If you ask me how our business did in 2012, chances are I’ll pepper you with a story of amazing network growth and spectacular results.  If you stop by our offices, you’ll see a constant buzz of excited activity – people tapping out code, or email, and phone calls, lots and lots of phone calls.  Mostly with publishers in our network or those about to be.  The engineering and product teams cover the whiteboards with scrawling process flows and architecture diagrams.  There’s stocked food pantries and refrigerators full of soda and beer.  Its a fun place to work where everyone feels the sense of cause and mission.

Along the way these past 12 months we had some unfortunate leadership turnover.  That makes things tough emotionally and it requires a depth of organization to withstand that I don’t think enough companies fully realize.  It can be a ball of anxiety to imagine what would happen if this key employee, or that key employee were to leave.  But these things happen – all the time it turns out.

The measure of the strength of a business is its ability to keep moving, change and evolve as these employees leave, and embrace the quality of talent waiting to take up the fight.  We’re fortunate to have a crystal clear cause and mission which keeps the fundamental value “core” of the business very strong, but its the way we operate that enables us to move through tough circumstances that makes us succeed.

The paradox is that its too alluring and easy to rely on the strength or skills of any individual to get things done.  And in fact, I’m sure many startups are single-threaded in that way for exactly that reason.  The trick is to get those same great people to operate in a system that transfers their value to the company as a whole.

Perry Quinn, my longtime friend and colleague is leaving the business after more than 4 years.  He’s perhaps the most socially adept manager I’ve ever known and he’s a cultural magnet for the people who work under him.  When he and I talked about him leaving I was both disappointed and concerned for a whole host of reasons.  Owing to Perry’s credit, his lieutenants have immediately stepped in and up – with a vengeance.  The foundation of processes and working relationships Perry put in place made his departure a seamless move where I’m proud to say not only did we not miss a beat, but this piece of the business is hitting all time growth numbers and record retention rates.

I owe Perry a lot.  His team is stronger than he is as an individual.  That’s his departing gift to me.

Its been far too long since I’ve posted here on my blog.  Its not like I don’t write.. just not here all the time.

Retargeting and rethinking the click

Publishers confront the Mobile Mess

Publishing in the viewable Ad era

Why in-view advertising isn’t a silver bullet

I’ve been traveling a bit (too much) lately mostly in an effort to keep the growth pace of the business.  Traveling always gives me time to pause and reflect a little.  These past few trips got me to thinking about the phases we’ve gone through along the way here.  Not coincidentally these phases correlated to financing rounds, which it turns out tie back to tangible value proof-points (milestones) and ultimately led to an exit where we sold Lijit to Federated Media about a year ago.

In every business there are distinct phases that the company goes through.  Sometimes things stall out and the business goes “sideways” which is nearly never good.  In each phase people get dropped off the back as the rest accelerate into the next arc of things.  I’ve met very few that can adapt and thrive at every phase along the way.  Each requires a slightly different skill profile and process for execution.  I recently read on Fred Wilson’s blog about burn rates for different phases along the growth path.  The rule of thumb to me is the +/-$500K per month gross burn.  Over $500K you’ve got it figured out.

“Great man”.

This part of Lijit’s evolution occurred mostly before I arrived on the scene.  My business partner for the past several years deserves all the credit here.  The bet was simply: he’s a great entrepreneur; he’s bound to do something interesting.  Now, it’s not 100% fair to say the bet was just on Todd. There had to be some nugget of a compelling idea.  But ultimately the “great man” phase the company goes through is predicated on the innerworkings of the mind of the founder.  His newest venture likely has the same basic thesis.

Milestone Goal:Attract a quality team with nothing more than a good idea.

“Figure that shit out”.

This is where the real ‘shit testing’ begins.  Figuring out if the idea everyone is jazzed about actually has legs.  It’s not the same as the economic model.  In fact, this is one of the dangers of successfully passing the milestone; too much concentration on a false idol of an economic model can be a killer. Rather, this is the real world research to suggest there is a robust market for the idea.  Seldom does an existing market exist for breakthrough ideas, so this is more about obviating the economic potential: can you prove a market exists even if the would-be customers don’t know it yet?  This phase takes being smart and keeping your head down.  Marketing and PR are for suckers and only cloud the path.

Lots of companies die a slow painful death in this phase, mostly because they can’t (or refuse) to see the answer. Too much PR work in this phase has a distinctive negative effect of misplacing hype where real market motivations should exist.  The main thing here is to get to the answer on customer value creation.

Milestone Goal:Prove that an authentic market for your idea exists.

“Economic model”.

