In 1997, about a year after launch, Hotmail was growing exponentially, adding thousands of new users every day. We were on fire. And then one night, it all seemed to unravel. We had a program called the “janitor” that ran as an overnight batch process and it erased all of the email that users put in the “trash” folder. Except this night, a bug spawned an army of other janitors that cleaned out everyone’s inboxes, too. That’s right, deep-sixed their email. Here is what went through all our spinning heads: “We’re fucked, it’s over.”

It’s pronounced whiff-eee-o, that horrible, terrifying moment that nearly every entrepreneur goes through when they are certain that their company is dead. I’ve seen it happen in so many different ways: A legal ruling goes against you; Apple refuses to approve your app unless you change the feature that makes it special;  Google launches a competitive product, and aims right at you; A critical technology partner decides not to renew their contract. It’s that moment before you gather yourself to do battle, when all seems lost. I have struggled through that moment, first at Hotmail and again at IronPort. Coming out the other side, scars and all, there are a few critical things you take with you:

The Hotmail WFIO

Once we had pulled the plug on the extra “janitors”, it turned out that about 25% of our total users were affected. Not everyone, but holy shit, a quarter of our customers had lost everything. Understandably, they were pissed. CNET and ZDnet were both on the horn wanting to know what happened. Customer care was inundated with angry calls and (ironically) emails. We figured out how to restore a few thousand customers, but millions were completely unrecoverable. While the calls rolled in, we were trying to figure out how to fix things.

I remember Hotmail’s CEO Sabeer calling us all in a room. “Hey, Rex (the COO), how long will it take to restore the email from the tape backups?” And I’ll never forget his answer: “Um, those got really expensive, so we stopped doing them about a month ago.” Gulp. Long … painful … silence.

The higher-level problem was that people were just getting comfortable trusting us with hosting their email and now we had completely let them down. Their email was just gone. We did a lot of communicating to the users and promised them we would “grandfather” them in for some planned paid services for free. We apologized profusely and explained how the sun, the moon and the stars lined up against us for it to happen. We also clearly explained what steps we were going to take so that it would never happen again. Over time, they started receiving more email, their inboxes filled up, and we just rode it out.

The IronPort WFIO

At IronPort, we developed a super fast and scalable email gateway that ran roughly 10 times faster than any other alternatives. We were definitely in the right place and time when the spam flood came. Our gateway was the only one that could handle the load. Just as at Hotmail, we were adding customers as fast as we could get the company names jotted down, but we needed to add an anti-spam component to our offering.

We struck up a partnership with Brightmail, the leading anti-spam software company, and the joint product – an IronPort gateway with Brightmail – was unbeatable in the marketplace. The only problem was we were heavily dependent on each other with both companies scrambling to build what each other had. Over time we both knew there was going to be a day of reckoning.  We attempted to merge the two companies to solve the problem, but the VCs couldn’t agree on terms.  And then Symantec bought Brightmail.

We knew the clock was ticking and had most of the engineering team working on IronPort anti-spam. But it was way late and wasn’t working. Shortly after the Symantec acquisition, we started hearing reports from channel partners that they were planning to cancel our contract. Although we knew that day would eventually come, we were totally unprepared! WFIO!

As detailed in a prior post, my VP of engineering, Nawaf, “cracked the egg with a sledgehammer” and got our anti-spam product working just in time.  Instead of Symantec canceling the contract, we went on the offensive and faxed a letter to all of our customers cancelling the contract with THEM– a position of strength. We managed through the madness and got to the other side.

After the IronPort WFIO had receded in my rear-view, I realized that you can almost always get to the other side. You just need to keep in mind a few things, and have some emergency tools ready to pull out.

It’s never really as bad as it seems.

Companies are damn resilient. Although it certainly feels like death at the time, it rarely is and companies just keep on moving forward. Ingenuity and guts usually help you find your way out of the jam. In fact, much of a company’s value is usually created by figuring out a solution to the big obstacle. Certainly, that was the case at IronPort where our entire business was built on the back of our anti-spam product.

Get all the brains around the table.

Whenever we went through a WFIO, we’d get all of the smartest people in the room and work through every angle. This is a little counterintuitive because most leaders have the tendency to share very little with the extended team as they are worried about freaking them out. This is a mistake on a number of fronts – trusting your team in crisis brings the company together in amazing ways and their contributions may very well save your company. All of our serious issues resulted in an “Apollo 13” atmosphere where we’d bring together top engineers, architects, VPs – anybody that could materially contribute – and hash it out.  Fighter pilots, who are constantly in pursuit of perfection, have what they call a “rank-less” debrief after every mission where everyone involved, regardless of rank, speaks up to criticize what went wrong.

