CREATING THE EXECUTIVE TEAM Who, When

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CREATING THE EXECUTIVE TEAM Who, When How
It Affects FundingSoftware Development
ForumJuly 24, 2002J. Peter Bardwick
415/385-4523 peter_at_jpbardwick.com
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The Magic Bullet For Raising Capital

• Just Two Requirements
• Build a great company
• Effectively communicate its value

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Building a Great CompanyLessons From the School
of Hard Knocks

• Nothing is more deterministic of a companys
  success than the quality of its team. (Sorry,
  clichés are often true)
• Quality Shared Goals Raw HP Sheer
  Determination
• Personnel costs are the highest single expense
  for most companies.
• Great management is rare and usually learned
  through long trial and error and conscious
  focused effort.
• Every hour spent on preventable employee problems
  subtracts three hours from productive work and
  gives you a migraine.
• An executive team that recruits and manages
  effectively has done at least half the work
  required to make a great company.

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Company Stages
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Company StagesDrive Company Activities
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Company StagesDrive Team Requirements
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VCManagement Check List

• Communicate (aka effectively sell an honest and
  consistent message to all stake-holders)
• CEO has previously been a CEO or divisional
  manager
• Domain expertise
• Calls get returned by the most important people
  in the industry (potential customers channel
  partners)
• Big and small company experienceideal is
  previous start-ups
• More interested in company success than personal
  success
• Clichés  passion, focus and drive
• Communicate (aka effectively sell an honest and
  consistent message to all stake-holders)

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Hiring Cycle

• Recruiting
• Managing Promoting
• FiringCan be minimized with thoughtful management

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Recruiting

• Should be more formalized than is typical in
  startups
• Previous or current co-workers
• Network
• From potential customers/channel partners
• Never headhunters for early stage companies (in
  this environment)
• Written job descriptions testing

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Managing Promoting

• Should be more formalized than is typical in
  start-ups.
• 2x year formal performance reviews with written
  feedback and goals.
• More honest feedback than is typical in corporate
  America.
• Many incentives/disincentives are more effective
  than .
• High growth companies naturally create new
  opportunities for achievers.
• Some quantitative evidence that employee training
  produces positive shareholder returns. (ASTD)

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Problem Employees Firing

• Should be more formalized than is typical in
  start-ups.
• Very thorough performance documentation. Not
  cookie cutterspecific goals objectives.
  (Important management toolnot just CYA).
• Straightforward feedback gives people the chance
  to improve.
• Rapidly growing companies create new slots
  appropriate to peoples skillsbut successfully
  moving people down requires that this be part
  of the corporate culture.
• How do you know when to let someone go?

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Minimizing HR LiabilitiesCA Litigious and
Employee Friendly

• Suits often driven by people treated badly on the
  way out.
• Employee option agreements generate breech of
  contract suits.
• Covenants not-to-compete are not enforceable in
  CA (except for company sales) and can lead to
  liability for Unfair Business Practices.
• Non-solicitation of employees customers can be
  valid but specific language is important.
• Very through performance documentation.
  Performance evaluations are exhibits 1, 2 3 in
  HR suits.
• Average cost of defense is 100k.
• Employee Practices Liability Insurance (EPI) of
  questionable value.

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Pros Cons of Outsourcing

• Recommended where high quality is critical but
  not a full-time need HR, PR/IR, accounting, web
  design
• Not recommend for sales or CEO (interim CEO is
  OK).
• Should be task oriented and specific, raising
  capital, building infrastructure, strategy,
  book-keeping, etc.
• Costs are highly variable and may include equity
  and/or success fees. Good starting place is an
  appropriate annual salary divided by the time to
  be spent.
• Best source is word of mouth, best source of
  diligence as well.
• Downsides, quality control and commitment are
  common issues but probably overblown.

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Other Issues for Start-Ups

• CEO succession
• Hiring friends is a great idea if you dont want
  to manage well or have any friends left
• Managing a gap in the team
• Taking a team from a larger corporation
• Can you raise capital if working full time for
  someone else?
• Do options still work as an employee incentive?

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Suggested Reading

• People Skills, Robert Bolton (Straightforward
  text on communications)
• Letters to Shareholders Annual Reports, Warren
  Buffet (A genius who has been studying management
  for 50 years).
• Good to Great, Jim Collins (Discussion of
  management qualities that create great
  companies).
• The Practice of Management, Peter Drucker (Or
  almost anything by Drucker, disciplined thinking
  about management).
• Theodore Rex, Edmund Morris (Disciplined and
  Inspired).
• The Human Equation, Jeffrey Pfeffer (Broad
  discussion of what makes effective management).
• Topgrading, Bradford Smart (Could be 100 pages
  shorter but makes the point about hiring/managing
  effectively).