This phase isn’t simply about figuring out whether or not you can make money.  Instead, this phase is about how you make that money.  More importantly, can you do it in a way that the costs of making that money will decrease as you increase revenues. 

Obviously every business is unique, but all carry certain coordination costs to address whatever market we’ve staked out in the first couple of phases.  The trick here is to determine an economic model that keeps those coordination costs in check as you grow.  That’s hard, particularly as you scale customers, partners, employees, and expectations of return to investors.

Milestone Goal:Prove the business can be profitable as it expands.

“Execution”.

Entering this phase is about the time that we sold Lijit to Federated Media.  We had gone through all the phases above and could clearly see in the model a profitable and fast growing potential.  We had not yet realized that potential and that “early but logical path” made us an attractive asset to FM – and one that could be acquired at a reasonable value.

This phase is where more defined processes start to become necessary and focus (or lack of) can be a killer.  This is also the time when early employees can chafe at the notion of becoming more “position” players.  It’s a natural growing pain as their jobs get bigger, but their daily focus gets more refined and disciplined.  Hiring and firing happen more often.  What binds the company together is focus on the mission.  Momentum, winning, and business cadence rule.

Milestone Goal:A going concern that continues the growth trajectory.

“Scale”.

A bit more than a year after our sale to Federated Media we’re now headlong entering the scale phase.  This will test the team for sure.  It’s another acceleration in the peloton, and there will be some people that can’t make the jump and get dropped.

How many startups ever reach $100M in annual revenues?  Answer: Not very many.

In order to scale, and I mean really scale (i.e., clear the $100M annual revenue mark), there not only has to be top-flight execution and management, but the business has to find the lever-points that can accelerate growth.  This can come through biz-dev or corp-dev, and sometimes rarely through organic paths.  The trick with truly scaling is that it has to align to the economic model and be absorbed in the execution processes of the company.

Milestone Goal:Profitable business where the scale “lever-points” are well understood.

As I sit here watching the sun literally set on 2012, it’s obvious to me that 2013 will be the breakout year for us.  It’s going to come down to team, execution and discipline.  If indeed the business is as sound as I think it is, we’ll see the path to $100M.

Solving coordination problems in hidden markets is a really big deal.  The last 5 years at Lijit and the 4 years prior to that building an Open Source software business evolved my thinking about the nature of markets and how institutions take advantage of scale opportunities.

Institutions are great at solving coordination problems for a relatively small set of customers.  This is driven by simple economics.  They do it best and most efficiently when large amounts of capital are concentrated and available to them through this subset of the market their solutions address. Over time, the economic costs of any institution inevitably rise.  But what happens when the majority of the market is smaller than the average market participant?  This phenomena occurs increasingly often as technology becomes more democratic, mobile, and "good enough" to be professionally useful.

Friction in a business model historically has been used to create lock-in (or stickiness if you prefer the politically correct).  Institutions have a vested interest in friction, but I think its rapidly becoming the achilles heel of the enterprise.  Its not to say that creating mechanisms for loyalty aren’t good or appropriate to building a large and viable enterprise, but they have to be done is a way that embraces a more frictionless outcome for a customer. Said another way: most institutions have a vested interest in consolidating ranks around the problem they can solve.

The corporate response to nearly any problem is to institutionalize around the problem: focus on streamlining costs, and attack the market where most of the concentration of dollars exist.  By definition this is the head of any market.  Its the 80/20 rule.  The problem is that markets are increasingly becoming more fragmented and long-tail.  The average is not the middle, its getting closer to the head, with the majority of the market existing below the average point.  The larger the market gets with the fuel of "good enough" democratized technology, the more this coordination problem opportunity exists for those that can solve it using unconventional means.

The punchline:

Institutions and traditional organization economic structures are simply unable to solve a mass coordination problem.  It cant be done economically.  The successful enterprise in these markets has to scale the coordination of the response outside the institution itself.  If you crack this code, you win.

Its been a while.. and I miss not writing some of my hairbrained thoughts.  Turns out the past few months have been busy for me, not the least of which because my wife and I went to China and adopted a baby boy.  Its our first kid and going from no kids to an 18-month old overnight is a shock to the system to be sure.

Like any proud new parent, below are recent pictures of the little guy.  He underwent cleft palate repair surgery a few weeks back and he’s now on the mend.  I’ll get back to my more normal writing soon.  I needed a "re-Hello World" post to get the ball back in motion.

