Konamoxt, Inc.

This weekend I went to the first show of Green Day’s “21st Century Breakdown” Tour. I’ll admit that although I enjoy Green Day’s music, as a former owner of an independent (punk) record label I am in the camp of those who feel like Green Day lost some credibility when they jumped to a major label back in the earlie 90s. But as I watched the show Friday night, I couldn’t help but have a renewed sense of respect for Billy Joe, and the rest of the band as business people. They “released” and incredible product that night — and I couldn’t help but take notes on the lessons that every startup should take away from their efforts.

Know Your Customer

When Green Day got a lot of flak for leaving the indie world, Billy Joe was incredible cognizent of the fate that awaited him. He knew that as much as he loved punk rock, his decision as a “business man” would ultimately austrecise him from many of his early fans. In an interview with Spin magazine he was quoted as saying:

“I couldn’t go back to the punk scene, whether we were the biggest success in the world or the biggest failure … The only thing I could do was get on my bike and go forward.”

So if he’d lost is “punk scene” base, who was his new customer? The answer is really quite simple — and it’s clear that Green Day understand this and has developed and refined their product to specifically cater to their customers. They are a pop band - targeting the large part of the population that feels a little out of step, a little beat down, slightly disgruntled, but not violently so — but ultimately they aren’t targetting the fringe - they are targetting the mainstream.

If they were too dark - they would turn some of their potential customers away. If they were too “happy” and “bubble gum” - they would surely lose this audience. But they’ve walked that balance intentionally. As my wife said, they come off as “nice guys” but they have just enough “F’ing” edge (with a sprinkling of four letter words to make the point) to allow the angst ridden teens in the room to suspend their “too cool for school” attitude that might lump them into the crowd of the teeny-bopper-dance scene.

The Lesson: Know your customer, build the product that they want. Serve your customers needs better than the next guy. Refine your product with them in mind. Find a way to be true to yourself - while still filling the needs of your customers.

Give Your Customer A Stake In Your Success

No, I’m not suggesting that startups should try the whole Vonage - let your customers participate in your IPO strategy. I’m simply talking about the fact that customers will want you to succeed, and will overlook your faults, and praise your successes more, when they feel like they’re part of your team. This is a really obvious idea, but one that businesses often overlook, or simply miss the opportunities to leverage. But not Green Day, no… they got this one down.

For a rock band it’s pretty easy right? Get the crowd chanting and singing along. They already love you, let them show you that love. You’ve all seen it, the classic Rock Star move, hold the might out toward the audience as if they’re singing into the mic.

They had the audience chanting “Hey Ho”, clapping their hands, doing the wave. But that’s Crowd Involvement 101. Green Day understands this strategy so inately that they take it to a whole new level.  At the concert, Billy Joe pulled no less than four audience members up on stage. The first, was a young child who couldn’t have been more than 10 years old.

“Whao- Who’s that little shit!? - You! Come up here! Wow!”

Now, I’m not sure what his parents were thinking… but I’m sure they knew what to expect… but the point is, Green Day knows that this kid will be a customer for life. Was this his first concert? Maybe. Was Green Day his favorite band before the concert? Maybe. Is Green Day his favorite band now? Hellz yeah! Imagine the viral marketing punch they got from that simple event. And it works because they know their audience.

As if that wasn’t enough, the ended up pulling two more audience members one after the other on stage to sing along to “Longview”. After the first girl came on stage, she mostly wanted to hug and kiss Billy Joe, and didn’t exactly have the best (if any at all singing voice) - but being the gracious “nice guys” (or should we say cunning businessmen) that they are - the band played along, smiled and said…

“She was pretty good - do you think you can do better?” — Now THAT is Classic customer service!

As one happy customer leaves the stage, and all the girls in the audience who got the vicarious thrill of hugging and kissing their favorite rock star dreamed of what it would have been like if they’d been pulled up on stage — the band simply stepped on the pedal and went back to the well one more time.

If one fan can get you that kind of engagement, two would be twice the fun right? The second fan to be pulled up was a goof ball of a guy - who actually did know the lyrics and had plenty enough personality to share the stage with Billy Joe. He too hugged and kissed Billy Joe and when handed the mic professed his love for the artist and band. “Who wants to f*ck him? (pointing to Billy Joe) — Sorry, is that weird?” No Billy Joe, shakes his head — that’s not weird. That’s exactly what he was looking for.

The Lesson: Get your customer involved in your success. Let them root for you. Make them part of your team.

