I joined the McCombs Business School at the University of Texas at Austin as Entrepreneur-in-Residence at the beginning of the 2013-2014 academic year. Yesterday marked my last day in this role. I kicked it off with a speech to the entering MBA class about the top-ten lessons I wished someone had taught me when I was beginning my MBA. I loved serving the University and it's students in this capacity. The entrepreneurial energy on campus is really fantastic and very encouraging for the future of both Austin and our nation at large. There is no doubt a huge trend towards entrepreneurship at most top-ranked universities and U.T. Austin is leading the way in one of the most entrepreneurial cities and states in our nation. Consider that Texas has created 70% of the new jobs in the U.S. since 2005, as reported by BBVA Compass, and you start to tune in a bit more into what is happening here. Compared to when I attended U.T. Austin from 1990-1994, where entrepreneurship was hard to find, every major college at U.T. now has its own entrepreneurial club and initiatives. In my Office Hours, I met with hundreds of students who have either launched their own business while at the University or they are actively planning on doing that at some early point in their career (I didn't become an entrepreneur myself until I was 24 and beginning my MBA, so I tell them I was a "late bloomer").
A call to action for CEOs: You must sell
There is no more effective selling tool in a company’s organization than the company’s CEO. However, this tool is not used nearly as often or effectively as it should be. And that is because of the CEO themselves.
CEOs must adopt the regular practice of selflessly serving the rest of the organization. They must realize that their selling megaphone is larger than any other. This is not because they are better than anyone else in the organization. Everyone in the organization is just playing their role to their best ability. It is because the CEO possesses the company’s highest executive title, and the title signals several important distinctions:
Learnings from three entrepreneurs and one VC I interviewed this past semester
I joined the McCombs Business School at the University of Texas at Austin as Entrepreneur-in-Residence this past semester. I kicked it off with a speech to the entering MBA class about the top-ten lessons I wished someone had taught me when I was beginning my MBA. I have very much enjoyed my first semester in this capacity and the entrepreneurial energy on campus is really fantastic. There is no doubt a huge trend towards entrepreneurship at most top-ranked universities and U.T. Austin is leading the way in one of the most entrepreneurial cities and states in our nation. Consider that Texas has created 70% of the new jobs in the U.S. since 2005, as reported by BBVA Compass, and you start to tune in a bit more into what is happening here. Compared to when I attended U.T. Austin from 1990-1994, where entrepreneurship was hard to find, every major college at U.T. now has its own entrepreneurial club and initiatives. In my Office Hours, I have met with over a hundred students who have either launched their own business while at the University or they are actively planning on doing that at some early point in their career (I didn't become an entrepreneur myself until I was 24 and beginning my MBA, so I tell them I was a "late bloomer").
What I learned from my top three Lucky7 posts in 2013 … and my biggest busts
December 5th marked my first year of blogging personally (I had previously been a corporate blogger for 7 years at Bazaarvoice). I began blogging primarily as a service to entrepreneurs - a form of giving back to the community that I believe is the greatest force for change. I named my blog Lucky7 as a tribute to my amazing mother, who passed away last year. My first Lucky7 post on December 5, 2012 was a revisit of my manifesto to Bootstrap Austin on March 15, 2005. Looking back, it was clear I deeply cared about the development of our entrepreneurial community in Austin. That caring - and passion - drove a year of many highs in 2013. I've been actively investing in startups since December of last year with my wife, Debra, and I formally chose this as a career a few months ago, forming Hurt Family Investments. We've made 14 startup investments so far, 9 of them Software-as-a-Service (SaaS) companies. I've also joined the Advisory Board of 6 additional companies, all of them SaaS. Out of the 20 startups we are involved in, 16 are headquartered in Austin.
At age 46, he started his first company and it failed miserably… but then, on his second…!
For all of us Austin fans, I'm talking about Cotter Cunningham, the founder and CEO of RetailMeNot. Last night, Cotter was one of our keynote speakers, along with Mark Cuban, at the University of Texas for Longhorn Startup Demo Day (the event was just fantastic, by the way, and Josh Baer, Ben Dyer, and Bob Metcalfe deserve a huge round of applause for it).
As of today, RetailMeNot is worth $1.33 billion as a public company (it went public in July and just filed for a follow-on offering). It is just four years old - for a value creation of $333 million per year. Who says Austin can't do B2C now? HomeAway is another one of our five tech IPOs in the last five years. It is worth $3.4 billion today as a public company (it went public in 2011). It is just nine years old. Yes, we haven't produced a Facebook or Twitter size outcome - there needs to be a higher volume of failures (entrepreneurial experiements) to do that, but don't forget we did produce a Dell, a National Instruments, and a Whole Foods.
