Search Results for: grit

Integrity is more than a virtue

The May edition of HBS Working Knowledge features an ambitious research paper by Werner Erhard and Michael C. Jensen entitled Putting Integrity into Finance: A Purely Positive Approach.”  The authors strive at length to define “a purely positive theory of integrity that has no normative elements whatsoever” and to demonstrate how it applies to both individuals and organizations. They draw from behavioral economics and behavioral finance to argue that organizations operate counter to their long-term self interest by systematically engaging in “out-of-integrity” behavior, due in part to the way integrity has been historically (mis)framed.

If integrity is viewed as merely a virtue, the temptation to sacrifice it for short-term gain can be great:

For many people, virtue is valued only to the degree that it engenders the admiration of others, and as such it is easily sacrificed especially when it would not be noticed or can be rationalized. Sacrificing integrity as a virtue seems no different than sacrificing courteousness, or new sinks in the men’s room.

Properly understood, integrity is more than a virtue.  It’s a necessary (though not sufficient – companies also need competitive, organizational, technological and human strategies) condition for value maximization:

In effect, integrity is a factor of production just like knowledge, technology, labor and capital, but it is undistinguished – and its affect (by its presence or absence) is huge. Integrity matters. Not because it is virtuous, but because it creates workability.  And workability increases the opportunity for performance, and maximum workability is necessary for realizing maximum value.

Erhard and Jensen build their case and explain their terms:  personal integrity is (broadly speaking) “honoring one’s word,” while an entity or system has integrity when it is “whole, complete and stable.”  (I.e., its design is capable of producing the intended result, its implementation is faithful to the design, and its use is consistent with the design’s purpose.)  To illustrate what they mean by workability – “the bridge connecting integrity to value creation” – they describe a wheel with missing spokes: “It is not whole, complete and stable. It will become out-of-round, work less well and eventually stop working entirely.”

All this applies to an organization as well as human beings. An organization or system is in integrity when it is whole and complete. This means it honors its word, both to its employees and to its customers, suppliers and other stakeholders. This means nothing is hidden, no deception, no untruths, no violation of contracts or property rights, etc. And if the organization refuses to play by any of the rules of the game it is in, integrity requires it to make this clear to all others and to willingly bear the costs of not playing by one or more of the rules of the game.

This line of thinking resonates with something we argued two years ago in When Business Promotes Honesty.  Quoting sometime guest blogger Will Harrell (founding partner of Capco Asset Management in Tampa), we wrote:

The upside from being perceived as a reliable, consistent, trustworthy, &etc. vendor of certain kinds of goods and services is simply huge. Costco’s CEO has a line I love: “No easy hits on the customer.” Honesty is just a sub-category of this thesis, which in many cases has more to do with product quality or user experience than honesty per se: McDonald’s consistency, the taste of a Hershey bar, etc. It’s also not limited to customers – similar considerations apply to suppliers, capital sources, and employees.

The paper is thought-provoking, as one would expect from these authors.  Our own less scholarly endorsement of the business case for honesty (the moral case is another discussion) rests on the near-universal desire for repeat business.  While a short-term advantage in a single transaction might be gained by jettisoning the “virtue” of integrity, honesty and consistency are critical to success over the long term.  We also put a premium on transparency, as it’s easier to remember the importance of being honest when everyone involved in a business relationship can observe how decisions are being made.

We’ll close with one final thought, one which we made in that same piece two years ago:  there’s a good argument to be made that businessmen are more honest (or less dishonest) in their dealings than preachers, politicians, and professors.  Dwight R. Lee makes the case over at The Independent Review:

Businessmen interested in long-run survival are more honest in their professional dealings than are many other groups in society—not because they are more virtuous, but because they face more effective constraints. Their customers can usually detect and avoid deception more easily than can a politician’s constituents, a professor’s students, and a preacher’s congregants. …It turns out that, because most businesses are profitable only by earning the patronage of returning customers, they have stronger incentives to be truthful than do preachers (“no one can ‘test drive’ a preacher’s most important promise,” Lee observes), politicians (for whom elections are sporadic and often predetermined by gerrymandering and other devices), or professors (whose customers, the students, “often do not care much about the honesty of the professors’ claims”).

