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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.

“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!

🙂

It took almost six months for my former company IronPort’s acquisition by Cisco to close and it seemed like forever. Although I was still the CEO by name, I was essentially running a “puppet” government with every hire, major expense and strategic shift needing explicit approval from my soon-to-be-overlords. Since Cisco was a functionally organized company, I would soon be losing half of my direct reports as sales, HR, and finance would report into their respective groups. My job was becoming smaller and it had considerably fewer degrees of freedom. So here was the big dilemma: I had signed up for 24 months of re-vesting my founder’s shares that wouldn’t begin until the deal was closed and it already seemed like a paint-drying eternity. I was pretty sure that I wasn’t cut out for a big company but I just couldn’t spend the next two years watching the clock or I’d spiral into insanity. What to do?

An analogy hit me as I watched my son at recent team practice: Water polo. Despite growing up on Florida beaches, I’m not that great of a swimmer. I’ve never even put on a Speedo. I didn’t think that I would like anything about water polo. However, if I was locked in a sports complex every day for two years and everyone else was playing water polo — how long could I sit on the edge of the pool before I gave it a go? Should I just go through the motions? Splash water on my face and feign participation? No, I came to believe there was only one way forward: shave all the hair off my body, put on the Speedo, start throwing elbows, making shots and playing with vigor…

Seriously and specifically, after six months in, I strongly advocated to be put in charge of all Security products at Cisco — a business that was three times larger than IronPort. I believe if the leaders of a newly acquired company are locked up for a significant period of time (>18 months), they should strongly advocate for bigger jobs within the acquiring company. This is especially true if the leader isn’t planning on staying around after the vesting period. This may seem like odd advice, but here’s the rationale:

It’s not about you, it’s about your team. If you’re a disaffected leader, moping around, “doing time” and talking smack, your team will disintegrate and the acquisition will fail. On the other hand, if you land a larger role, you are in a unique position to help them out. You owe it to the people who ate Ramen noodles while you paid them in potentially worthless stock to work at your company in the beginning. In addition to promoting some of them to larger roles within your new org, you will be much more connected to the cross-company opportunities and can advocate for your top performers. When your team sees you engaging, they are more likely to pull harder, too. Most of the mid-level managers at IronPort had a significant increase in their responsibilities at Cisco and it prepared them to take on even larger roles both in and outside the company. There is a myth that employees that come from a startup aren’t cut out for large companies — in fact, many may be ready for a change. Over the eight years we built IronPort, many of our single employees got married, had kids and wanted the current income, benefits, lighter work hours, and increased stability of a larger company.

You need to “sew in the organ” to make the acquisition successful. Most acquisitions fail. If something isn’t big enough to stand on it’s own or doesn’t logically snap into an existing business line, it will usually wither and die. This is especially true if the acquired leaders leave or become disaffected. Employees mimic leaders’ behavior or get shifted to new leaders when the previous ones exit and have no connection or trust with their new reporting chain. If the leaders take larger and different roles within the acquiring company they form beachheads of trust and points of navigation. It becomes less “them” vs. “us” and a more collective “we.” Look, I’m not saying it’s ever going to be Kumbaya over s’mores, but it’s a helluva lot easier to accept the bullshit you get at a large company if you have someone you trust explaining the rationale to you.

You will meet amazing great people as you get closer to the inner circle. If your head isn’t in the game, you’ll never spend any meaningful time with the best people. After my promotion, I got to spend a ton of time with the senior team, went through their version of VP leadership training, and tackled many tough strategic issues. I believe it’s only by really getting to know the key people that you can make an informed decision about making a career at the new company. Yes, I met my share of climbers, passive-aggressive assholes, and C-players but that didn’t really matter long term. The rockstars I came across have become lifelong colleagues — some of whom have stayed — but many have moved on to bigger, more interesting jobs in hot Silicon Valley companies. Don’t overlook the importance of this opportunity.

