Let’s start with everyone’s favorite pastime in our current age of agile developed, game changing, paradigm shifts: remembering how things used to be.
In this case let’s remember those days of when most people consumed news via one medium: Newspapers. Newspapers, which have existed to serve various objectives (news reporting, editorializing, political agitation), all had three, seemingly inextricable attributes: the content (the news or opinion you created), the medium (content printed on paper and distributed to readers) and the container (or format, such as pamphlets, newsletters, tabloids or broadsheets). For any given publication, these three attributes were all of a piece. One couldn’t imagine extricating the news from the method of delivering it. Why produce news if you don’t have a way to get that news to people? And attempting to separate your content into multiple, simultaneous containers was unheard of.
But as broadcasting emerged as a new medium naturally suited to news distribution, people began looking to multiple mediums to suit their news consumption needs. And while some would only select one preferred medium for news consumption, most would leverage both mediums for various aspects of their day (e.g., reading the paper in the morning, hearing radio news in the car or during their workday, watching the evening TV news. Still, most producers of news content would specialize in just one medium and container (apart from an occasional marketing partnership, or vestigial business, e.g. CBS radio news) and only really competed with other content producers within their medium.
Fast-forwarding to today, a new medium has emerged (Internet) and become dominant, multiple consumption containers now exist, ranging from devices (PCs, smartphones, tablets) to programs within those devices (browsers, content-specific apps) to services within those programs within those devices (news Web sites, Twitter, social networks, aggregators). And as traditional content producers from print and broadcast mediums rush to find sustainable plays in the Internet medium, the traditional competitive landscape has exploded: The New York Times now competes with The Huffington Post who competes with Fox News Channel who competes with the Associated Press.
And in my opinion, this is a great development. In one sense, medium and container are fundamentally artificial. One should create great content that serves a need and provides value, and then offer it via whatever medium suits your target consumers best. But at the same time, this also implies how much the container does matter. Various containers help us consume the content we care about when we want it (on your smartphone during some down-time), where we want it (in our social network, where we may spend a substantial amount of our online time) and how we want it (through innovative readers like Flipboard, which allow you to consume your real-time news and social media feeds on a tablet in a magazine-like format). And just as importantly, these use-cases are usually not mutually exclusive.
And that’s what makes the latest discussion about the threat Flipboard represents to publishers so interesting. Although this analysis by Frederic Filloux is a good one, I think its problem is that it makes the same fundamental assumption that everyone seems to be making: that controlling the containers, as well as the content, is an attainable goal for a content brand.
Today, there are simply too many platforms, technologies, formats and use cases to expect anyone—much less a firm who’s specialty is content creation—to be able to own and control every outlet. To seriously expect to do so is naiveté at best, ignorance and hubris at worst. And worst of all, it seriously limits your ability to effectively execute on the thing you actually do best: create content that lots of people want and are willing to let you monetize in some way (monetization is actually the 4th fundamental attribute here that I haven’t yet mentioned, but as oceans of ink have already been spilled on the changing nature of content monetization, I’m going to steer around it while acknowledging that it’s a fundamentally related issue).
This doesn’t mean that content brands won’t be really effective at owning or creating certain containers. A content producer’s Web site is by definition their own space, and they’ll offer different ways to offer and monetize their content in that space (free, ad-supported, subscription, metering). And some will come up with a kick-ass smartphone or tablet app here and there. And for some users, just that one content site or app may be the only news source they use in their daily life. But for most of us (and here’s the point of that history lesson …) we’ll continue to want a variety of content sources, mediums and containers to fill different use cases within our lives. As content sources that were once separated by differing mediums now compete with each other across mediums, they often seem to forget that they were always part of a content ecosystem in our lives.
Implying that content or news sources should have invented Flipboard misses the point because they not only would have been highly unlikely to do so (i.e., the Innovator’s Dilemma), but even if so, would have more likely to have been a costly distraction or outright failure to in the end. The NYT isn’t going to want to be pumped into Huff Po’s consumption tool, and WSJ won’t have any interest in ceding that space to MSNBC. Instead, Flipboard succeeds BECAUSE it’s not a content creator. It’s only about giving consumers a great consumption experience. And conversely, technology companies (are you hearing me @Google?) fall flat when they try to own content creation (anyone remember Microsoft’s attempts to become an original content creator in the late-90s?).
