Opportunties for Enterprise Software Investments

I had the opportunity to spend a few hours today at an Intel Capital event for their portfolio companies and VC friends. While a great way to network with fellow investors and meet new companies, I particularly enjoyed a talk given by Chris Thomas, Intel’s EStrategist, on the future of software in the enterprise. While none of the ideas were new, I liked how he laid out the major themes in computing and software in a well-thought out presentation.

Here are some of my notes from that discussion.

Chris’ view is that we are moving towards a service-oriented world, where enterprises can tap applications and resources on demand and on the fly. Yes, we have heard this theme over the last few years in a number of different incarnations. In fact, I got a chuckle from Chris’ list of marketing slogans from all of the large vendors trying to trademark their specific vision on the service-oriented world (N1, on-demand, etc.). Anyway, despite the hype of SOA (service-oriented architectures), it is beginning to happen, it is real, and it is still early. As we move into this world of SOAs, there will be tremendous opportunities for software investment as enterprises consolidate, modularlize, and virtualize their data centers. Chris highlighted the 5 buckets or themes that mattered to him:

1. Software and data delivered as services
-think ASP model, think modular, software components that perform a specific task, which can be used as building blocks and combined with other components via web services to solve a specific business problem
-this will be the new way to build software and go-to-market
-he gave an example of how AT&T used a combination of hosted software vendors and their APIs to deliver an order routing solution for a customer in 2 weeks instead of 9-12 months
-a side note – as we move into an increasingly global world, no need to worry about software piracy since you can’t steal a service but you can steal sofware

2. Hardware as a virtualized resource
-view hardware as one set of services
-manage capacity on demand
-new hardware=new software opportunity

3. Autonomic data sources (RFID, tags, smart sensors)
-Chris gave an estimate that an average retail store could have up to a terabyte of data from RFID alone
-think about the opportunities here to process, filter, store, and understand all of this data
-how will all of this data flow through the network in an optimal way?
-once again, more investment opportunities in software

4. Occasionally connected usage (Intel’s mobile theme)
-performance of offline and occassionally connected usage much better than always-on
-opportunities include power, performance, software that works online and offline (go to back to theme #1 above, ASP model)

5. Services cross firewalls (security)
-if we move to this service-oriented world where partners, machines, and applications access data on the fly, there will be tremendous need for security

Chris’ bottom line was that asynchronous XML messages are what makes this service-oriented world possible. We are just at the beginning phases, a new architecture is needed and with that comes new and interesting opportunities for software investments. I totally agree here as most of the service-oriented talk from many of the large tech vendors is still a pipe dream and more marketing than fully functioning product. In addition, most enterprises are experimenting with various aspects of the above themes but far from prime-time in terms of deployment.

Thoughts on picking your VC

Jeff Nolan has a comprehensive post on choosing your VC. I totally agree with Jeff’s view that not only should entrepreneurs do their diligence when choosing a VC to invest in their company, but VCs should also do reference checks on their new partners. This includes understanding potential board dynamics and making sure investor interests are aligned. Put it this way, a bad board with bad dynamics rife with egos and competing interests can bring a company down quickly. Some areas to explore include understanding the size of fund, the amount of dry powder, the appetite for risk, the view on the existing business plan, team, and management gaps to fill. As an example, a smaller fund with less dry powder may want to grow less agressively than a larger fund with more capital to invest. Not that the situation above can’t work, but it is incumbent upon the entrepreneur and existing VC to understand the potential areas for conflict and make sure they get comfortable with them. This means that the entrepreneur and existing investor should spend the appropriate time to get to know their potential partner (if they do not already know them) in addition to doing the right reference checks (see Jeff’s post for areas to dig).

Our broadband future

During the Internet boom, all eyes were on the United States as we were the first to leverage this new medium and create some amazing companies and uses of the Internet from ecommerce to search to online dating. Many of these companies did not know how they were going to make money except that they would figure it out. Over time the business models evolved, some became profitable and some simply went away. Entrepreneurs in Europe and Asia were able to learn from our successes and failures to launch their own modified clones of many US web companies. Today, the tables have turned. When I think about our broadband and wireless future, we in the US can look overseas for models that work and fail. Europe and Asia are clearly ahead of us in terms of deploying 3G and real broadband pipes to the home. As I think about how wireless and broadband will change how we live and the applications that will drive thoses changes, I would be foolish not to dive deeply into how it has impacted countries like Korea, for example. Peter Lewis of Fortune has a great article (unfortunately password required) in this past week’s edition outlining the impact that wireless and broadband has had on the country. A quote in Peter’s article from Hung Song can really open your eyes to the possibilities of broadband.