Lead from the front.

This is the time for leadership – you cannot punk out. I think about a ship captain sailing the Atlantic in the 1700’s and rolling into a huge storm: regardless of how fearful, doubtful, or just scared shitless you may be, there’s only one way to play it with your team – you are in total control. Think of how much it could affect the outcome?! The team needs you to lead them through the problem. Back to the ship captain, what if he grabbed a bottle of whiskey and holed-up under his bed? The ship would certainly be lost. However, if he calmly makes a pot of coffee, ties himself to the bridge, and starts shouting orders, then I believe the chances of the ship making it through go up dramatically. The leader needs to be the first one there, the last one to leave, and be willing to do anything it takes – like answer customer care calls or personally drive a replacement part to an irate customer. Nothing is beneath a leader in times of crisis.

In between Hotmail and Ironport, I started an ecommerce company that got up to about six people. I funded it myself. When I couldn’t get funding for it and I had burned through all of my Hotmail money, I shut it down.  Sometimes it really is over, and I believe that one of the clearest signs is when you are completely out of cash.  But right up until that point, when the music is still playing, when your team is still driving hard, you  have a shot – and usually a decent one.

In many of the old war movies, every elite unit has at least one member that has the critical talent to make something out of nothing: the scrounge. You know this guy: when everyone is out of rations or ammunition and the truck is broken down, he quietly heads out. The next day, when all hope of completing the mission seems lost, the scrounge comes rolling up in a freshly repainted jeep, full rations, ammo, and, stereotypically, a case of cold beer. How did he do that? Where did it all come from? “Don’t ask,” he growls, “Let’s get movin’.”

Harvey Keitel’s Winston “The Wolf” Wolfe in Pulp Fiction is another iconic fix-it guy. He comes directly from a party in his tux to “clean up” the situation. I love his “Can I get some coffee?” calm demeanor as he carefully assesses the situation, starts prioritizing, and then takes swift action to get Jules and Vincent out of their blood-soaked jam.

During a crux scene in Apollo 13, the engineers in Houston realize they have to somehow fit the Command Module’s square carbon dioxide filter in the Lunar Module’s round receptacles if they want everyone to keep breathing. They got together in a room, dumped the box of materials available to the astronauts on the table and said, “Here’s what we have to work with…” After working for a tense few hours, they cobbled together a solution with step-by-step instructions for the oxygen-starved astronauts. That scene always gives me goose bumps.

All of the successful entrepreneurs I know are part-scrounge, part-Wolf, with a good dose of calm-under-pressure space jockey thrown in. In other words, they are ridiculously resourceful. It’s this magical combination of wicked-smart, tenacious as hell, works harder and longer than most people think is humanly possible, thinks way outside the box and is also unbelievably passionate and compelling. In short, they have special tools to just get shit done.

Special, but not unobtainable.

Over the years, I’ve noticed some patterns and methods that explain how great people manage to pull off the impossible. And with Mr. Wolfe’s permission, here they are:

“Crack the egg with a sledgehammer.” This was a quote from my VP of Engineering, Nawaf Bitar, at IronPort. When IronPort anti-spam wasn’t working and it looked like our partner Brightmail was going to terminate our contract, we had a complete “Oh shit!” moment. Nawaf moved the entire engineering team over to work on it. He called them all in to work nights and weekends until it was fixed, and urgently sought out every anti-spam expert on the planet to help or to hire. Other people would have done one or two of those things – he did them all simultaneously and immediately. Nawaf saved our bacon.

Set a measurable goal and brainstorm like hell. When we were developing our first product at IronPort, we desperately needed to get feedback from email administrators at large companies. Our dream was to quickly talk to 50 of them to get to a critical mass, but how the hell do you do that when you don’t know any? We brainstormed, tested, stalked, and leaned on our networks. We made a list of the Fortune 500 and tried to line up anyone we knew on the inside. We all went through our school alumni networks.

“Can you introduce me to someone who runs your email? Who do you call when email goes sideways?” Everyone we did get through to was pumped for information to get to more: “What conferences do you go to? What do you read? Who else can you introduce us to?” We reached 43 of the exact right people — not quite 50, but it did the trick.