‘Interrelators’ like FirstRain also play an important role in this ecosystem. We’re creating real added value for thousands of business users around the globe by connecting them with original business content that, too often, they would not otherwise find—and then driving those users back to those content producers for monetization. And we’re doing it through multiple containers as well (Web, mobile apps, intranet widgets).
Overall, it’s an incredible playground in which we’re all now playing, and our content lives are much richer for it, as long as we can remember that it’s been the emerging diversity of containers—not the attempt by any one content creator to fully control their own distribution—that has made it all possible.
Notes from a talk I gave at Berkeley Haas School of Business, April 4, 2011
I am going to assume that you know the basics of modeling cash flow. How to build a P&L, read a balance sheet and calculate working capital. Given that, if you are running a small, growing company here are my top 4 tips to manage your cash.
First of all – why is it so important? While VCs may be falling all over themselves today to fund new companies that think they are the next Facebook or Zynga that will not always be the case because good times come and go in the venture community, and it will certainly not be the case if you ever hit a bump in the road.
Part of your job as CEO is to keep the company funded with the capital necessary to run the business and grow – whether it’s your personal cash or from Sand Hill Road. Cash is finite, it’s very expensive in your time to raise (not to mention the dilution to your ownership), and you can’t save your way into growth so you need to make sure you have enough. I see many young companies in Silicon Valley forgetting this today because the money is flowing – but their chances are 1 in 10,000 their company is the next big thing; 80% of them will fail but by being imprudent with their cash they increase the odds that they are on the wrong side of the line.
When I was CEO of Simplex in 2000 cash became a crunch issue for us. We were growing fast, profitable and we needed more working capital to fuel our growth (hire sales people, open international offices etc.) but we could not raise cash from new investors and while our current investors were very supportive they were ready for a liquidity event. The investment community and the bankers were fixated on dot coms – eyeballs and click-throughs (as they are today) – and we were a traditional enterprise B2B software product company. And because the dot com bubble had just burst the public markets were closed to pretty much everyone.
We had no choice but to open a line of credit against our receivables, draw it down and manage every penny. $40M+ in revenue, living off a $4M line of credit until we could raise money in the public markets (which we did in 2001). Combine this with my experience managing FirstRain through the recession and I am a little intense about cash flow.
Tip #1: Build your own model
A good finance team will build you models every day and twice on Sunday but there is no substitute for building you own. Build a P&L, collection and cash flow model yourself. It won’t be perfectly correct because you’ll probably not get all the operating costs right, but by building your own you will have a profound understanding of the underlying assumptions you believe apply to your business.
What is the cost of every engineer? What does health insurance cost really? What is your true collection time? What is the monthly productivity of each sales rep and how many months does it take from hiring to positive cash flow for each rep? What ASP and average transaction size are you assuming – is it realistic? What percentage of your sales reps will fail or turn over – it’s a guarantee some will so how many do you assume? Building your own model will force you through the thinking. Send it to a trusted board member and they will then ask you all the assumptions that you had not thought of and by the time you are done you’ll have a strong gut feel for the cash levers in your business.
Tip #2: Cap your own salary
In most young companies the single highest expense, overshadowing all others, is salary. It’s very tough for any executive to argue that they should make more than the CEO (with the exception of the VP sales when you include his/her variable compensation). So if you cap your own salary below market you can better manage the cash outflow from the salaries of the executive team. This requires that you have enough equity in your option pool to strongly motivate your execs and key engineers (an important part of your negotiation with your investors) – and that you can explain with integrity how the leverage of their options exceeds the leverage of cash you might pull out of the business to pay them more in cash.
It’s a delicate balance because your team needs to make enough to live and not worry about their families, but no more, because in the end they’ll make more money from their options when you reach a successful liquidity event. Basic risk/reward. If someone wants too high a salary – exec or employee – their interests are probably not aligned with your team’s and your investor’s so don’t hire them.