 

 

TissueTech, Inc. Announces One-Year Follow-up Study Results – Cryopreserved Umbilical Cord allograft TTAX01

SOURCE Amniox Medical, Inc.

MIAMIJune 1, 2020 /PRNewswire/ — Amniox Medical Inc. (Amniox), a TissueTech, Inc. company and pioneer in the clinical application of human birth tissue-based products, announced today the results from the one-year follow-up study to their Phase 2 open label, multicenter pilot study of Cryopreserved Umbilical Cord allograft TTAX01. The objectives of the study were to examine the safety and efficacy of TTAX01, plus standard of care, in achieving complete wound closure of complex non-healing Diabetic Foot Ulcers (DFUs) with evidence of exposed bone, tendon, muscle and/or joint capsule and clinical suspicion of osteomyelitis. Results of this one-year study are published in the peer-reviewed journal Wound Repair and Regeneration.

One-year Follow-up Study Results Find Cryopreserved Umbilical Cord Allograft for Treatment of Wagner Grade 3-4 Diabetic Foot Ulcers to be Safe with Higher than Expected Rates of Healing

The follow-up study indicates that TTAX01 is a promising adjunct therapy for the management of complex, non-healing DFUs complicated by osteomyelitis.1 The results of this one-year follow-up study with TTAX01 demonstrate an overall 86.2% wound closure rate and are comparable to previously reported results using the commercially available Cryopreserved Umbilical Cord NEOX® in a retrospective study.2 In that study by Caputo, 26 of 33 (79%) of the wounds achieved complete wound closure in 16 ±9.3 (range: 4–44) weeks with 1.2 ± 0.4 NEOX applications. The average wound size was 16 ± 18 cm.

“Although there have been numerous other studies published on the management of DFUs, the majority of these studies have been with less severe and more superficial Wagner Grades 1 and 2 DFUs – where there is no infection and little or no exposure of muscle, fascia, joint capsule, or bone. More severe and higher-grade Wagner 3 and 4 DFUs presenting with exposed bone and the presence of osteomyelitis are usually excluded in clinical trials as they are the most challenging wounds to manage,” said William A. Marston, MD, Vascular Surgeon at University of North Carolina at Chapel Hill and lead investigator for the Phase 2 trial. “We’ve chosen to go after the most severe DFUs to address a critical, unmet clinical need with the goal of identifying a successful treatment option to help this diabetic population exhibiting high morbidity and mortality.  We are looking forward to the Phase 3 trials to be initiated soon, which will provide an opportunity to confirm these results in larger pivotal trials.”

There were 29 patients who participated in this follow-up study conducted at 11 U.S. healthcare facilities. An independent medical reviewer evaluated images to confirm each DFU closure as assessed by the principal investigator. Trial results showed that only an average of 1.5 applications were necessary to facilitate complete wound closure in 25 of the 29 total patients.

“The results of this Phase 2 study show not only higher than standard of care healing rates, but also fewer applications than studies using other amniotic membrane and similar wound care products for less severe wounds, which is ideal in today’s COVID-19 environment where we are doing all we can to reduce these high-risk patients’ exposure to a virus that could have dire consequences for their health,” said Amy Tseng, President and Chief Executive Officer of TissueTech. “I truly believe our strong scientific research background, combined with our willingness to look for clinical solutions for unmet needs in hard-to-heal patients is what distinctly differentiates TissueTech from other companies. The findings in the Phase 2 trial related to less frequent applications and persistent wound closure are of particular importance right now and offer new hope for a future treatment option in this vulnerable population where we see many wound care centers leveraging less frequent patient visits to the clinic to reduce risk as a result of the COVID-19 health crisis.”

About Amniox Medical, Inc.

Amniox Medical, Inc., a TissueTech, Inc. company, is a leader in the clinical application of human birth tissue-based products (amniotic membrane & umbilical cord) processed using TissueTech’s proprietary CRYOTEK® cryopreservation technology. Established in 2011, Amniox serves an unmet need for better surgical and therapeutic outcomes for chronic and complex wounds, orthopedics, sports medicine, spine, urology, gynecology, plastics, and general surgery. Connect with Amniox on our WebsiteFacebookLinkedIn and Twitter.

About TissueTech, Inc.