Don’t Be Afraid To Take Risks

The most compelling example of this audience engagement came for the song “Jesus of Suburbia”… where one audience member yelled out to Billy Joe that “he could play guitar” and couple seconds of dialog between the fan and Billy Joe including “can you really play? really? can you play Jesus of Suburbia” — next thing we know this fan is on stage.

Lest you think this is a review of a rock show and not an article about business and startups, consider this for a moment. This is a business, producing a product, and about to present one of their most popular items for an audience of several thousands to enjoy… and sight unseen (and more importantly quality on verified)… they are about to allow a random customer to enter the mix and play a major role in the “launch” of this product. This could turn out to be a huge mistake…

Instead — it was by far one of the most brilliant, daring, and entertaining things I’ve seen an artist do in a long time. Huge risk — even bigger reward.

Now, really, I think there was not that much practical risk here. After all, I just explained how a big part of the “Green Day Product” is based on audience participation. There are plenty of bands that have the attitude that the live show is about having fun and sharing an experience so if the kid is a little rough, it won’t be a total disaster. Worst case scenario, they can just turn down his guitar and the audience would be none the wiser. But that said, you never know what can happen when you introduce this kind of an element to your product.

The Lesson: Don’t be afraid to take risks! Especially when the reward out ways the risk, and the risk is related to your core value proposition, and feeds your existing relationships with your customers.

Filed by Brad Hefta-Gaub at 1:03 pm under Entrepreneurship, Leadership, Marketing, Punk Rock, Startups
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In today’s House Financial Services Committee hearing, several CEOs of the largest and most prominent banks to receive TARP money were grilled by Congressman. 

On interesting bit of news was Vikram Pandit’s announcement that he has instructed his board that his salary should be set at $1/year and he should receive NO BONUS until his company has returned to profitability.

This is particularly interesting when you consider the debate that has been brewing about executive compensation and the recent rules set by the Obama administration that companies receiving TARP funds must cap their executive compensation at $500k per year.

Many people have argued that this cap will cause “brain drain” and a flight of talent away from an industry where talent is most needed. When I posted the comment “Executive pay caps for TARP, your thoughts?” on my twitter/facebook feed, I got a received a fair amount of debate from my friends and colleagues.

Bob: I’m not supportive of exec pay caps. Regulation-yes, accountability-yes, but pay must be based on performance to be competitive globally. Unlimited upside and unlimited downside. We’re shooting ourselves in the foot with pay caps. Motivation issue. Clearly, no compensation for failure. But the talent will always follow the money - to other industries or even other countries

Me: I agree that we should allow performance to guide compensation, but the results from 2008 suggest that we had a system of unlimited upside and limited downside. Multidecamillion payouts for bankruptcy is not an incentive to make SMART risks, its just an incentive to take bigger risks.

Interestingly Larry Kudlow (can’t get more free market then him can you) said he liked all the elements of Obama’s plan. Basically:

• Small base salary (check)
• Incentive “bonus” through restricted stock options (check)
• No golden parachutes (check)

This sounds like upside for success, and downside for failure to me.

Chris: These top execs have been over-paid for so long and now they’re just making sure that they’re not being over-paid with tax payer money. Makes perfect sense to me.

Bob: “Overpaid” is relative. Was Bill Gates overpaid? 25 years of MSFT shareholders would probably say no. Many other examples. The issue is regulation, oversight, accountability where the public good is at risk, e.g. banking. Clearly we’ve got serious housecleaning to do. But I believe in the power of the individual and great execs are not commodities. If compensation is a motivating factor in an exec’s decision to join/stay with a company, then it is highly likely they will follow the money to companies without compensation caps, which will ultimately hurt or even destroy the capped companies that are now funded by our taxes.

Me: I agree with Bob, that “overpaid” is relative. Also, clearly, the market has allowed the current state of affairs to exist/expand. Not unlike pay in Major League Baseball, companies have been chasing star executives with more and more lucrative packages for fear that the “great manager” will go to the next firm that offers a better package.

So, I agree that we should let the market set compensation…

However, we have long since left the free markets when these companies, managed by these start managers, imploded and required tax payer support to keep themselves afloat.

It’s a little like the young adult who after leaving home, partied away all his inheritance on sex, drugs, and rock’n'roll, and now has come crawling back to live with/off his parents. The idea that their would be new rules in the house: no parties, no hookers, no drunken metal fests at 3am… doesn’t seem unreasonable if you’re gonna live in my house.

Also, heard a great line on NPR yesterday…

“But if we don’t pay these executive market compensation, don’t we run the risk of the ‘best and brightest’ going somewhere else? Won’t the replacements perform worse?”

“How could the replacement perform worse? The current batch has produced the worse results in more than three generations. It’s very unlikely anyone will perform worse.”