Cheat time. During a board meeting last year, Quirky’s CEO Ben Kaufman recounted a story about preparing for a critical Home Depot meeting. Quirky was just starting to build things for the “connected home” and Home Depot was a dream opportunity. When he got the call in New York one afternoon that the home improvement giant could squeeze him into a new product-review meeting the very next day in Atlanta, he brought nearly the whole company in for an all-night prep session. They split up into five different teams and came up with seven working products — overnight. They packed up prototypes of a Wi-Fi-enabled mousetrap, garage opener, smoke detector and water sensor, among others, and then slept on the flight down. A month later, Home Depot ordered $7 million worth of products.

“Insanely violent passion.” This is a phrase that I’ve heard used to describe Andrew Rubin, the CEO of Illumio. Andrew came out to Silicon Valley from the Midwest with virtually no connections. Within 18 months he raised two rounds of capital and hired one of the best leadership teams I’ve ever seen. How did he do it? Andrew “glows in the dark.” He is so charismatic, compelling, logical, and excited about what he is pursing that you can just feel the energy — even see it glow. Getting to the right person often requires a series of small baton passes or jumping from lily pads of different people to get to your destination.

Andrew was unrelenting  when it came to asking for suggestions and pursuing connections and introductions from just about everyone. And since he came across so passionate and compelling, people actually felt like they were building social capital by helping him.

Foot squarely on the line. I wouldn’t suggest that being resourceful has anything to do with doing something illegal or unethical, but I’ve definitely noticed a pattern of being “creative.” When my then head of sales, Shrey Bhatia, was trying to close a $900,000 purchase order from DoubleClick in New York, he called up the CIO and said, “Hey, I’ll be in New York tomorrow, could I drop by for 15 minutes to discuss this?” Of course, he had no intention of going to New York unless the CIO confirmed the meeting. When the CIO finally did, at around 7 p.m., Shrey turned his car around, jumped on the red-eye, slept on the plane and brought home the order the next day. We had the check framed.

Pulp Fiction’s Winston Wolfe is obviously a fictional character, but the stereotype he represents is worth exploring. A guy that’s seen it all, he’s completely unflappable, methodical and decisive. How did he get that way? Like an old sea captain, he is the sum of so many hard-earned life experiences of living on the edge.

While there’s no substitute for real experience, I believe it helps to hear and share stories of resourcefulness in action — almost like case studies in school. With every new account, we open our mind to a new path to take and learn the tactics that others have used to overcome much larger obstacles than the ones that are currently in front of us. I’d love to hear about more “great moments in resourcefulness” in the comments section.

This post originally appeared in TechCrunch

At Andreessen Horowitz, we talk about the notion of being “too hungry to eat.” That’s to say, we often see startups that are so entrenched in the product that the founders forget they need muscle to grow. Without the right people in place, it’s not easy to get to where you want to be as a company. And since recruiting the very best talent is extremely competitive, it’s important to pay maniacal attention to the entire process, and that doesn’t stop with the offer letter. Here are some important elements to keep in mind:

Aim high—much higher than you think you should. Work with your entire network (mentors, investors, customers, partners and friends) to help you identify the top 10 people in the world for the role. Try to meet every single one of them, even if they may not be looking for a new role. It helps to know what to aim for. I was surprised at how many superstars were actually very humble, approachable and culturally compatible with my team.

Don’t be cheap. If you have the money and the business is scaling, don’t shy away from using the best (and sometimes most expensive) recruiters. These recruiters will know—or unearth—the crazy-great candidates who are often stuck vesting-out at large companies. And don’t be afraid to pay market salary and equity for top talent—they are always worth it. I see many founders waste too much time trying to work their networks and/or ultimately settle for mediocre, but available candidates. You will definitely have to interview hard for cultural fit, but the best talent isn’t cheap.

Have an amazing recruiting process. This is not something you can freestyle and still expect good results. My team honed in on a specific process for recruiting that we repeated again and again. Candidates would go through two to three rounds of interviews with two to four people per round. The interview team would meet beforehand to discuss the job description, learn about the hiring manager’s hot buttons and assign interview roles (so everyone didn’t ask the same meaningless resume questions).

After each round, the hiring manager would lead a discussion and decide if the candidate ought to go to the next phase. We were prompt, organized and responsive, while making sure we over-communicated with the candidate. When it came time to make an offer, the hiring manager took the wheel completely. People leave and join companies primarily on the connection they have with their boss and negotiating the offer is the crucial start of building this relationship. I’d always want to get a handshake and eye contact with the candidate when they accepted the offer.

