all definitely fair game, so long as you are someone who rises to the top of whatever you do. REQUIRED
• A Predator –- Love capital markets and figuring out how to win in the equity capital markets. The equity market is a brutal, Darwinian place — Everest comes to mind — and it is not getting much better. REQUIRED
• Strong communicator — Communicating consistently and well is pretty critical to retaining that top spot. STRONGLY PREFERRED
• Industry knowledge – The ideal candidate will know her product and her industry, because that’s usually what it takes to have great insights. But, industry knowledge has to come with the above factors. PREFERRED
• Prior successful entrepreneurship –- Has led a startup company to great success — raising capital and growing revenues — ultimately achieving a wealth creating exit. IDEAL***
• For other desirable traits, see also this.

Compensation: Competitive, but bizarre. You will make a ton o’ dough, let’s just say $5-$10 million if the company does well.**** You’ll make out pretty poorly if the company craters, which statistically is more likely than not. More specifically, you should be able to make ~$90K-$300K in salary*****, which is great, and the salary is that amount because if we want someone to successfully grow this biz, we know we better pay that amount. But keep in mind that you’ll have no severance plan, likely no employment agreement (although it’s a possibility), potential months-long gaps in pay (we try to avoid it, but it happens), and few benefits (basic medical; no 401K match). Your equity ownership will be 10-100% of the company, but this will decline to about 7% over time as you build value over about seven years. Which you might think makes NO sense, but it actually does. As you build value, you bring on investors who dilute your ownership percentage. So, you own less of a larger pie, which means your economic stake is worth more $$, but your control stake declines. That’s if it works out well. If it doesn’t, then you have less ownership of a lesser-valued thing and no control either, which most assuredly sucks (sorry - hard to find another word). But that’s what risk is. So, if this story sounds too horrible for you — and it is, like climbing Everest, a very narrow and specific route with change-the-world type glory but many embittering pitfalls — then you should not apply for this position. 99% of management positions are at companies that aim to grow a little slower, at a more sustainable rate, so that the company can avoid all the hassles (no argument from us on that word –- they are hassles) of equity capital.

(Our apologies that our executive recruiter got so carried away on this compensation piece, but we thought that rather than just writing “Competitive Compensation and Benefits”, you oughta know the basics).

To Apply: Do not send resumes. Instead, please come up with a breakthrough idea, and if you believe you can execute it really well, then raise some seed or friends & family capital, quit your day job, and let’s have some fun.

NOTES:
* This is a sample job description. It is not an actual job description.

** Do not sacrifice quality. Instead, if you can’t afford them with cash $$, issue equity in some form to the highest value advisors.

*** It is rare to find these serially successful entrepreneurs — people who have successfully run and grown a company and had a wealth creating exit and who, rather than retiring to Naples, actually want to do it all over again with OPM (Other Peoples Money) and all the hassles therein. But, if that type of person applied for this position, we wouldn’t sneeze at that.

**** The average founder-CEO of a venture backed company owns 5-10% of the company at exit and the average acquisition for an equity backed company is about $100-$150 million, so let’s just say ~$10 million is your take, but less after built-in/contractual preferences of investors are fulfilled, so make it $5-$10 million. The range of possibility is, of course, anywhere from $0 to the low billions.

***** The salary grows within this range as you hit value creating milestones, advance through stages, grow revenues, and add investors.

Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.

In 2008, according to PWC MoneyTree and VentureXpert, Ohio moved into the top quartile, among all states, for number of venture capital deals. In 2009, Ohio moved into the Top 10. The states ahead of Ohio are: California, Massachusetts, New York, Pennsylvania, Texas, Washington, New Jersey, Colorado, and Maryland. Ohio is the only Midwestern state to break into the Top 10.