Chad: the Obama plan looks pretty sharp - market decides incentives through stock options.

Do a great job, stock goes up. Rake in your duly earned merit bonus. now shut up and row!

Bob: Agree. Punish bad behavior, reward good behavior. But fix/regulate the playing field, not the reward-punishment system. Match the medicine to the disease.

Me: Great point Bob, but… I’m starting to think that compensation structure may actually be part of the disease.

Follow me on this:

• The circa 2007 comp structure rewarded taking bigger and bigger risks, and had little or no downside for failure.
• This resulted in smart people coming up with ways to take astronomical risks (massive leveraging) but since there was no downside for failure they stopped paying attention to the potential ramifications of the risks.
• This sense of all greed for the upside (ok if balanced with fear) and no fear of the downside (whoops, what’s balancing the greed?) fueled the sub-prime bubble.

Regulation - requiring more disclosure of the risk, more transparency, etc… might have helped slow it down, but, I doubt that really would have done much.

I like the idea of giving shareholders a vote on comp packages, at least that would create more transparency. In this case, for TARP, tax payers are the share holders, seems reasonable to Obama the proxy vote.

Chris: Great CEO’s in this generation work for pride and getting their companies where they want them to be. Both Gates and Jobs both take $1 annual salaries. Gates was actually in front of congress and when pressed on his salary he did comment that today’s executives make too much for too little.

Bob: There are so many factors behind our economic problems that I would never claim to understand even a fraction of them but I know that corporate CEOs are definitely not the only issue. Obviously, a big issue is how we keep score as a culture, which created these guys in the first place. I am a bit of an idealist myself but I’ve been around long enough to know that money talks, and for better or worse, we’ve got to compete with China, India, the EU and Russia. I want the companies we bailout to succeed and I just hope that salary caps don’t result in the next generation of management superstars passing over certain companies and industries that we need as a nation.

The news that Pandit is willing to work for free, would seem to suggest that the idea that brain drain will occur if we enforce salary caps is not true. Now, to be fair, there are plenty of people who are detractors of Vikram Pandit. And so he may be a case of exactly the wrong kind of person we want leading out of this mess. But if we believe that the market knows how to pick good leaders, than Pandit is a product of that exact same market we seem to trust. We can’t have it both ways.

Independent of what you may think of Pandit as a man or Citi as a company. I am pleased to see a business leader who is willing to stand up and really put his money where his mouth is.

Filed by Brad Hefta-Gaub at 11:58 am under Entrepreneurship, Leadership
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As I mentioned in my last post, one of the many things I do as an entrepreneur is to advise other start up companies. One of the common requests I get as an adviser is the help interview and vet potential CTO candidates. Unfortunately in many cases, the choice to hire a CTO is the worst choice a CEO or management team could make.

But don’t misunderstand me, every technology startup needs the skills embodied by a great CTO, you can’t afford to NOT have a CTO.

So what do I mean, but the skills embodied by a great CTO? Understanding these skills is critical to understanding how to hire the right people to flesh out your technology team.

I recommend that management teams think about the roles of engineering management in three parts:

• Leading, inspiring, and managing the engineering team - Some people think of this as primarily a “people management” skill. We often give the title of “Development Manager” or “Technical Lead” to this role. These are very much “soft skills”, related to making other people successful, happy, and motivated.
• Leading the architecture and technical direction of the product - This is closely related to leading the development team, but it is really a different skill set. These responsibilities are much more focused on hard skills, related to deep technical knowledge. We often call this role “Architect” or “Chief Scientist”.
• Executive technology representation and leadership - Representing the technology team to the rest of the executive team, Board of Directors, company, key outside customers, government or legal parties. This is high end stuff, requiring a level of maturity and preparedness. It’s a combination of soft and hard skills, mostly soft skills. But it should be noted that the more sophisticated versions of these skills are only rarely needed in most start ups.

In very large organizations you will often see these roles divided into different jobs: “Development Manager”, “Architect”, and “Chief Technology Officer”. But in a start up, you can’t realistically afford to pay three six figure salaries to fill these skills.  So what are you to do?

Can you live without these skills? NO! You need to find these skills for your start up!

You need these, and hopefully, you can find them in a single person on your team. My recommendation is to start as close to your engineering team as possible and find the person who is closest to embodying these skills. Once you find that person on your team, then cultivate them to fill out their talents to include the rest of these important skills.