(Mostly) Unplug this Thanksgiving for your family's sake
In 1974, Harry Chapin performed "Cat's in the Cradle" (buy it). As you think about easing into the long Thanksgiving weekend, I would love for you to read the lyrics to this important song. According to Wikipedia, Harry said the song was about his own relationship with his son, Josh, admitting, "Frankly, this song scares me to death." And remember that this song was written long before the days of iPhones, Androids, PCs, social media, and the Internet, which all allow you to live virtually while something important is happening right in front of you, "in real life".
On valuations - Snapchat at $3 billion, and more
Are we back in the tulip days of the Internet? I lived through it in Silicon Valley from the years 2000-2003 (the best years for humility-inducing training for a tech entrepreneur and investor, in my opinion). Facebook at a $113.5 billion market cap (well above their IPO price, BTW)? Twitter at a $22.3 billion market cap as a newly public company? Snapchat at a $3 billion private valuation with only around 30 employees? There is no doubt that we have had major valuation movements recently, including Google now being worth $344.7 billion - to put that in context, Walmart is ranked #1 on the Fortune 500 and is worth $259.9 billion. Apple remains the world's most valuable company at $467.7 billion, with Exxon Mobil in second position at $415 billion and ranked #2 on the Fortune 500. Tech is clearly beating the old world as the world's most valuable companies. But Snapchat, a company with no revenue, at a $3 billion private valuation? When valuations soar like this, I think it is time to pause and ask some questions.
The critical importance of checking references
I'm shocked that more startups, including their Boards and investors, don't thoroughly check references. That is the subject of this post, and I hope by the end of it you will agree with me that to not check references is both irresponsible - and dangerous.
When I started Coremetrics in 1999, Accel Partners wanted to invest in our Series A alongside Highland Capital Partners. We had already chosen Highland as our lead. We were really impressed with Keith Benjamin in particular and he was joining our Board of Directors (unfortunately Keith passed away in a tragic accident in 2008 as I wrote about in this Bazaarvoice blog post; I think about him often - he was an incredible friend and eCommerce and Wall Street visionary). Accel put forward Arthur Patterson, the co-founder of Accel and a venture capitalist since 1973, to join our Board of Directors alongside me, Keith, and Bong Suh (our independent Director, and a really terrific mentor). As I had done with Keith, I insisted on checking Arthur's references. Most people at Accel were surprised, and I think they thought I was naive at the time - I was a 26-year old CEO and they probably chalked it up to inexperience. And when I called his references, some of them expressed a lot of surprise that I had the moxy to do so. But those references turned out to be very helpful to me, specifically how to best work with him as a business partner. I believe Arthur had more respect for me as a result of being one of the first entrepreneurs to check his references. I couldn't see any other alternative - I deeply loved the business and I wanted to make sure that we fielded the best team possible, and that included our investors and our Board of Directors.
What you can learn from Blockbuster's failure
Two days ago, Blockbuster announced that it will close all of its remaining approximately 300 U.S.-based stores (news link). This has been a long time in the making, and there is a lot you can learn from this. Prior to Netflix, Blockbuster thrived due to its use of "bad profits" (a term from Fred Reichheld's book, The Ultimate Question, which introduced the concept of the Net Promoter Score, NPS). Bad profits are a highly disruptive source of negative word of mouth. Blockbuster's bad profits were, of course, late fees. Everyone I know that was a Blockbuster customer - including myself and my wife - hated late fees. You knew Blockbuster "got you" and you felt that you "only had yourself to blame" because you were the one that was late on returning it. Sometimes you would plead with the in-store associate to have mercy on you. It became the primary source of Blockbuster's profits. Anytime bad profits are your primary source of profits, you are due for a hard-knock. That hard-knock came from Netflix. Their original ad campaign, "The end of late fees", was pretty much all they needed to say. Their business model was designed very differently - leveraging the Internet and network economic effects (a nod to another favorite book: Net Gainby John Hagel III). When Netflix said, "The end of late fees", word of mouth took care of the rest. This is why NPS has become so important to companies as a form of measurement for their most important external stakeholders - their customers. It is used by thousands of companies, including many Fortune 500 companies. Brad Smith, the CEO of Intuit, said, “Thank goodness for Net Promoter. It provided a framework for thinking about—and managing in this social media world… our teams call it the love metric”. Tony Hsieh, the CEO of Zappos, said, "We use NPS every day to make sure we are wowing customers and employees."
A rant on derogatory language in business
As I continue to help more startups in Austin, I want to go on a bit of a rant. In my opinion, there is simply too much derogatory language in business - and there is no place for it. Most leadership training comes from the roots of the military, where people can die if they don't follow orders. As I always told our incredible people at Bazaarvoice, especially during the very difficult Great Recession years, we are working under an air-conditioned roof, receiving free snacks, and seeing our families at night much of the time. If we take too many of our leadership cues from the military, we don't honor the unique culture of modern-day business.