People that know me are well aware of my passion for cycling.  I ride all year and in all kinds of weather (as long as the temp isn’t too far below my age).  I race cyclocross in the fall, and a few mountain bike and road races in the summer.  Over the years I’ve been fortunate to build up a great group of riding buddies and I’ve been riding on the Horizon-Panache club team because I race a bit and I like having the team commraderie to push me beyond what I’d likely do on my own.

A week or so ago we had a team meeting with all the guys, club and elite team all in the same room; hacks like me all the way up to former pros and olympians.  One of the topics discussed was keeping consistency of pace.  This in no way means going slow (remember this is a race team that aims to win), its more about efficiency and energy.  Cycling is an individual sport that relies on the pack or peleton to succeed.  We form compact groups of riders to shelter each other from the wind and elements.  By individuals taking turns "pulling" on the front the pack itself goes much faster and at the same time conserves a ton of energy.  We travel far faster and much further as a group that any individual could ever do on his own.

Back to the point about consistency of pace.  If one in the group feels stronger than the others and he pushes the pace too hard, then the rest of the group will eventually come apart.  Some may try to hold the faster pace and blow up eventually, others will hang on until the pace-pusher runs out of steam and then he will eventually blow up.  In any case, the group will thin and therefore be less efficient and ultimately less fast over time.

BUT.. and here’s where it gets complicated.. at the same time its exactly this pushing of the pace that is required if you want to go fast and win.  So how you push the pace is the key.  It works when the changes are subtle and deliberate.  Ratcheting it up rather than jumping off the front or "half-wheeling".  The pack will respond as a whole when the changes are incremental and shared. Sure, some people may get dropped off the back, but that’s cycling.

Its also a metaphor for building a successful team in business.  There are always people stronger or smarter, or that work harder or know more about something than the others.  Its ok for some of them to jump "off the front" and "attack" from time to time.  I think companies are built by successful teams and they work better and faster when they do so together and towards a shared or common goal.  Some people get dropped when the pack accelerates together and that’s ok, it happens.  But shattering the peleton because of an erratic pushing of pace doesn’t help anyone in the long run.

I hear this alot, particularly in the start-up world: "fail fast".  I’m not exactly sure who popularized it, perhaps it was my friend Brad Feld.  I’m pretty sure Brad didn’t mean that failure – and doing it quickly – was the best path to success.  I think he meant learning in the name of expert mastery was the goal.

What really seperates great entrepreneurs from everyone else is the ability to constantly move through a series of uncomfortable learning stages.  The cycle then repeats itself as they climb the learning curve and eventually master something.  Never have I seen a great entrepreneur stop wanting to know the answer.  That means that in the search for the answer, they have no problem falling down occasionally and skinning thier knee with failure.

1. It starts with wanting to know something that you don’t already know.
2. Next is the learning curve phase, where most failing occurs.  Scientific method rules.  Hypothesize and test – relentlessly.  Getting to an answer is the goal – as quickly as possible.
3. Once you have an answer, test and test to make sure its "the" answer.  More testing, more failing.  Fast "no’s" are life savers.  Iteration happens here.  Learning at this phase evolves into expertise and eventually, mastery.
4. The final phase is now to take it up a notch, which is mostly starting over at #1. Except you’ve meaningfully moved the ball and your building on a solid foundation.  Each piece builds on the next.

The Chart below I really like.  Credit: http://buytaert.net/creating-passionate-users

Venture capitalists are “meta” smart.

Lots of people are deeply smart about very particular things.  Niches that they dig into and become experts in.  They become masters of their domain.  They understand their ecosystem of a particular economy of a business. It’s this hard-earned knowledge that they willingly summarize and impart on VC’s, top business executives, angel investors, “celebrity” entrepreneurs and the like that make their audience “meta” smart.

Ever wonder why the VC’s you meet are so damn smart?  Because they constantly have really really smart successful or aspiring entrepreneurs educating them all the time about all sorts of interesting things.  They get to listen and learn from these experts,  operators, and people on the front lines.

A lot of times I reach out to people I don’t know.  I titled this blog firstnamedotlastname for a reason.  Mostly because IT departments will create an alias email of the firstnamedotlastname@xyzcompany.com for everyone in the company – and I use this trick all the time to contact people I don’t know, but want to.

But why do I have to sleuth out someone’s email address?  To me, it’s silly that people and companies don’t just make their email address available publicly.  I can reach anyone with a little digging, a few google searches, a message through LinkedIn, Facebook, Twitter, etc.  Why make me go that extra mile?  Why not hang out an “open for business” sign?

I can’t afford not to let people easily and directly contact me.