If you decided to take my advice and push for a larger role, I have a few more suggestions once you’re there:

Don’t play favorites with your old team. If you’ve run a successful startup, you’ve likely attracted first-rate talent to join you. Invariably, the close relationships, trust from working together, and familiarity with their great work will lead you to promote them first and fast. However, it’s important for them to earn some credibility with the new organization first. In retrospect, I moved too quickly and put my old team in charge too fast. We suffered from a perception of an “IronPort takeover” that was hard to reverse. I should have taken more time to evaluate my inherited Cisco team and let the cream of the crop rise naturally.

Mix up the talent. When we announced the reorg, I shuffled the leadership decks completely. The IronPort SVP of Engineering took over the firewall group and the Cisco VP running firewalls took over IronPort. Each had a fresh set of eyes and legs to apply to their new areas and attacked getting up to speed with vigor. In addition, we flew in all the director-level leaders and above from all the product groups to do group brainstorming and come up with new roadmaps for every product. Because the plans were argued and debated out in the open with everyone involved, there was much more buy-in with the employees working on the products.

Speak your mind. I was constantly pointing out inconsistencies, stupid directives, red tape, and anything that got in the way of doing the right thing. The fact that I wasn’t nursing a 10-year career trajectory and was on the fence about staying long term was incredibly freeing in terms of getting things done. In general, large companies get caught up in their processes so much that the leaders forget how to push to do the right thing. In addition to making the experience more entertaining, I met a bunch of other, like-minded leaders and made progress on important projects.

Negotiate for more compensation. Although this is starting to change at companies like Facebook and Google, most large companies are not prepared to be competitive with hot startups for compensating executives. As the leader, you can create a business case of what a comparable compensation plan would look like for a CEO of a private company. The main benefit here, again, is for your team versus you. If you can set up a compensation umbrella for you, it will apply directly to the rest of your executive team and top engineers.

Put together a succession plan. (Especially, if you’ve definitively decided it’s not for you.) In today’s world, 18-month stints are the norm at well-run large companies so there’s no need to feel bad leaving at the end of your vesting period. If you’ve integrated the team, someone would have likely distinguished his or herself and can be promoted into your role. If you’ve addressed your compensation and met all the best people, you’ll have all the data in place to make an informed decision to stay or move on.

In the end, for a variety of reasons, I left Cisco two years to the day when my vesting period was over. My former SVP of marketing at IronPort took over my role as head of all security products at Cisco. Many of the best people at IronPort stayed at Cisco for many years after their IronPort vesting was over. I believe the main reason the acquisition was a success was because the team engaged and meaningfully integrated into Cisco.

“We like what you guys are doing but there’s no way we’d replace the aorta of our communications infrastructure with a beta box from a 20-person startup.”
—Director of IT, Fidelity Investments (circa 2002)

Call it the enterprise startup conundrum: how do you earn legitimacy if no one will give you an opportunity to become legitimate? The enterprise world is different from the consumer world: barriers to entry are higher, switching costs away from incumbents are bigger, and the risks for failure (for both buyers and sellers) are greater. And while there’s definitely no single right answer, an enterprise startup that can’t crack this conundrum is a dead enterprise startup.

At IronPort, we had built a radically better email gateway. It crushed the popular and arcane sendmail—the free, open-source software that we aimed to replace—in every dimension. Our product was even cheaper to own, as it ran on one-tenth the hardware, but we were unproven and email was mission critical. To make matters worse, for our early adopter industries (ISPs, media, tech, and financial),  no email service meant no work. We were so good, but yet so puny.

We felt like the little kid that kept getting turned away at the height chart at the rollercoaster—we can handle the ride, just give us a chance! Somehow, we had to find a way to look bigger and more credible quickly. After an intense brainstorming session, we hit upon a really important concept: since perception was reality, any weakness that the customer couldn’t see and couldn’t touch did not exist. By being absolutely maniacal about each of our customer touch points, we would appear to be far bigger than we were. No matter how rinky-dink the “man behind the curtain” was, it didn’t matter because the Great Oz would be massively impressive. We called it “Project Blowfish”.