As far as $$ invested, we are lower down on the list — 21st in 2009, where historically, over 10-15 years, Ohio has ranged from 9th to 28th, averaging about 21st. In order to move up to a Top 10 spot, investors would need to more than double the amount of capital going into Ohio’s early-stage companies. Has something like this been done before? Yup: Maryland, for example, moved from 22nd in 1992 and 25th in 1993 to 8th in 2006.   

So, risk-oriented investors might say, “That’s fine, Becca — love your passion for Ohio’s innovation environment — but, um, what about returns?” My answer is that they are pretty good: an analysis done by Chrysalis Ventures shows that returns in Midwestern deals were higher than returns in every other region except California and the Southeast (where the Southeast had fewer deals than the Midwest). I have not reviewed this analysis since 2006, but even if updating shows it to have fallen, the 2006 data do show that strong returns can be generated in the Midwest — Ohio included.

Those same risk-oriented investors might next say, “Yeah, but what about exits? As investors, we know, obviously, returns are a sign of exits, but still, how about stories: do you have great stories of exits, stories that capture the imagination and define a region? Where’s your Google? Your Amgen?”

OK, I have to admit: you got me there. We do not have many of those tales of Stanford PhDs or MIT wunderkinds opening up entirely new industries and IPO’ing five nanoseconds later, and let’s face it: those are fun, iconic tales that generated great returns and captured the imagination. But, here is the good news. An analysis I recently saw showed that Ohio entrepreneurs and investors are actually quite good at something that may be emerging as an enduring investment thesis in the venture industry: entrepreneurs raising money in a capital efficient manner from smaller funds and growing solidly and well to provide those funds with nice returns, IRRs that are above-equity-stock-indices-and-above-venture-IRRs-as-a-whole-but-(admittedly)-no-Google/Amgen.  

I cannot, alas, offer here the details of this analysis because the person who conducted it is a trusted Ohio investor who was able to get many of his peer investors to offer up information that they requested not be made public. But I can, for illustrative purposes, offer up names of some of the companies whose exits were public domain and that collectively make the point that we do have exits, good exits, sometimes great exits, but admittedly not iconic, blockbuster exits. In IT, over the past 5-10 years, Ohio entrepreneurs and investors have seen exits from angel or venture-backed companies like Hyland, Plansoft, Brulant, Flashline, TMW Systems, Everstream, MRI, Northcoast PCS, Entek, and many more. In Healthcare, over the past handful of years, there is WholeHealth, MemberHealth, RIS Logic, Edgepark Surgical, Cleveland BioLabs, Atricure, NDI Medical, and many more. In Cleantech, of late, there is Sorbent Technologies and Solar Fields, plus others, and in Business Services, there is Flight Options, Atomic Dog Publishing, and more.

So, here is the summary of all this. Ohio is Top 10 nationwide in investment activity and Ohio’s entrepreneurial strengths are in areas where the venture industry may well be moving: Ohio growth businesses and entrepreneurs are capital efficient and, among states, Ohio is among the leaders on consistently starting strong, high growth businesses that pragmatically solve a certain problem in the world, grow quickly, and generate solid returns. This entrepreneurial mindset, or strategy, if you want to call it that, offers an outsized return to investors as shown by the Chrysalis analysis. The entrepreneurs who led these businesses are adept at growing more of these types of businesses as CEOs, serial entrepreneurs, angel investors, and board members.

These are all reasonable strengths to build on. With a lot of effort, which is what anything worth doing takes, we could become a Top 5 state in venture activity (deals, not dollars, given the more capital efficient nature of Ohio growth stories). Wouldn’t that be great?  

That’s not a rhetorical question, because I guess what I want to know is this: is this compelling? Is the paucity of iconic IPOs that capture the imagination, even if IRRs for investments in Ohio early-stage companies are collectively as strong as or better than elsewhere in the U.S. and the venture industry as a whole, a deal-killer (literally)? It strikes me and many successful Ohio entrepreneurs I speak with that it should not be.   

While “should not be” is not a strategy that will make quantum leaps in capital formation and high growth entrepreneurship, IRR is.

Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.