In addition to making sure we hired the best people, the process was a reflection of a well-run company. It allowed the candidate to meet and connect with a critical mass of our people. In the end, it made the offer feel hard earned and special.

Enlist the interview team. Once I knew when the candidate had given notice to his or her current employer, I would schedule a team dinner or drinks within 24 hours to help diffuse the pressure and to reinforce their decision. It’s also important for you and the team to keep in constant contact with the candidate during the notice period. It’s a bit weird for the hiring manager to be calling every day, but I found that a coordinated effort among the eight to 12 interviewers was not only appreciated but a pleasant surprise.

The Welcome Basket. We would put together an awesome basket of swag: t-shirts, coffee mugs, hats, Nerf guns, fruit, wine, chocolate and a handwritten note to let them know how excited we were to have them join. We’d deliver it to their home a few days after acceptance, and we’d always get an enthusiastic email or phone response. I always thought it was much harder to consider a counteroffer when our swag was strewn all over the house and their daughter was walking around in our hat and logo T-shirt.

Don’t screw up the onboarding. The first day, week and month of an employee’s experience carries a lasting impression. Everything needs to scream: “We’ve been expecting you!” You need to have business cards printed, the desk stocked with supplies, a lunch buddy schedule, basic orientation meeting and a thoughtful plan for training and beginning real, useful work. As CEO, I had a standing 30-minute meeting every Monday to greet and connect with new hires. We also had a daylong new hire orientation scheduled every quarter where I would go over the founding history, values, goals and the most recent board presentation. The product managers would go through every product and a VP would go through the organizational structure.

This piece originally appeared in the Wall Street Journal.

One of the differences between being a CEO and a venture capitalist is that I obviously meet with many more CEOs now than I did then. As such, it has become more apparent that many of my struggles as a CEO are surprisingly common. One observation that stands out, probably because it is rarely discussed, is how many founder/CEOs have relationship struggles with their significant others and families. For me, the brightest years at IronPort were without a doubt the darkest years at home. While I was focused, motivating, articulate, and decisive at work, I was inconsiderate, preoccupied, self-centered, and lazy at home.

Now, having worked through that time with my family, I’m in a much better place to reflect on what happened, how I could have handled things differently, and offer some advice to other founders who may be caught up in a similar dynamic.

As a first time founder/CEO, I really had no idea what I was doing. Sure, I had gone to business school, worked at plenty of large companies and even other successful startups, but nothing prepared me for the incredible stress and overwhelming life focus of actually running a startup.

I did my best to move up the learning curve: I surrounded myself with great mentors, board members, coaches, and, most importantly, the challenging, wicked smart executive team members that worked with me everyday. We definitely made lots of mistakes, but we did many things right and IronPort grew to be a very large and successful company over the seven years before we ultimately sold to Cisco in 2007. All that said, I believe I could have been a much more effective leader if I had leaned in at home. As my relationship with my family deteriorated, so did my concentration at work as I was constantly trying to manage it in fits and starts. Here are some details of my personal struggle:

Part of the magic of a startup is the fear of death. You have only so much money in the bank, and if you don’t get to the right milestone before you run out, then you’re dead—company goes under, it’s over. There’s a way to cheat death when you are not going to make it—you sound the alarm and force everyone to code through the night and/or weekend. This is stereotypically the life one signs up for at an early stage tech startup. Get in early, kill yourself with a team making something great, and get a meaningful product out before you run out of money. And hopefully, make it up to that hardworking team with stock options later.

I didn’t code, but as the CEO, I felt it necessary to be there physically with the engineering team. I would sit through architecture discussions, product reviews, and wireframe layouts. Sometimes, I would just get everyone lunch or dinner. When we started pulling consistent coding weekends, we brought in the entire management team to serve the engineers: We brought them food, washed their cars, got oil changes, took in their dry cleaning, and arranged for childcare for their kids in the office. Lead by example, lead from the front, was the CEO approach I convinced myself was necessary.

Now contrast this with my home life.

One of the stated values at IronPort was “work/life balance,” but I clearly wasn’t living it. I was rarely home. And when I was home, well, let’s just say I wasn’t particularly helpful or cheery. My perspective at the time was: I’m killing myself at work, so when I get home, I just want to kick back with a cocktail and watch some TV. All I do is talk to people all day long and so at home, I’d really prefer not to talk much, just relax.

