Thursday, October 26, 2006

Your business plan is wrong...

Every business plan is wrong. The moment an entrepreneur hits "save" or "print" the plan is out of date. Things change. In some cases you grow ahead of plan (like portfolio company Jingle Networks whose 1-800-FREE411 service has captured 3% of the US Diirectory Assistance market in one year) and are faced with the challenges of successfully scaling to satisfy user demand. In other cases you find that some of your initial assumptions are no longer valid. A competitor emerges. New technologies emerge. You are unable to build a team as fast as you had planned. Distribution channel deals take longer than expected. Customer adoption is different than what you expected.

Either way - it is critical for an entrepreneur to be able to listen to the market, their team and their customers and make changes to their plan as necessary. I've always said that I'd much rather bet on an entrepreneur who can adapt to change rather than an entrepreneur who is convinced that they have the ability to predict the future. But adapting to change is hard. How do you maintain flexibility yet still preserve a goal oriented culture? What do you say to investors who backed your initial plan? When is a data point an outlier and when is it a warning bell? Munjal Shah, CEO/Founder of Riya is doing a wonderful job blogging about his experiences in transforming Riya.

sent the packet out ahead of time and like a good CEO I called each member to brief them on the issue. I like to structure my board meetings around one big decision for us to make each meeting. I don't feel boards are best served by getting lost in the weeds, but rather focusing on the big company changing decisions and making them.

I presented two main options: Stay focused on face recognition and photo sharing or shift to Visual search. We discussed it for a while and people spoke up in turn.

Some said, "It is too early to take such a turn."
Others said, "Web 2.0 is all about social search are we sure we don't want to focus on that as a third alternative."
Another said, "Why do you think you can do image and face similarity? I thought doing anything globally was harder than local."
Yet another said, "This makes a lot more sense and is worth trying while we have the resources."

We spent almost two hours discussing it. Some of the board members had a major concern with the new strategy: what would people use the visual search for. They weren't asking, would people search, but rather, what were the use cases. Was it just porn, clip art, celebrities, and sporting events like people use Google and Yahoo Images for today? I believed that the applications would be emergent in that the new capabilities of visual search would allow new types of searches that traditional linguistic image search didn't. However, when asked for specifics I didn't have many good answers. Some folks were clearly uneasy about this and they spoke up. They were right. We needed to figure this out, but I intuitively felt that letting people search this way would drive a new class of searches even if I couldn't articulate them all today. Being seasoned board members, however, they stated their concern and backed off enough so that psychologically it became my issue to solve instead of my issue to defend the strategy to them. In the end, despite this concern all of the board members felt going in this new direction was better than staying where we were. We voted one by one and boom we had a decision. Let's do it.

I credit the board for making this decision and making it quickly.

They were supportive and realized that making hard decisions quickly is best. As a group of investors, they didn't hem and haw. They weren't tentative. They didn't let the politics of their firms interfer with Riya. They didn't say, "I told my partners Riya was X three months ago and now how am I going to explain this shift." This is critical and showed their own leadership. It was one of the reasons I chose John, Peter, David, and Neal as investors.

To all those entrepreneurs who look to take on venture capital, I advise you to find seasoned board members who are as supportive as these four. As wrong as it seems, a company is not insulated from the position and challenges of that board member and his VC firm. This is one of the reasons I strongly pefer to have senior guys at the table.

I haven't talked about my board and investors much so here some history.

John Malloy who had been the first investor in Paypal had seen Paypal change ideas three times. He understood better than I did that the most important part of a consumer Internet play was to get into the market and learn. He understood that Riya would take time to develop the technology but he still encouraged us to move fast and get to market. Once we did and we needed to listen and turn right, he was supportive without reservation. I've actually learned the most from John because he has skills in areas in which I know so little. My only regret with John is that I don't listen to him as much as I should and find I kick myself for it later.

David Hayden (who is the CEO of Jeteye ) is my strategic alter ego. He always challenges my core premise and makes sure I've thought it through. David was with me as a board member in Andale when I was a 26 year old CEO. He was the only non-VC on the board. I can't tell you how many times he provided me with aircover and taught what to do and not to do. Being a young CEO is one of the most frightening things you can do at 26. David helped me through it, including at times telling me to grow up and deal with it. Because of this trust between us, he is the most vocal and challenging of my strategies. It is great. I know he is challenging my ideas and not me because of our long relationship.

Peter is the fourth co-founder of Riya. He and I came up with the seeds of the idea. I was afraid he would be the most attached, but frankly he was already one step ahead of me. He was already thinking of the implications and challenges of the new strategy and starting all of talking about specific challenges with this strategy and what we had to do to meet them. I've talked about him a ton and care about him deeply.

Neal Dempsey is my newest board member. Neal and I were just getting to know each other. This was our third board meeting. I was most tenative about his reaction. Having just invested ... would he be pissed? Quite the contrary. You could tell that Neal had done this before and was a pro who had sat on many boards with many changes. He listened carefully watched the debate and weighed in. Neal Sadaranganey (who kept his promise to really dig in and help me build Riya) told me, "This is not a shift from our prespective. We always thought Riya had a bigger opportunity as a web-wide search engine. It was you (the mgmt team) who had said web-wide was not doable for recognition. We had wanted public search all along."

So the decision went forward.

I breathed a sigh of relief after the meeting. Most people think a CEO is at the top an can do whatever he wants. This is just not true. While I don't strictly report to these four, they are my biggest shareholders and it is important that I get their input and support. If they disagree it is important that I hear why and consider it.

That being said, I've realized that all too frequently CEOs, let a board drive decisions and then take no responsibility when it fails. For example, "I told the board not go that way, but they did and so now the disaster is their fault." Or my favorite example, "The board has decided we need to cut staff. Sorry team I fought but I lost."

Both of these are pure crap. A CEO should always keep the business focused on what he believes will make the most money for shareholders and what he believes is right. I realized when running my last company that the most important thing is to guide the company to success not to what you want or what the board wants, but rather what the customers want.


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