We examined everything the customer could possibly touch. It had to look like it came from the big boys: Cisco, Microsoft or Apple. How would they do it? We asked and researched. Here’s what we came up with:

  • We looked big. We paid up for the best graphic designers for the website, business cards, and the sales collateral. Heavy cardstock business cards. High gloss datasheets and well-written content. Smart, insightful—as perfect as possible.
  • We felt big. Our appliance that sold for $50,000 was at its core a cheap-looking Dell 2650 2U rack-mounted server running our software that cost $3,500. At great debate from our board, we hired IDEO to design a thick, aluminum faceplate and backplate with our branding. And they did it for equity. (Here’s a picture: http://www.ironportstore.com/web-security.asp). The shipping box was packed smartly with very high quality cardboard that had our logo silkscreened all over it. It was reminiscent of how Apple packs it products.
  • We projected total professionalism. For the physical manual, we took inspiration from the Sony Handycam and the Cisco Router manuals. It had clear diagrams, was well organized, and had a laminated Quick Setup guide. We shipped all of our evaluations out via Fedex next day, which made a really strong impression on customers who typically waited weeks for competitor’s products. They got it much faster than expected and when they opened it up -everything they saw was impressive.
  • Our ads were on brand as well. We took out full-page ads in major IT publications. Great product pictures, clear, clean, and uncluttered messaging.

All of these details mattered, but the key to the entire plan to make our little company appear big was to perform like the very best large companies. For us, this meant dramatically beefing up customer care (CC). In general and especially in high tech, CC had been a backwater—treated like a cost center to be minimized. Since this was arguably the most important early customer touch point, we took a completely opposite approach: we treated it like a marketing expense. With a firm belief that this was the primary catalyst for word of mouth, we invested heavily in the entire post-sale ecosystem. Our approach was to answer email inquiries instantly and telephone calls on the second ring with little to no hold time. We concentrated on how to deliver the best possible experience first and then went back and figured out how to cost-optimize it later. Here are a few ideas that ended up working:

  • For the first six months (until we were absolutely overloaded), the entire leadership team was on the CC email alias. We were aware of every issue, saw the thoroughness and timeliness of the responses and chimed in with suggestions. This helped set the customer care culture: it was damn important and always had a bright light on it.
  • We hired the best of the best to lead CC and gave them a ton of autonomy to make decisions quickly. (I’m extremely proud that our first two heads of CC subsequently became venture-backed CEOs: Cyan Banister and Patrick Peterson.)
  • We hired the best all-around athletes, paid them above market, trained the hell out of them and then gave them a legit career path into sales engineer, engineer or CC management. We hired for friendly, intelligent and responsive…
  • We tracked all of the metrics relentlessly and then posted them everywhere. Big screen monitors hung in CC and showed constantly moving progress charts which then linked to internal status websites and dashboards. We had green signal lights around the office that turned yellow and red when a customer was on hold too long. The visibility throughout the company helped to make it a special place to work.
  • We opened in different time zones early for 24-hour coverage. We found that the best people would rarely work the graveyard shift so it was much better to hire in a time zone when they were naturally awake. I remember this saved our bacon during our evaluation at Goldman Sachs. Goldman, based in NYC, had a CC acid test for hot tech companies, especially ones from California. They’d send in an urgent email at 7am EST or 4am PST. Our newly opened CC center in London picked it up in 30 seconds and gave a detailed fix and thorough answer. They were floored.
  • We had a direct connection between CC and product management with regular reviews. In fact, some of our best ideas came from customers working through problems with a CC rep.

Ironically, the most fanatically apostle customers were the ones that had the biggest problems—catastrophic failures. It was during those times that we showed our mettle. We had a funny saying about it: “When you save someone from drowning, they quickly forget that you were the one that pushed them into the pool in the first place…” In retrospect, by focusing on all of the touch points in an effort to look bigger, we actually became that company. What started out as a bit of a façade became real and we grew into the oversized shoes.

I had a real struggle preparing to be a public company CEO. And it had little to do with having scalable internal systems or making the quarterly numbers… I just couldn’t keep secrets from my employees.

As CEO of IronPort, I wanted to be completely transparent with my entire team but my board of seasoned industry veterans was sharply opposed… They raised several serious issues: do you want to leak critical weaknesses to your competitors? Do you want to panic your employees? Do you want to completely reconstruct your culture when you go public? It was just a bad idea. However, the more that I thought about it, the more I believed that sharing absolutely everything would create massive advantages and that we should live with whatever consequences resulted.