TissueTech, Inc., the parent company of Amniox Medical, Inc. and Bio-Tissue, Inc., is a scientific and market leader in the field of regenerative medicine. TissueTech manufactures a broad range of ocular, surgical, wound care, and soft tissue products that are marketed under these subsidiaries. Since the company’s inception, clinicians have performed more than 500,000 human implants of the company’s products and published more than 360 peer-reviewed studies supporting its platform technology. TissueTech is committed to an unwavering culture of integrity that places our patients’ safety and clinical outcomes above all else. Learn more at https://tissuetech.com/.

  1. Marston, W. A., Lantis, J. C., Wu, S. C., Nouvong, A., Lee, T. D., McCoy, N. D., et al. (2019). An open-label trial of cryopreserved human umbilical cord in the treatment of complex diabetic foot ulcers complicated by osteomyelitis. Wound Repair Regen. 27, 680–686. doi: 10.1111/wrr.127542.
  2. Caputo, W. J., Vaquero, C., Monterosa, A., Monterosa, P., Johnson, E., Beggs, D., et al. (2016). A retrospective study of cryopreserved umbilical cord as an adjunctive therapy to promote the healing of chronic, complex foot ulcers with underlying osteomyelitis. Wound Repair Regen. Off. Publ. Wound Heal. Soc. Eur. Tissue Repair Soc. 24, 885–893.doi: 10.1111/wrr.12456

 

 

 

PowerDMS Named One of INC. magazine’s Best Workplaces 2020

Source:  CISION PRWeb

 

Orlando-based SaaS company ranks as one of the highest-scoring businesses, with standout employee engagement

 

PowerDMS, a leader in cloud-based policy management solutions headquartered in Orlando, Fla., has been named one of Inc. magazine’s Best Workplaces for 2020.

PowerDMS was selected from thousands of companies for the prestigious award. The list is the result of a wide-ranging and comprehensive measurement of private American companies that have created exceptional workplaces through vibrant cultures, deep employee engagement, and stellar benefits.

“We’re incredibly honored to be recognized by Inc. as a Best Workplace for 2020,” said David DiGiacomo, CEO of PowerDMS. “We have built an organization that is committed to relationships, to growing each other and the communities we serve. Even during these difficult societal times, we have leaned on the backbone of our culture – trust, integrity, and accountability – to help each other and our business continue to thrive.”

Collecting data from more than 3,000 submissions, Inc. singled out 395 finalists for this year’s list. Each nominated company took part in an employee survey, conducted by Quantum Workplace, on topics including trust, management effectiveness, perks, and confidence in the future. Inc. gathered, analyzed, and audited the data. Then it ranked all the employers using a composite score of survey results. This year, 73.5 percent of surveyed employees were engaged by their work.

The strongest engagement scores came from companies that prioritize the most human elements of work. These companies are leading the way in employee recognition, performance management, and diversity.

“Building a great corporate culture comes only from strong leadership,” says Inc. magazine editor-in-chief Scott Omelianuk. “The companies on Inc.’s Best Workplaces list are setting an example that the whole country can learn from, especially now, when company culture is more important to the workforce than ever.”

To learn more about PowerDMS, go to http://www.powerdms.com.

About PowerDMS
Founded in 2001, PowerDMS offers a cloud-based policy, compliance, accreditation management solution that helps organizations reduce risk and liability, protect reputation, increase efficiency, and save lives. The company provides software tools to organize and manage an organization’s critical documents and industry accreditation standards, and allows for training and testing of employees. PowerDMS serves customers in the private sector, public safety, government, and healthcare and has achieved significant organic growth in these markets. To learn more, go to http://www.powerdms.com.

About Inc. Media
The world’s most trusted business-media brand, Inc. offers entrepreneurs the knowledge, tools, connections, and community to build great companies. Its award-winning multiplatform content reaches more than 50 million people each month across a variety of channels including websites, newsletters, social media, podcasts, and print. Its prestigious Inc. 5000 list, produced every year since 1982, analyzes company data to recognize the fastest-growing privately held businesses in the United States. The global recognition that comes with inclusion in the 5000 gives the founders of the best businesses an opportunity to engage with an exclusive community of their peers, and the credibility that helps them drive sales and recruit talent. The associated Inc. 5000 Conference is part of a highly acclaimed portfolio of bespoke events produced by Inc. For more information, visit http://www.inc.com.