This posture was, of course, completely opposite to how my wife felt. After having left her VP role in a successful startup, she was now home speaking in monosyllabic words to kids all day and was starving for adult conversation when I got in the door. And that part about sitting on my ass in front of the TV with a cocktail? This ran counter to all of her efforts to teach the kids about pitching in as a family. The message of everyone helping to cook, clean, and be responsible for the household fell completely flat when daddy wouldn’t so much as take out the trash or change a light bulb. Nope, I was far too important for that and suggested she should hire someone to keep the house clean or even cook, if that was “stressing her out”.

Ugh. I was completely missing the point and talking past her… I was setting such a great example at work, but such a terrible one at home where I often acted like a self-important asshole.

As IronPort grew, I was constantly on the road with customers, press, analysts, and of course, recruiting and energizing employees. We ultimately did over 60% of our revenue outside of the U.S., and we all felt it very important to support all of our disparate offices from Europe to Asia to South America. There were times in a given month when I was gone 50-75% of the days. Even when I was home, I was usually in this brutal state of sleep deprivation and recovery from adjusting to yet another time zone. While I was gone, 100% of the daily burden fell on my spouse, usually resulting in a solid week of arguments upon my return. I started referring to the week after a long trip as “re-entry”, like John Glenn’s Friendship Seven fireball.

After years of working full-time with our first child, and part-time after our second, my Harvard MBA wife, who had had an amazing career in her own right, “decided” to become a full-time mom and take care of our children shortly after our third was born. I say “decided” because at the time, it was clear to both of us that I wasn’t willingly scrubbing in as a 50/50 partner at home. She endured the rocky years while I was running IronPort, but insisted that when it was over, we were going to re-evaluate and recalibrate.

I took about 18 months off in between IronPort and joining Andreessen Horowitz. During that time, I was packing lunches, driving carpools, and making dinners, and began doing my real part in the family. With the help of my wife and other role-model dads, I essentially got re-programmed and it has continued to work for us even though I’m working full-time again. Now one might say that being a partner at a VC firm, even a hard working one, isn’t the same as being a founder/CEO of a startup… I’ll admit that’s true. However, now that I’m on the other side, I believe that I could have coached my former CEO self to success as well. Here are the most critical things I needed to change:

Disconnect to Connect. Although it’s easy for me to see it now, at the time I clearly thought what I was doing at work was far more important and urgent than what was going on at home. It sounds weird now, but this required a real mindset change for me. My wife dropped a bunch of hints (e.g. “How did I suddenly land in a 1950’s relationship?!”), but I was undeterred in the thick of it. The shock of almost losing the relationship made me pay more attention, but I was only going through the motions with my mind still firmly attached to the business. I believe the change in attitude came from truly connecting and tuning in at home. This required disconnecting from work (e.g. turning off the computer and phone), and completely focusing all of my attention on the details of the home. Cooking a great meal. Helping with a science project. Discussing the future with my partner. I was often rightly accused of being physically present without being mentally present. If you find yourself sneaking into the bathroom to complete emails, then you’re certainly not in the moment… Getting some time physically out of the Silicon Valley pressure cooker was also helpful in changing my perspective.

Participate. It’s just not possible to be a real partner if you aren’t materially participating. I believe even the busiest CEOs must drive a carpool, pack a lunch, help with homework, make a breakfast or dinner, and consistently attend school events. Being involved every week is the only way to stay connected at home, and it cannot be outsourced. No matter how exhausted I am from traveling, I push myself to “not be lazy” at home—it’s just too important. When you are involved, there is a natural cadence to planning the week together and communication improves dramatically.

Communicate. Multiple, daily phone and text check-ins are the norm now, but not then. When I was traveling at IronPort, I would sometimes go for days without communicating at all. Now that I am completely tuned in to the weekly family schedule, we plan and calendar family meals (perhaps the single most important thing we do), pickups and drop-offs, and make adjustments on the fly. E.g. Did some time suddenly free up so I can complete an errand? Can I pick something up on the way home? Etc. My norm is to check in between meetings, but if I’m the “parent on duty”—i.e., if my wife is out of town—then I will start a meeting with, “You’ll have to excuse me, but I’m the parent in town so I need to keep my phone handy in case of an issue.” Communication was by far my biggest area for improvement.