I’ll explain how to do this briefly, but before I do that let me quickly address the most common retort I hear to this advice. Often CEOs and BoDs will insist that executive technology representation is the most important skill they need filled. From there, they usually assume they already have a good enough architect but what they really want is “someone to manage those engineers”. This reaction is understandable, most of us feel more comfortable with “people like us”, so executives want to find other executives to hang out with, and they are afraid of those “engineers” and they want someone like them to “take care of it”.

The problem with this view, is that engineers are usually only inspired by other engineers. Yep, that’s the hard truth of it.

If your “engineering leadership” lacks street cred, then you can be certain that they won’t get far with your team.

Air-lifting in an “expert people manager” is one of the most dangerous things you can do. But finding that inspiring engineer on your existing team, and making sure they have or are learning good soft skills, is a sure way to take your engineering team’s productivity to the next level. If you have five engineers on your team, and they’re being productive and getting stuff done, then you can be certain you already have that leader on your team.

If you don’t have that person on your team, then you need to be very careful in how you add that leadership to your team. Look for someone who could slot into your team and sit side by side with your engineers and write the same code that your existing engineers are writing.

Don’t confuse years of leading large teams, with street cred. In fact, the longer that manager has lead large teams, the higher the probability that they’ve lost their street cred.

This is critical! If your “hired gun” hasn’t fired his weapon in years… he won’t make it on your team. Your engineers will eat them alive. Instead, look for an engineering manager that is still comfortable writing code. Maybe you won’t have them writing code in your organization, maybe you will. But if they can still write code, then they will do a great job leading your engineers that must write code.

Another common mistake that executive teams make is to assume that your architect and your engineering manager can’t be the same person.

It’s certainly possible for these roles to be seperate, but it’s much more efficient and cost effective to have a single person who fills both these skills. And I’d argue that a great engineering manager has many of the same qualities of a great architect. In particular, as your team and your mission grows, more and more delegation to talented engineers are required. This means that your CTO will need to be able to unselfishly delegate to the rest of the team, and truly inspire those engineers to run with the vision of the company and build a great product to meet the business needs.

Finding all of these skills in a single person may seem like a daugnting task, especially when you consider that I’ve said that person also needs to be able to code. But these people are out there, and if your company has a great idea, with an exciting market and the opportunity to work on great technology, then you’ll have no problem attracting them to work for you.

Filed by Brad Hefta-Gaub at 9:00 am under Entrepreneurship, Hiring, Leadership
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Wow! What a day. What a day! There is so much to be said about today, so many emotions, so much hope, and an amazing sense of the enormity of what’s ahead of us as a country and a world.

But, I guess, my true colors as an entrepreneur came out today… as I listened to Barack Obama’s inaugural speed I couldn’t help but be inspired as a “builder”, as a “doer”, as a “maker of things”, and as someone who wakes up every morning feeling deeply accountable to make the world a better place than it was when I went to sleep the night before.

There were so many lines that struck me for so many reasons… but as an entrepreur, this line, borrowed only slightly out of context, really hit home.

“…people will judge you on what you can build, not what you destroy.”

This is idea, that the nay sayers, people who prefer to blame others for their plight will ultimately be judged by history for what they are… the problem… this is a very powerful and inspiring idea for those of us who are driven to create against all odds.

In the Seattle high tech startup scene, like much of the country, there has been a rash of recent business closures. And sadly, too often in our immediate community, those entrepreneurs are derided and mocked by the bystanders. This is so common in Seattle, that many entrepreneurs have begun speaking out, and itemizing this local cultural phenomena as one of the reasons our Seattle tech community is less vibrant as other regions (like the oft-cited Bay Area/Silicon Valley).

I have my theories for why this negative attitude is so common in Seattle. I believe this attitude comes from the relatively large mass of local success which has come from a few number of very large organizations. Unfortunately, if my theory is correct, then it’s not something that is likely ever going to change. So instead of worrying about it, and railing against it, I choose to create in spite of it.

I couldn’t possibly say it better than our new President did:

In reaffirming the greatness of our nation, we understand that greatness is never a given. It must be earned. Our journey has never been one of short-cuts or settling for less. It has not been the path for the faint-hearted - for those who prefer leisure over work, or seek only the pleasures of riches and fame.

Rather, it has been the risk-takers, the doers, the makers of things - some celebrated but more often men and women obscure in their labor, who have carried us up the long, rugged path towards prosperity and freedom.

Here’s to a new day in America and the World. Here’s to the Entrepreneurs, “the risk-takers, the doers, the makers of things”!

Filed by Brad Hefta-Gaub at 11:28 am under Entrepreneurship, Leadership
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Before Founding Konamoxt, my last gig was the Chief Technology Officer for a local Seattle Startup. I have the classic resume for a CTO of a Startup company… if you’re trying to hire a CTO, I’m sure your recruiter has called me… I get those calls all the time. Mr. Startup CEO, I’m here to tell you, you can’t afford to hire a CTO.