About Quantum Workplace
Quantum Workplace, based in Omaha, Nebraska, is an HR technology company that serves organizations through employee-engagement surveys, action-planning tools, exit surveys, peer-to-peer recognition, performance evaluations, goal tracking, and leadership assessment. For more information, visit QuantumWorkplace.com.

The Long Engagement

One of our most-read posts here at NVSE is The Fate of Control (December 2009).  In it we cite a phrase coined by Fred Wilson’s at AVC – “shtick tolerance” – as a key to any successful long term relationship.  As we blogged in that decade-ago December:

You don’t have to accept everything about your partner – outside of integrity/honesty – but you must be able to more or less tune some things out over the long haul.  You’re patient with their shtick because they’re patient with yours.  It’s hard work.

Fred is back with another outstanding post, once again on the subject of long term relationships. Here’s an excerpt from The Long Engagement:

What I would prefer to see, and do see in many cases, is a founder who takes the time while they are not raising money to build a number of relationships with potential investors and then engages those investors in a process when it is time to raise capital. I like to call this process the “long engagement”.

It might sound like a lot more work than the fast and furious fundraising process that many founders are running these days.

But I don’t think it is a lot more work. Building relationships over a six to twelve month period can take the form of an occasional face to face meeting, emails back and forth, and even a few visits to the office by the investor. And none of that has to have the pressure of a pitch, an ask, and a price.

We think Fred is spot on. In most cases our relationship with an entrepreneur starts early – months or even years in advance of an investment. Ideally everyone involved has sufficient time and opportunity to explore the fit and potential of the chemistry that will prove crucial to success. Here’s how we put it in a March 2013 post, Due diligence: mine, yours, and ours:

Entrepreneurs who are raising growth capital (i.e. bringing on a long term partner) as opposed to selling their businesses (i.e. get the best valuation) should invest a lot of time conducting due diligence on their prospective financial partner. A credible partner will let you (indeed, encourage you) to talk to as many of their previous entrepreneur partners as you want to get a feel for what they are like to work with.

Entrepreneurs should ask for references from successful investments, unsuccessful investments and current investments. Ask for the venture firm’s entire list of previous and current investments and randomly call a number of them. Find some independent sources on your own who weren’t provided as references but know the venture firm…

Establish a solid foundation for the relationship early: Will you share the same vision? Agree on ground rules?

Once the honeymoon is over, will you collectively put forth the constant effort required to sustain the relationship? How will you resolve conflict? Are communications open and largely free of clashing egos? Does the quality of the arguments make the outcomes better?

The endurance test that is entrepreneurialism

21-karl-meltzer-lede-w710-h473We were immensely impressed reading about ultra-marathon runner Karl Meltzer’s hiking of the entire Appalachian Trail recently. Meltzer averaged an insane 47 miles of hiking a day for 45 consecutive days to accomplish this record. While we are no endurance athletes ourselves, we thought that Meltzer’s feat held some relevance for the endurance test that is entrepreneurialism, so we dug a little deeper to find out how he went about accomplishing this incredible feat.

As is detailed in the New York Magazine article linked above, Meltzer used some of the following tenets to guide his efforts in hiking the Appalachian Trail. We’ve added some thoughts below on several of the principles as we believe each applies to building a growth company.

Pace yourself

For Meltzer, this concept meant not going out too fast too early when he felt great at the beginning of his hike. For an entrepreneur, we believe “pacing oneself” is very sound advice in building a great company. The business media loves to glorify once-in-a-lifetime, strike-it-rich successes like WhatsApp’s sale to Facebook, before real businesses have been built and products monetized. From our experience, we know that such successes do happen in each market upswing, but these are very rare; a more likely path to success comes from disciplined adherence to sound business principles over many years. For an entrepreneur, building a company can feel a bit like Sisyphus pushing the rock up a hill, but one customer will lead to another customer, and on and on it will go. Along the way, it is important to celebrate the successes as they come but not get too frustrated if they don’t come all at once.