So, after board meetings, we would assemble the company and go through every board slide… How much cash in the bank? What’s our burn rate? What are the biggest problems we are facing? Did we decide to build, buy or acquire a critical component? The first couple of go rounds, there was dead silence. No questions—just head nodding and a couple of blank stares. After some probing, we realized that people needed to feel comfortable speaking up, that it didn’t just come naturally. We brainstormed a bunch of different ways to get over this hurdle and here were some experiments that ultimately worked:

  • We amped up the frequency of communication to all employees. Different members of the leadership team would send out weekly emails to all about customer trips, conferences attended, schedules slips and customer issues. These were written very off-the-cuff, informal and in the voice of the different leaders. I suppose we’d be all be tweeting or blogging today…
  • When an employee would reply to an email with a comment or question, we treated it like it came from a customer who deserved an immediate, detailed and thoughtful response.
  • After the weekly staff meetings, we’d send out a summary of the decisions and issues to all of the directors/managers who would then share it with their teams.
  • We emphasized “speaking up” as a core value at every opportunity. Our employee orientation, performance reviews and leadership training all emphasized everyone having an obligation to dissent…
  • We would leave 30 minutes for questions after every all-hands meeting and then press, often uncomfortably, for no fewer than five questions from the group.

Over time, the benefits of transparency coupled with an emerging cultural norm of speaking up became more apparent:

I thought we would surface creative answers faster. When everyone had a clear understanding of the hard problems, their collective brains were on the table for parallel processing. The best information rarely sat with the senior executives but with the employees that were closest to the product and closest to the customers. And the best answers would often come from the most unlikely of places. For example, some of our most innovative features came from customer support reps identifying customers trying to use the product in ways it wasn’t intended.

Initially, it worked better than we expected. IronPort experienced zero voluntary turnover for the first three years. Because we let everyone’s head under the tent, we implicitly trusted them and it worked both ways. For instance, it wasn’t a shocker when we stopped hiring as we were raising money. Everyone knew exactly what was going on: we were running low on cash and had no idea how long the process would last.

Lastly, nobody was confused about what was important and people would point out any inconsistencies and solve them in the background. I remember standing up at a company meeting talking about how excited I was that IronPort anti-spam was working and we’d finally be able to drop our partner Brightmail. After the meeting, the accounts receivable clerk knocked on my door and said, “I thought you should know that two customers are withholding payment because IronPort anti-spam isn’t performing.” Oh crap. But much better to know about it and fix it than go on believing there wasn’t a problem.

As we were preparing to file our S-1, we hired a CFO with public company experience that insisted that we start “practicing” as a public company. Hmm—I knew that our level of transparency would have to change but what did that mean exactly? “You can’t tell everyone how we did this quarter at midnight quarter-end” and “You can’t go through all the board slides like that—too much sensitive information.” So, we started editing, putting shrouds on issues because we were afraid that the information would leak. I remember our first all-hands during the “practice” time. I felt muzzled and cautious, trying to strike a balance between our wonderful transparent culture and an intricate set of Sarbanes-Oxley rules. As it turned out, the practice was critical in working out the kinks. Here are a few things we did:

  • Our CFO and I listened to dozens of public company earnings calls to get a sense for the dynamic and what information was typically shared. The best duos had the CFO as the play-by-play man and the CEO as the color commentator.
  • We then staged mock earnings calls with the employees as the analysts asking the questions. This proved to be a very useful format for reining in my over-sharing and was instructive to the employees as they saw us struggle with what we could and couldn’t reveal.
  • We prepared a mock earnings press release a few weeks after the quarter closed. This helped us practice keeping the numbers quiet, which was difficult because everyone wanted to know how we did at quarter-end.

Although we eventually opted for an acquisition by Cisco versus an IPO, I came to believe that our type of total transparency was a competitive weapon that applied primarily to private companies. In the end, my board members were right—we did have to limit what we shared with employees on the way to going public. That said, I believe it was much healthier to set the default to full disclosure while we were private. When you prepare for an IPO, it’s definitely a high-class problem to have to work backwards with concrete reasons to withhold information from the employees. And when that time comes, they totally understand.