Hung Song, vice president of business development at Samsung, takes his broadband with him wherever he goes. On the drive home from work at 9 or 10 p.m., says Song, a tall, thin in-line-skating enthusiast, he uses the phone to check traffic. Because phone carriers can track the location of his third-generation (3G) phone to within a few meters, he has access to a location-based service that monitors real-time road reports and displays alternative routes around traffic jams. (The system also lets him call up a map showing the location of his children, who carry location-based mobile phones too.) If Song gets stuck in traffic anyway, he can always use the handset to watch television news, or go over his next day’s appointments, or download music (Koreans spend more on downloaded music than they do on audio CDs). More likely, though, he’ll do his banking or log on to his computer at the office to check e-mail. As Song drives his Renault Samsung sedan across the Yeongdong bridge, over the broad Hangang River that bisects Seoul, his phone buzzes as nearby restaurants automatically send text messages offering discounts to tempt him to dinner. Some restaurants even let him pay his tab by beaming a code from his handset to a scanner and punching in a PIN number.

“My life has changed” because of broadband, says Song, especially because of his mobile handset. “It’s essential to my daily business and my personal life. Even in the office I have instant access to almost any information or service without having to sit at my desk. I don’t have a checkbook anymore because I don’t need one. I can pay bills with my mobile phone.”

While there are cultural differences between the US and Korea and Europe, it is still helpful to look at the new pioneers of the digital revolution for ideas that will work here.

Running an efficient board meeting

Board meetings can be a gigantic waste of time if not run appropriately. On the flipside, they can be a valuable source of input and guidance for a management team in the pursuit of maximizing shareholder value. While there are a number of different ways to approach and run a board meeting, I thought I would outline a few of my philosophies on them, and what I expect from my portfolio companies in terms of content.

1. Be prepared: Board meetings are like theater. Like any play, I expect the CEO to have a well thought out and scripted agenda for the meeting. The most efficient way to do so is to lay out an agenda and get feedback pre-meeting from the other board members to ensure that the board covers appropriate topics and allocates the right amount of time for each one. From an update and preparedness perspective, the CEO should always go into the meeting having a complete understanding of where the various board members stand in terms of any major decisions. There should be no surprises. This means that the CEO should have individual meetings and calls in advance of the board meeting to walk each director through any decisions that need to be made and the accompanying analyses behind them.

As far as board packages are concerned, I typically like to receive them at least 48 hours in advance so I can process the information and be in a position to ask intelligent questions.

2. Timing: For an early stage company, I typically like to meet in person every 4-6 weeks. Lately I have been skewing to more of a 6 week time horizon. I believe that timeframe gives the team enough time to execute on some of the goals outlined in the meeting and not spend their time constantly doing powerpoints for the board.

3. Content: As much time as possible should be spent on discussion, rather than update. What I want to know about is the management team’s priorities and why, how they are tracking against those goals, and what keeps them up at night with respect to meeting their objectives. What I do not want is a litany of presentations and tech demos with no discussion. At board meetings we should continually evaluate and monitor the company’s strategic goals, understand where the market is and how we are positioned vis a vis our competitors, and discuss management’s plans, priorities, and performance.

While there is no right way to run a meeting, having a framework can be a great way to lead organized and informed discussions. A good framework that I like to use is having the CEO give a high level company overview followed by a department level drill down delivered by the functional head. Typically, in the context of these department-level updates, discussion will ensue on milestone progress, roadblocks or hurdles to realizing the goals, resource constraints, performance of various employees, and any potential addition or subtraction to the list of goals.

Listed below is a standard framework that I like to use in board meetings along with some sample reports that help guide the discussion and allow directors to review performance. By no means is this meant to be an exhaustive list. Alot of these reports serve as good leading indicators for potential areas of problem down the road and none of these should require management to reinvent the wheel.

Company Summary by CEO
-Company overview discussing recent performance with highlights on each department
-Summary of key matters to be presented and decisions that need to be made – remember that decisions can only be made if the directors are all familiar with the issues and have had a chance to review the supporting analyses and risk factors pre-board meeting

During the meeting, it is the CEO’s responsibility to cover the agenda and keep the directors on topic and focused. That means if the conversation runs off on a tangent the CEO has to bring everyone back in line and table the discussion for another meeting.