Beat and broken down? Focus on what you can control

For Meltzer, he had an injury mid-hike, and he knew that an injured shin could be potentially disastrous for his attempt to break the record in hiking the Appalachian Trail. Much to Metzer’s credit, he had the mental discipline and energy to focus on those small steps which were right in front of him, and this focus allowed him to overcome the adversity. For an entrepreneur, this tenet is a great analog to focusing on what one can control along the growth company path. Along the journey, large customers may promise that they are going to buy and then go silent; investors may seem interested but then get cold feet; board members may give contradictory advice. It is critical that an entrepreneur focus on what he or she can control within his or her own company, building the team along the way with people who are trustworthy, smart, and driven. Success is more likely to come from a thousand prudent decisions along the way, not one dramatic thunderbolt as portrayed in the movies.

Practice gratitude

We have to admit that this may have been our favorite of Metzer’s tenets. As minority growth investors, we have to live by this credo, as we are not in control of the companies where we invest and most of the success in our portfolio comes from the hard work of the team on the ground. We are passionate about entrepreneurs and know how hard it is to build a great growth company, so we always try to thank our portfolio companies for their hard work whenever we can. In much the same way, an entrepreneur is only as strong as the team that she builds around her, so investing in a culture where expressing gratitude is the norm makes so much sense to us. People work harder when acknowledged for their contributions, and it takes a team to build something truly special.

Focus on the process

Metzer knew that he couldn’t do the whole hike in one fell swoop, so he broke the hike down into its component pieces which made the daunting task seem more manageable. Similarly, we often counsel our entrepreneurs to build sustainable processes into their companies so that they and their employees can replicate tasks easily and are not as exposed to human error when building a company. By giving employees clearly defined processes which allow them to focus on what’s really important, an entrepreneur greatly increases the chances that his company will be successful. It is easy to look at the totality of what needs to happen to scale a business and become overwhelmed; by breaking the greater task into its component parts and then putting a process around each, an entrepreneur has a much greater likelihood of success.

Embrace struggle

It turns out that hiking the Appalachian Trail faster than anyone else ever has is really hard! Metzer knew that it would be difficult, but he embraced the struggle and accomplished something remarkable. We don’t know any other way to say it, so we’ll just be blunt – building a successful growth company is really hard! However, the rewards, both monetary and intrinsic, can be well worth the struggle, but an entrepreneur must enjoy the journey along the way and recognize that it will be very hard, with many peaks and valleys. A successful exit will likely be monetarily life-changing for many of the employees at a successful growth company, but we have found that most entrepreneurs look back at the journey and struggle of building a team, getting a product to market, winning (or losing) a customer as the fondest memories of their entrepreneurial journey. Enjoy the struggle – it will go by fast and you’ll create a lifetime of memories with great people along the way if you laugh at yourself during the tough times and then celebrate the successes along the way.

And drink coffee

This was our favorite of Metzer’s tenets!  And the only one we can say with confidence we have fully mastered.

A startup culture poses unique ethical challenges

In the WSJ, Kirk O. Hanson writes that “Startup culture poses a host of temptations—and resistance is hard.”  He asked a panel of Silicon Valley entrepreneurs and venture capitalists to identify the greatest pressures and temptations they’ve faced, and where they think some entrepreneurs frequently fall short.

There are unavoidable ethical dilemmas in every profession and industry, of course, but the dilemmas entrepreneurs face are more formidable and more difficult to manage. Some entrepreneurs stay the ethical course. But they seem at times to be the exceptions. Startups generally have no infrastructure to address ethical challenges, and frankly, entrepreneurs have little time or focus for monitoring their own behavior. Their energies are elsewhere.

4 of the 10 questions addressed by the panel dealt with honesty:  do we lie to (1) the funders to get cash, (2) the customers to get revenue, (3) the public investors for a higher IPO valuation, or (4) to hit our numbers. Of course the answers in all four cases – each with its own color of temptation – is ‘No.’

We’ve often touched on this subject ourselves.  From Observing Honesty in Business:

You can’t always count on oreos to let you know if someone’s telling the truth

In our business dealings (as opposed to a poker table) we put a premium on transparency, as it’s easier to remember the importance of being honest when everyone involved in a business relationship can observe how decisions are being made.

This research gives us an opportunity to revisit the subject of when business promotes honesty.  Three years ago we cited this article from The Independent Institute, which argues that businessmen are more honest (or less dishonest) in their dealings than preachers, politicians, and professors.

Business promotes honesty, we argued, because of the importance of long-term relationships:

In our experience, the business case for honesty (the moral case is another discussion) can often be based on the fact that many businesses rely on repeat business.  So although dishonesty may improve the profit or advantage in a single transaction it would result in less success over the long term.