Planning and Priorities. My wife and I have a weekly date night. My son and I are in a fantasy football league together. I cook with my daughters. Most times these have become immovable appointments on my calendar. There is a phrase—“truth in calendaring”—if something is important, then you must carve out time in your life to do it. When my calendar reflects that I can’t do a meeting on Wednesday and Friday mornings before 9am, because I cook breakfast and drive a carpool, then it’s amazing how meetings just don’t get scheduled. If at all possible, living physically close to the office is also a huge help to juggling the priorities. It means that I can cut out for a family dinner and then go back to the office or have a late meeting afterwards.

In retrospect, I believe that I could convince the hardest working CEOs that having some real life balance by investing in your important relationships will make you a better CEO. When you are out of balance, it affects your stress, judgment, and ultimately becomes another destabilizer just when you need to be the most put together. I also believe this change is actually a much better example of leadership than the one I was exuding. When a leader shows the way toward getting things done and balancing their life, it sets a much better example for everyone else in the company who struggle with it too.

As a firm, we strive to be unusually transparent in our thinking, where through our blogs, we all go into great detail on our reasoning for each investment. In addition, we are diligent in getting back to entrepreneurs after every meeting with us to give them a detailed explanation of our internal deliberations and outcome. It is through these constant public and private discussions that we want the founder community to better understand our evolving thinking and investment criteria.

In the vein of transparency, I wanted to clarify some of my recent comments. Late last week while in NYC, I stopped by the Wall Street Journal for an informal conversation to discuss what I was seeing that was new and interesting in venture capital.  The resulting article has been the subject of much debate and, in my view, over-interpretation.  As a result, I would like to offer up a more detailed explanation and context of what I said and meant…

One of the many things that I mentioned was how, as a partnership, we’ve had some internal discussions about the relative differences between the consumer series A and the enterprise series A. I was trying to make the point that by and large, we were raising the bar for most consumer series A rounds such that we would be looking for more traction and/or evidence that the entrepreneur’s idea were actually working as opposed to the enterprise A. This is not an absolute, just an observation based on our recent deliberations. Let me explain further.

Many of the seed and series A consumer companies, especially mobile applications, that I have seen recently are still in the throes of proving out product/market fit for their idea.  The entrepreneur is usually in the middle of A/B testing to try to get one or more important end user statistics working such as downloads, daily active users (DAU), monthly active users (MAU), and a compelling cohort analysis of usage over time.  This messy, but necessary, experimentation process where theories are rapidly tested and retested was the stage that I referred to as “Fruit fly experiments”.  Although it was not my intention, I see how this analogy could be offensive to entrepreneurs that are in the thick of this problem – I don’t mean to  make light of their struggle.  Having been in the thick of it myself multiple times, I have a deep appreciation for how hard and emotionally draining the product/market fit process is and apologize for the careless analogy.

Coming back to the central point, I was not speaking categorically about a policy change within Andreessen Horowitz – we do and will continue to invest in consumer and enterprise series As – full stop.  I was attempting to make a more nuanced point about the difference in criteria: we will often do an enterprise series A when it is at the idea stage or an unproven prototype. The reasoning is that the enterprise opportunities and landscape usually includes a unique technology advantage or business insight borne out of the entrepreneur’s deep understanding of the subject area.  This usually stands in contrast to many of the consumer ideas that are primarily business model innovations that are very interesting but still need proving out.

For consumer businesses that are in this ideation stage, we are more likely to become active seed investors or we will typically wait until it is clear that the business has caught “lightning in a bottle” which usually takes place at the B round. Now there are many exceptions: Anki, for instance, came in at the idea/prototype phase and we jumped all over doing the Series A – why? The entrepreneurs had a deep background in robotics from Carnegie Mellon and were taking that expertise into an entirely new category, toys.  The founders had a technological secret and an unusual background for prosecuting the opportunity.

Part of why I love my job is because we get to hear from entrepreneurs everyday about the problems they are trying to solve – both on the consumer front and in the enterprise. As we continue to evolve the way we think about our investments, we are committed to keeping an open dialogue with entrepreneurs at any stage and focus.

“There was never any trust there. He was constantly conspiring behind my back with the other board members. At the board meetings, it was clear that he was leading a bunch of side conversations…”

I heard this quote from a CEO I had called for a backdoor reference on a potential board member for IronPort. It instantly made me realize the importance of transparency between a CEO and his board. If I were to totally suck at being a CEO, I wanted someone who would have the hard conversation with me. How else does someone learn and improve?

As a first time CEO, I wasn’t sure if I would scale to run IronPort long-term. But I wanted a legitimate shot at it. And I wanted a board member that considered the company’s interest first, but was also committed to helping me become a better CEO.