Tip #3: Hire a tight fist in finance
In a small company every dollar counts but you can’t watch every transaction. As CEO, having a persnickety, detail-oriented, negotiating, thick-skinned finance lead at your side is essential. You don’t need a CFO unless you are going public, in fact hiring a CFO too early can hurt you (they tend to need staff), but you do need a controller who can negotiate better pricing with every vendor, manage your DSOs with a strong collections process, push out payables and play chicken with the landlord. Plus the books must be perfect every month, every quarter. You don’t have the time for any mistakes in your accounts.
Tip# 4: Test every decision you make
Every day, for every decision, ask yourself what is the impact on cash flow? For example should you hire more engineers now or 6 months from now, should you hire permanent staff or consultants – how will that change your revenue and collections? Does it drive top line growth? Your engineering team will talk to you in terms of releases and features, you need to translate it in your own mind into sales productivity.
Or when should you hire the next VP? You may be struggling with your own bandwidth but at what point will adding a VP change the revenue growth curve? Or conversely when is waiting hurting the business but you can’t see it because you are buried? Travel policy – everyone in coach of course. Food – build relationships with your local vendors. Office space – go cheap. Interns – yes if you can create a win-win with them. But don’t scrimp on health insurance – personal insecurity kills productivity.
It’s not easy. I have made every mistake there is to make – as you will find most CEOs have if they are honest with you. Growth takes risk, risk means mistakes. And often times I have seen VCs and boards push for growth (and hence cash consumption) too early because they are impatient so you need to keep a clear head on your shoulders. Keep modeling your cash, keep testing every decision against it, and work hard to keep payroll in line and you’ll give yourself the runway you need to prove out your business and give your team the best odds to succeed.
And when the time is right – spend your cash to punch through.
I am excited to announce today that Ryan Warren joined FirstRain as Vice President of Marketing and that Aparna Gupta has been promoted to Managing Director of FirstRain India.
Recruiting an executive with Ryan’s experience, history of success, and track record of innovative thinking in B2B information solutions is another critical step on our exciting growth path. Previously, Ryan led product management at Dow Jones & Co. for the global Factiva information research product line. In his prior 12 years at Dow Jones and Factiva, Ryan held a variety of sales, marketing, product and general management leadership roles. I am delighted that Ryan has joined the FirstRain team. Welcome on board, Ryan!
I’m also happy to report that Aparna is now Managing Director of FirstRain India. Aparna has been instrumental in developing a strong R&D organization in Gurgaon and will continue to make FirstRain India a Central R&D Hub. The success of our solutions is a direct result of our focus on technology and the innovations emerging from our engineering and analytics teams. Aparna has been a key leader in this important transformation across our business. Congratulations Aparna!
To see the full press releases of these announcements, please visit the Press & News section of our website.
Terrific article in TechCrunch last week by Ben Horowitz – What’s the Most Difficult CEO Skill? Managing your own psychology.
Managing inside my own head is by far the most difficult thing I do as a CEO and I appreciate Ben being so out and candid about what’s going on inside. As he says “Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.”
Ben covers classical psychoses like “If I am doing a good job why do I feel so bad?”, and the cliche (and truism) “It’s a Lonely Job” – especially when you are facing a crisis and you have to make the decision to cut staff which impacts the livelihoods of the very people you are working so hard for and care about.
The piece of advice I liked is “Focus on the road not the wall”. It it so easy to stare at all the things that can kill your company – and at any moment in time, even terrific times, any number of things can wipe out a small company. It is this single difference that makes being a CxO in a large company feel so emotionally different than being a CEO of a small company and I have done both. Large companies have mass and momentum – you have time to recover from mistakes most of the time. (A good example is Cadence Design Systems (CDNS) which crashed and fired it’s entire executive team on one day – it’s coming back because of the resiliency of the installed base and the R&D leadership team’s commitment to great products.)
The aspect Ben writes about that I have had in my head many times in the last 15 years which I can testify never goes away is A Final Word of Advice – Don’t Punk Out and Don’t Quit As CEO, there will be many times when you feel like quitting. I’ll add though that the most effective management tool I have found for this personal challenge is to get in the pool and pound the laps until my head is clear – which can be anywhere between 1 and 2 miles before I am calm.
If you have an ambition to be CEO one day read the article very carefully several times.