In that same post we quote Will Harrell of CapCo Asset Management:

The upside from being perceived as a reliable, consistent, trustworthy, &etc. vendor of certain kinds of goods and services is simply huge.  Costco’s CEO has a line I love: “No easy hits on the customer.”  Honesty is just a sub-category of this thesis, which in many cases has more to do with product quality or user experience than honesty per se:  McDonald’s consistency, the taste of a Hershey bar, etc.  It’s also not limited to customers – similar considerations apply to suppliers, capital sources, and employees.

We once wrote on this subject in a quarterly letter, On Being a Good Partner: “But however great or small a company’s advantages, it is our observation that their durability is usually directly related to how good a partner the company is to those with whom it does business.”

It may strike some as corny and simple, yet is exactly what game theory predicts will transpire between participants in repetitive transactions.  What’s surprising is that the effect is not more dominant, and that trustworthy players don’t completely squeeze out untrustworthy ones.

By the way, we mention above that the moral case for honesty is another discussion, and it is.  But we don’t want to leave the impression that the case for ethical behavior is purely a practical one.  We also try our best to act with honesty and integrity both within our firm at BPV and with our entrepreneur partners because we believe deeply that it is the right thing to do.  And we look to partner with entrepreneurs who share that view.  That approach may not always lead to a tangible win in business terms, but it defines who we are as people and allows us to sleep at night.

Why do pioneers tend to fail?

Gerard J. Tellisv, in The Columbus Effect in Business, writes that “Pioneering is glorious, but later entrants are often the ones who see the true potential of discoveries.”  We made a similar point on Columbus Day two years ago:  though conventionally thought of as an explorer, Columbus might more accurately be described as an enormously influential (and lucky, perhaps even failed) entrepreneur.  Not only did he fail to achieve a blow-out IPO, he couldn’t even get the results of his project named after himself.  Here’s how Tellisy puts it:

Christopher Columbus will be feted in many places on Monday as an intrepid explorer, reviled in others as the spearhead of European colonization. But the Genoese ship captain who in 1492 sailed west to parts unknown might be best considered today for what he can tell us about ourselves. The man who successfully pioneered direct cross-Atlantic navigation also died dispossessed and embittered. In this respect Columbus represents a type, not an exception: failing pioneers.

Many scholars believe that pioneers are highly successful, have a high market share, and are long-term leaders of the markets they pioneer. Yet historical analysis shows that pioneers mostly fail, have a lower market share and rarely lead their industries. Long-term market leaders seldom are pioneers. Rather, they are ones who appreciate the discoveries of pioneers, envision the mass market and exploit it profitably.

Columbus might have fared better had he worried less about the idea and more about the execution.  As John Greathouse once put it (in the May 2012 issue of Forbes):

The second time Christopher Columbus pitched Ferdinand and Isabella (two years after his initial presentation – raising money has always taken patience and persistence), he did not need to convince them that locating a shortcut to the spice routes of India was a good idea. Rather, he had to belie their primary concerns: was he honest, tenacious and competent enough to execute the journey?

The same is true of entrepreneurs and their backers:  we want to hear about the idea – the details in the pitch reveal important things about the entrepreneur  – but the intangibles in a good long-term partnership are primary:   integritytransparency, trustworthiness, enthusiasm and tenacity, self-awareness, and flexible persistence.

Tellisy makes another point that is a favorite of ours:  business history is full of surprises.

Today’s market leaders in many categories didn’t pioneer those categories. Microsoft didn’t pioneer personal-computer operating systems (QDOS came before) or word processing (WordStar and others came before). Amazon didn’t pioneer online books stores (Books.com came before). Apple didn’t pioneer mobile music, the smartphone, the tablet ( Sony , BlackBerry and others came before). Google didn’t pioneer Internet search (AltaVista, among others, came before). And Facebook didn’t pioneer online social networks (Myspace came before).

Here’s how we covered the topic in Outcomes that feel ordained only in retrospect:

A few of the stories of these companies’ origins may ring a bell (DuPont began as a manufacturer of gunpowder, Berkshire Hathaway of textiles) but more than a few will likely surprise you:  Avon started as a book seller, Nokia in wood pulp, Wrigley in soap and baking powder, McDonald’s as a drive-in BBQ, 7-Eleven as an ice house, and Coleco made shoe leather (Connecticut Leather Company) long before it did Cabbage Patch Kids and video games.