Like most people I get spam emails and dumb solicitations all the time.  But those are easily deleted and/or filtered.  What I can’t afford to do is limit my exposure to new ideas, new people, or new ways of looking at things.  We live and work in an environment today that requires constant learning.  We can’t do it all ourselves and we need other really smart people to help. 

I aspire to be “meta” smart.

I’ve written on this blog before about my affinity for Peter Drucker.  Anyone that is a student of management theory and genuinely interested in building kick-ass businesses needs to read the Essential Drucker.

This morning I read an article on the Harvard Business Review site: Why Peter Drucker Distrusted Facts

Drucker provides several theses supporting this broad assertion:

1. If we do not make opinions clear, we will simply find confirmatory facts. “No one has ever failed to find the facts they are looking for.”
2. An opinion provides an untested hypothesis. Once we have clarified the hypothesis, we can test it rather than argue it. “The effective person…insists that people who voice an opinion also take responsibility for defining what factual findings can be expected and should be looked for.”
3. Decisions are judgments, not a choice between right and wrong. Oftentimes they are “a choice between two courses of action neither of which is probably more right than the other.” So we must understand the alternatives fully.
4. Big decisions may require new criteria. “Whenever one analyzes the way a truly great, a truly right, decision has been reached, one finds that a great deal of work and thought went into finding the appropriate measurement. The effective decision-maker assumes that the traditional measurement is not the right measurement…The traditional measurement reflects yesterday’s decision. That there is a need for a new one normally indicates that the measure is no longer relevant.”
5. Ironically, opinions break executives free of pre-conceptions and poor imagination. Disagreement is a safeguard against being a prisoner of the organization and seeing an issue just as underlings want. Drucker quotes the famed General Motors boss Alfred P. Sloan, who after hearing executives unanimously support a decision reportedly said, “I propose we postpone further discussion of this matter until our next meeting to give us time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

If you’re like me, then you and your business are in the timezone known as “planning season”.  That time every year when corporate managers ask their people to come up with designs on how they’re going to grow the business next year.  I’ve been doing these drills for years and years and with companies of all shapes and sizes both public and private.  The sad truth is that nearly everyone does it wrong.  And the odd part is nearly everyone has all the facts and figures they would ever need.  Problem is that the facts and figures can be used to manipulate nearly whatever outcome the person manipulating them wants to occur.  The opportunity for missteps and miscalcuations is everywhere.

Its a few brave souls that really dig down, way past the surface and really get underneath the issues.  They actually can feel the motivations in the market.  Understand what creates the customers of thier offerings.  These people are the ones that we need to listen to.  They aren’t always the most articulate.  They aren’t always the most senior.  And they don’t always see the greater nuances of the strategy or mission.  That’s where the work of the corporate managers should come in.

Perhaps its weird, or sadistic, but I really like the planning process.  Its the time when I get to see just how much people really know about the environment they operate in.

No matter what company, job, industry, time of year, state of the economy, one’s age, or position in life – the words are always the same “I’m too busy”.  Of course the words themselves vary from person to person, but the meaning is the same: I’m simply too freekin’ swamped and that’s why I can’t do it, or didn’t get to it, or whatever excuse of why I didn’t do something I said I was going to do.  Bullshit.

No one is ever too busy.  They simply don’t prioritize you or whatever it is your asking  high enough.  That’s not in and of itself a bad thing.  But how about a little honesty?  Just simply say something like: “sorry, but I’ve got other things right now that are commanding my attention”.  Sometime their priorities are outside work and that’s ok, but I hate it when they fein like work is so demanding and then I see them tweet out that they just finished a 50 mile ride at lunch on a Tuesday.

Second point: never lead someone along, particularly an entrepreneur.  Time is your enemy when building anything.  You only have so many hours in the day.  Those get consumed by market research, customer/client interactions, employee development, communicating with investors, honing a marketing message, etc., it never (ever) ends.  Not to mention the importance of spending quality time with your family or significant other.  If you race bikes like I do, then you need to figure out how to squeeze in a workout here or there too.  The worst thing anyone can do to me is string me along.  Punt; and tell me why.  I’ll get over it.  In fact, I’ll appreciate the honesty.

A word about email.  I see and read every one of them and like you, I get a lot of them.  I don’t respond to all of them.  If I’m cc’d then likely I won’t respond.  I also hate bcc’s its transparent in a bad way.  If I don’t respond to an email its because I don’t prioritze my interaction on that particular thread very high.  Its not personal.  Sometimes I don’t know an answer I’m asked and I need more time to formulate a response or the issue being articulated is complicated and requires more thought.  In those cases I may take a couple of days to respond – but I do respond.

I hate when people tell me they’re too busy.  They’re just simply too busy for me.