I will never forget that backdoor reference because it made me think twice about the fundamental skills and characteristics I wanted in a board member. Early on it became clear that transparency and the ability to provide honest feedback were paramount. I learned this through receiving instant and honest feedback following every board meeting (a healthy board practice). When this was coupled with annual 360 performance evaluations I always knew where I stood. The feedback was crucial for my growth.

In addition to transparency and feedback, through my own personal CEO journey, I came to realize that the following represents table stakes for the best board members:

Experience: I wanted someone that had been there, done that. In addition to the investors, I went out of my way to recruit three CEOs to the IronPort board because I wanted to surround myself with people that could help steer me around common potholes and would be unflappable as things were going haywire. Diversity of experience was also very helpful. Some of my board members had been on 50 boards while others had run large direct sales organizations; both contributed in completely different ways. If given a choice, I don’t see why any entrepreneur would take a term sheet from a VC with little or no board or operating experience.

Sharp opinion: Quiet is not helpful. A Melvin Milquetoast who sits there nodding his head all meeting is not helpful. I wanted someone who consistently contributed meaningfully and constructively to the conversation, however wide ranging it became. Every board member slot is an opportunity to find someone truly amazing who will speak up and help you build your business. The traditional “financial expert” as a board member essentially compromises a valuable seat with a former CFO or accountant that rarely contributes outside of their domain. It’s worth working hard to find a CFO that later became a CEO or interviewing hard for a financial expert who really contributes. The thorniest business problems will surface at the board meetings and the different, sharp, opinions help to to better explore the poles of the arguments to make better decisions.

Responsive: Board members need to respond to texts within hours and emails or phone calls within 24 hours – no excuses. Things move fast at startups and when I needed help with a lawsuit, contract, employee situation or financing, I wanted to have a damn batphone with my board members. Yes, I realize that I was not in the business of saving lives, but the difference between landing a rock star candidate or closing a round often depended on the timeliness of a board member’s response.

Does real shit: Being on a board is not just about showing up for the meetings. A board member needs to materially contribute to the success of the business. This includes making numerous introductions to potential customers, partners and employee candidates. This is in addition to being available to interview/sell employee candidates, coach management team members, speak at sales kickoffs or just about anything reasonable that a CEO asks you to do to help the business.

I once had a venture capitalist explain to me that a board doesn’t have many options when it comes to affecting the direction of the company. That if you don’t agree with where the CEO is leading the company, you basically have two levers: 1) threaten to fire the CEO, or 2) fire the CEO. He also added that the former gets pulled much more often than the latter. This describes well the authoritarian and adversarial nature of many CEO-to-board relationships. Given the makeup of most boards, where most of the members lack the practical experience to help coach the CEO, the lever approach is not all that surprising. But like any bad relationship, it’s something to avoid.

The best board members aren’t elected by default. CEO’s that set themselves up with their choice of board member – which means getting more than one term sheet and doing extensive reference checking – are better off. You want to find a coach, not a lever puller.

There is a perfect storm of three distinct disruptive forces that has the potential to topple nearly every major enterprise software incumbent. And the traditional approach of dealing with technology shifts – through acquisition – looks like it’s headed towards failure. As such, there is an unprecedented opportunity to create many, new multi-billion dollar enterprise franchises that are on the right side of these forces and are willing to go the distance in the face of ridiculously high acquisition offers.

Let’s examine these forces individually:

Software as a service (Saas): Seemingly a little long in the tooth as a disruptor, Saas has finally gone mainstream in the Global 2000. The primary disruptive force of this technology is the speed of innovation. The feedback loop is especially powerful: as opposed to using focus groups and surveys to figure out how users are interacting with the product, Saas companies can see what their customers are doing real-time by capturing and analyzing every click. They quickly extend their products through a “cell division” that continuously builds out and A/B tests the features that are getting the most engagement. On-premise and client (PC) software-based product cycles can’t possibly compete here as new releases are typically pushed 10 times faster at 45-60 days vs 18-24 months. There’s always one version/code base so it’s much easier to support, patch bugs, and roll out new features to all customers at once. The old joke of “How did God create the world in 7 days? He didn’t have an installed base!” certainly applies – but Saas also demands entirely new skills sets associated with running a 24×7 services business. Dev/Ops, customer care centers, network operations and delivering uptime via failover, mirroring and hot backups are all new and essential. It’s easy to see how the early Saas pioneers gained so much ground with this innovation but even they are unprepared and poorly architected to take advantage of the additional disruptors that have hit more recently…