The common theme to all these Origin Stories?  Business conditions may ebb and flow, but good managers adapt.  Tellisy, again:

Why do pioneers tend to fail in the long run? For the same reason that Christopher Columbus didn’t flourish despite his initial success: Pioneers too often cling to their initial intuition, just as Columbus clung for too long to the notion he had reached India. Pioneers focus on the small initial market, failing to envision the vast mass market that they just opened up. Pioneers stick with the initial product even when the market demands relentless innovation. All the while, a surge of later entrants learns from mistakes of pioneers, envisions opportunities and rides on the explosion of new superior technologies.

 

What the Olympics have in common with [insert meme here]

Olympics+Closing+Ceremony+M2lzqXT4gDSlJudging from the number of articles we’ve recently read about “What the Olympics have in common with [insert meme here],” we’re inclined to conclude that it might be a lazy way for a columnist to hit a deadline.  And as reluctant as we might be to resort to laziness, we do like to please our readers – and our readers like sports.

So… from the many pieces about the Olympics and entrepreneurship we’ve chosen one similarity, one difference, and one curiosity to share here:

“Mike” at crowdspring thinks that both snowboarders and entrepreneurs ought to worry less about the idea and more about the execution:

Snowboarders often steal each other’s tricks, but when they do it becomes about who can perform that kicker, stalefish or roast beef to perfection. Businesses, too, do not always have to be launched with a completely original idea, but if a new entrant in an existing market hopes to gain share, they had better make up for the lack of originality with a more perfect execution.

While we do retain some interest in hearing about the idea – the details in the pitch reveal important things about the entrepreneur  – we agree about the greater importance of execution as well as some of the intangibles:   integritytransparency, trustworthiness, enthusiasm and tenacity, self-awareness, and flexible persistence.

Naveen Jain, writing at Inc magazine, sees a critical difference between entrepreneurs and Olympic athletes:

What separates sports from entrepreneurism, however, is that in business we constantly have to overcome undefined and unpredictable challenges. Athletes train for specific events and conditions, whereas entrepreneurs generally have little idea what they will encounter along the way.

We once peered inside the mind of great entrepreneurs and found the same trait, termed “effectual reasoning” by Professor Saras Sarasvathy (of the Darden School of Business), who likened great entrepreneurs to Iron Chefs,  “at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest.”
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Perhaps more as a matter of curiosity than as any particular lesson to be drawn, Raymond Keating at the SBE Council mentions there are different means of organizing and financing for athletes to get to the Olympics:
(T)ake note of the athletes and their respective stories. I think you will find that they are, in fact, entrepreneurs. Some work in small businesses with a dedicated team. Others are in partnerships, and many are effectively sole proprietors. They are the owners, operators and risk takers of their sports careers, and they work to become the best in their respective fields. Indeed, in certain ways, part of the Olympic spirit is the spirit of entrepreneurship.

Great boards are more about chemistry than control

Breaking_Bad_blue_meth.jpg.CROP.promovar-mediumlarge

The chemistry must be respected

Inc.com has advice for early-stage companies: the partners with whom you choose to work are more important than the need for control.

By now everybody has a big stake in your success and would like to feel consulted on the major decisions you’re making with their money.  It surprises me that this is even controversial but in this day-and-age it sometimes is.  I know there are bad investors who do bad things. There are just as many bad entrepreneurs who do bad things.  As with most of life, it’s more about whom you choose to work with, what their reputation is from others and how well you’ve vetted them more than an absolute need for control.

Or as we once put it:  the fate of control is that always seems too little or too much.

Getting this piece right isn’t so much about control as it is about chemistry.  If VC-CEO partnerships are like marriages (as is often said), then the issue of control needs to mirror that of a healthy marriage.  It’s not about 100% control, or even 51% control – it’s about playing to each others’ strengths and making the concessions and adjustments that a given situation demands…  It’s hopefully a long term relationship, and so over time you each learn when to take your shot and when to pass the ball…

Once the honeymoon is over, will you collectively put forth the constant effort required to sustain the relationship?  How will you resolve conflict?  Are communications open and largely free of clashing egos?  Does the quality of the arguments make the outcomes better?  U2 credits their longevity to a “group ego” that trumps everything else.  Can you develop what Fred Wilson of Union Square Ventures calls “shtick tolerance?”  You don’t have to accept everything about your partner – outside of integrity/honesty – but you must be able to more or less tune some things out over the long haul.  You’re patient with their shtick because they’re patient with yours.  It’s hard work.