[Note to tech managers and wannabe CTOs out there: Oh, don't worry guys my next post will be why you can't afford to not hire a CTO.]

Today, one of the many things I do as an entrepreneur is help advise other Startup companies. I’m on the Board of Advisers of several other startup companies in the Seattle area. One of the common requests I get as an adviser is the help interview and vet potential development leadership candidates.

Inevitably someone on the management team will say “What we need is a CTO! Can you help us make sure this candidate would make a good CTO?”

Whenever I hear this, my alarm bells go off. Do they really need a CTO? What is happening in the organization that causes them to think they need a CTO? And maybe more importantly what do you think you get when you hire a CTO?

Most of the time, a startup CEO (or more likely the Board of Directors) will decide he or she needs a CTO because the organization is feeling pressure about the product. Maybe the schedule has slipped, maybe the product is buggy, maybe they just have this feeling that something isn’t working right. This usually happens in the case where the CEO is not technical themselves. That CEO/Founder was very likely the product visionary, but they don’t know how to build a product, write code, or lead an engineering organization to build the product.

Another very common situation is when outsiders, often the Board, is frustrated with the overall performance of the business, and they begin looking for “problems”. Unless one of the founders has a past track record of being a CTO or VP Engineering in a larger organizations, this lack of experience will often be blamed for the frustration without much analysis at all of the actual facts on the ground.

Sometimes, this “gut reaction” is correct. Sometimes the engineering organization is indeed rudderless, and the right solution is a new technology leader joining the team. But more often then not, I’ve seen the non-technical leadership jump to the conclusion that new “experienced” blood is what’s needed. When in many cases, that move can actually be counter productive.

The common euphemism seems to be “We need some adult supervision in here!”

But if you’re looking to hire a CTO, you probably already have your engineering team in place, you may already have a team of engineers that are building and have built something. How have they gotten as far as they have without this “technical leadership” you’re so convinced is missing? Nine times out of ten, the CEO has become convinced that the existing team is just lacking that leadership.

That search inevitably begins like this… “Let’s find someone with years of experience. And since this company is gonna be huge, we need someone who’s managed big teams, someone who can take us all the way to going public! We’re going to be a $100m/year business with hundreds of developers in different divisions. We need the kind of leader who’s been there and done that.” Sounds like a job for a CTO, right?

Hiring that CTO, will be the biggest mistake you make. You’ll alienate your engineering team, you’ll waste your money, you won’t be satisfied with the results, and in all likelihood that CTO won’t last in your organization anyway.

Here’s the problem… 99% of the time “that guy” you think matches your wish list, hasn’t written code in years. He might have managed a 1,000 developer organization, but he hasn’t directly managed engineers in years. She looks great on paper, managed a 10,000 cpu data center processing billions of transactions a day… but she hasn’t ever done anything with cloud computing.

When ever I’m confronted with this dilemma as an adviser I’m reminded of a great quote I once heard about NASCAR, I believe it was the late great Dale Earnhardt that said…

“If you see a wreck in front of you, drive toward it, because by the time you get there, it won’t be there!”

This philosophy can apply to a lot of things about startups. The key to applying this quote is to recognize that things are always changing… and if you continue to move forward, then in the future you’re guaranteed to be someplace other than where you are right now. What looks like a disaster in front of you if you stay on course, may in fact be the best, safest, fastest, game winning decision by the time you actually get there.

How does this apply to searching for a CTO? Well, it may be the case that you already have your CTO on your team. You don’t recoginze them yet, because they haven’t yet managed that 100 person development team. That doesn’t mean they won’t be ready when the time comes. You probably only have 3 to 6 developers right now. And even though you don’t think you have a development manager, doesn’t mean that team doesn’t have a leader.

Sure, it’s possible your team has gotten as far as they have with no leadership… maybe as the CEO you’ve been guiding that product vision and you’ve been managing those developers. But unless you speak their language, because you’ve sat in their chair before… then I’d be willing to bet you that one of your developers is actually leading the team while you’re not there. Maybe it’s the most senior developer, or maybe its just the most passionate and sharpest developer.

Instead of hiring an outside CTO, you probably need to take a close look at your team and try to determine if you already have a CTO working for you… but under a different title.

Next post… Why Your Startup Can’t Afford To NOT Hire a CTO

Filed by Brad Hefta-Gaub at 8:20 pm under Entrepreneurship, Hiring, Leadership, Technology
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