Cloud infrastructure: As I detailed in a prior post, “The Building is the New Server,” the humongous internet powers, Facebook and Google, are literally breaking new ground in re-imagining the design, components and cost of running a hyper-scale data center. The cloud infrastructure they are pioneering has the primary disruptive force of massively driving down cost. Facebook, for instance, is experimenting on the bleeding edge of solving the new cost bottlenecks of power and cooling. I recently read that it actually rained inside one of their datacenters. The cloud service providers (CSPs) are following their lead using commodity components, open source software, data center design and testing software defined storage and networking products to enjoy the same, devastating cost curve. The corporate datacenters (aka “private clouds”) will slowly disappear as Global 2000 companies migrate to these irresistible new cost curves. Don’t be fooled that security and reliability concerns will keep large enterprises away – as the CEO of IronPort, I watched in horror as large enterprises started pointing their treasured Mail Exchange (MX) records to cloud services like Postini – a much superior and vastly cheaper cloud based architecture versus our perimeter appliances. And email is the most sensitive and mission critical of applications…

Mobile: About two years ago, all of our consumer companies went through an “Oh shit!” moment with mobile. One year mobile was 10% of traffic and the next year, when everyone was expecting ~20%, it was 30% on it’s way to 50%. Facebook, for instance, famously bought Instagram for $1B and then continued their pursuit of talent to redesign for mobile. The new mobile operating systems and devices are proliferating an entirely new interaction and design paradigm that has the primary disruptive force of a re-imagined user interface. The innovative use of touch/gestures (e.g. pull down, swipe, pinch etc.) pioneered by the consumer applications will become de rigor for enterprise as well. Although it’s still early, the mobile sensors (e.g. GPS, accelerometer, video etc.) will also become integral and spawn new innovations in the enterprise as they have enabled new consumer franchises like Lyft and Instagram. The number one problem facing so many of the startups I talk to is hiring the design talent (e.g. Mobile app, front-end engineering and user interface) to take advantage of this trend. In addition to being in ridiculously high demand, most of these people are “arteests” who eschew just cash and stock as incentives because they want to work for a purpose and in an environment where design is an overarching priority/core competency – not something that is grafted on afterwards. These environments are hard to find.

So exactly why won’t these big incumbents make it to the other side? There are just too many things changing at once. Beyond the technology changes, there are structural impediments as well. The incumbent sales forces have become farmers instead of hunters. They still sell on relationships (e.g. A round of golf, anyone?) and bundling/discounting instead of product attributes. They sell to the CIO instead of the line of business buyer who is making the decision. The quotas and incentives are too different. The accounting systems don’t speak recurring billing and revenue. Ugh – it’s just too much change…

A handful of exits have been priced based on a NTM revenue average of 11X vs around 4X for the rest of Saas companies. Examples include Workday, Splunk, ServiceNow, Marketo and Tableau. Not to mention the SuccessFactors deal (done at 11X) has officially kicked off the next wave of consolidation. On the private side, companies like New Relic, AppDynamics and ZenDesk have seen private transaction multiples of between 9X and 11X.

There is outright panic going on right now at the large incumbents as they pay ridiculous premiums for the early Saas companies. And so why won’t these acquisitions pan out? Most of the early Saas companies weren’t architected to take advantage of the cloud infrastructure cost advantages AND most completely missed the boat on mobile. It’s hard enough for new, cool enterprise startups to hire the necessary design talent but the large incumbents really have no hope.

Next Up

As I’ve said, there is a perfect storm of three distinct disruptive forces brewing which has the potential to erupt into a new multi-billion dollar wave of enterprise franchises. In particular, there will be at least 30 new enterprise franchises that will go the distance, resist high acquisition offers as they either supply or ride this trio of disruptors to dominance.

Amongst others, the new suppliers are companies like Cumulus Networks, Okta, New Relic and Nimble Storage. The “riders” are awesome trifecta companies like Box, Evernote, Base, Expensify and Tidemark.

Where will these 30 New Franchises come from? A double investment cycle in Saas, as the large incumbents buy the early Saas pioneers and fumble them, will pave the way. Like Lenny from “Of Mice and Men,” they will smother these companies with too much negative attention, mismatched salesforces, and misunderstood business models. Following a short vesting period, the product and management talent – who are used to working at a completely different pace – will ultimately leave the incumbent, resulting in a bevy of entrepreneurs that roll out to start even more of these franchises.

I can’t wait to meet them!

:)