Predicting interpersonal chemistry isn’t always easy.  Most venture firms will have a good “rap”, but it’s absolutely essential for entrepreneurs to verify that through their own rigorous due diligence:

Entrepreneurs who are raising growth capital (i.e. bringing on a long term partner) as opposed to selling their businesses (i.e. get the best valuation) should invest a lot of time conducting due diligence on their prospective financial partner.  A credible partner will let you (indeed, encourage you) to talk to as many of their previous entrepreneur partners as you want to get a feel for what they are like to work with.  Entrepreneurs should ask for references from successful investments, unsuccessful investments and current investments.  Ask for the venture firm’s entire list of previous and current investments and randomly call a number of them.  Find some independent sources on your own who weren’t provided as references but know the venture firm…

The chemistry between entrepreneur and venture partner in private companies is more cooperative, longer-term, and (mercifully) not subject to the quarterly reporting pressures of public companies.  Both will have real “skin in the game” and the same incentive to understand the nuances of the business and focus on long term value creation.

Is there such a thing as too much incentive for an entrepreneur?

incentivesWhen we’ve written on the subject of board performance, we’ve emphasized that private company boards often have greater chemistry and transparency because the incentives of the entrepreneur and investors are more easily and perfectly aligned than in public companies.

Here’s how we put it in 2010 in Communicating good news and bad:

In our experience, the relationship between entrepreneur and venture partner in private companies is more cooperative, longer-term, and (mercifully) not subject to the quarterly reporting pressures of public companies.  Moreover, venture investors have real “skin in the game” and have the same incentive as the entrepreneur to understand the nuances of the business and focus on long term value creation.  As a result, the communication of good news and bad tends to be more forthright and in real-time, enabling partners (assuming they are good partners!) to understand intuitively the right kind of counsel and support to offer during both the good times and during the inevitable challenges of building a business.

Not too long ago we came across a great piece at HBR Blog Network on the importance of aligned incentives.  In There Is Such a Thing as Too Much Incentive for Entrepreneurs, N. Taylor Thompson makes the case that there are instances in which  an entrepreneur ought to “take some money off the table”:  when lack of diversification in his wealth creates a difference in economic incentive between himself and his investors.  If all his money is tied up in the startup, it could (quite reasonably) cause him to “prioritize exit probability above expected value because of diminishing marginal utility and loss-aversion.”

In other words, if all his money is in the company he founded, but it’s just one of several investments for the venture firm, the pressures and logic of decision-making within the partnership can be different.

From the HBR piece:

Behavioral economist Dan Ariely has conducted a set of experiments to gauge the relationships between economic incentives and performance. In one experiment, he offered participants payments for pressing alternating keys on a keyboard; in another, he offered payment for math problems – and, in both he varied the incentive so that participants could earn either up to $30 or up to $300. For key-pressing, stronger incentives led to better performance. For math problems, incentives decreased performance.

Ariely’s interpretation is that simple tasks requiring no cognitive engagement respond as expected to increased incentives, while cognitively complex tasks peak and then show decreasing performance, as increasing incentive distracts from cognitive performance…

Taking a small amount of money off the table aligns incentives much better to focus on making a big, world-changing impact. And diversifying also can remove the performance-destroying stress that comes with overly strong incentives.

To be clear, aligning incentives remains critical to startup success; my argument is simply that a modicum of diversification helps both entrepreneurs and investors. Taking money off the table isn’t about getting rich, it’s about freeing entrepreneurs to focus on doing something great – not just good enough.

While we (also quite reasonably) prefer to have our capital directed toward growing the business, we understand there are times it makes sense to achieve partial liquidity for founders who want to continue building the business but would also like to realize a portion of the value they have created to date.

On a related note:  buying out a minority or absentee partner’s interest can also often better align incentives and remove a barrier to rapid growth.

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