Sales Review
-Detailed sales pipeline review by region
-Key wins/losses – detail on the losses and to whom

Professional Services (usually incorporated in context of sales discussion for smaller companies)
-Status of existing customer implementations and satisfaction

-Competitive positioning update
-Product roadmap
-New product launch plan, etc…
-Lead generation statistics

-Summary development plan of key features to be delivered for quarter and current progress
-Bug report broken out by severity-should also track resolution and time outstanding against prior months/quarters

Customer support:
-Statistics on level 1, 2, 3 calls and performance as measured by time outstanding versus prior months/quarters

-Plan vs. budget – income statement, balance sheet, cash flow statement

Depending on the stage of company, the time of year, or crisis of the quarter, there will be a much deeper dive into various departments to discuss topics such as product roadmaps, the budget, the sales plan, and partnership strategy. The more information the board has in advance by way of supporting analysis, the more informed the discussion will be.

At the end of the board meeting, I typically like to have a board-only session where the members can not only make the requisite board approvals for stock option grants and the minutes but also feel free to discuss any pertinent or sensitive topic like executive compensation, budget planning, financing/exit strategy, or concerns about personnel. This session allows the directors to evaluate any management proposals and comment on performance in a candid and open forum without embarassing or browbeating any executive. While a board meeting should only last 3-4 hours for the most part, you have to remember that much of the work of any board happens outside of the formal meeting and through the informal daily/weekly interactions with the mangement team via telephone, email, IM, and face2face meetings. This is where the heavy lifting happens. When you find yourself diving too deeply into a discussion on sales tactics, for example, the board may be better off saving that conversation for after the meeting. Before you present next year’s plan to the board, you should run it by a few of your more active board members for comment and advice before rolling it out to the whole board. If you find yourself having 8 hour board meetings, then you are probably getting too focused on the details (breakout sessions or scheduling subsequent informal meetings to drill into a particular topic is more appropriate) and not doing enough preparation in advance of the meeting.

If you are more interested in the board’s role and who should be on the board, I suggest reading some excellent posts from fellow VCs Brad Feld, Fred Wilson, and Jerry Colonna.

UPDATE: Fred Wilson adds to my post emphasizing the non-executive board discussion. As Fred says, it is always a great idea for the non-executive directors to be in synch wih their thoughts and overcommunicate prior to and after the board meeting. This also means having the right people in and out of the room. I totally agree.


Whether you know it or not, this seems to be the way that alot of early stage companies make strategic and tactical decisions. People run around the halls and manage by crisis, moving from one deal or issue to the next without any overarching goals and process in place. Solving this not only requires better planning but also staying disciplined, holding you and your team accountable, and executing on those goals. Trust me, this is top of mind for me as this is the time of year that many companies start formulating their plans and goals for 2005. We have all been through a number of these so-called planning sessions and have come out with great plans and ideas, but the problem most of the time is that the execution of it never happens. Hopefully, some of my thoughts and suggestions below will help you simplify this process and create a framework to measure, manage, and execute.

So let me first start with accountability. Without accountability, it is hard to manage a business. What I typically like to see is a management team put together a few simple company goals, say 3-5, which are easy to remember and that can be measured by Yes/No answers. If you have too many goals or if you cannot measure them, then you cannot manage them. With simple Yes/No goals there should never be any ambiguity about completion. Those goals are usually then rolled out by department (3-5 goals that help the company realize its overall goals) so that marketing, sales, and engineering can be in synch with the company goals and so they can be easily monitored and measured by the executive team and board. Obviously you must be flexible and make course corrections through the quarter and year, but this process helps the executives all get on the same page and drive the company in the right direction. If you don’t have knock down, drag out fights over the company goals and the appropriate allocation of resources to realize them, then you are probably not challenging each other enough. Once the goals are set and agreed on, you must communicate and share them with the whole company.

By way of example, an overall goal could be to ship version 4.0. It is a pretty simple Yes or No proposition. Obviously when you roll it down to marketing and development, each department will have its own priorities to make the shipment of version 4.0 a reality. Whenever a new issue or opportunity arises your team can always ask themselves whether or not doing X can help them realize the goal. If not, then it is probably not worth doing. Yes, you have to be flexible throughout, but having a guiding light or north star to rely on can help you better manage your people and help your people better manage themselves. As you can see, when it comes time to running the business on a day to day basis, these goals can be quite helpful in moving your company from a Ready-Fire-Aim business to a Ready-Aim-Fire one. Remember, being an entrepreneurial company means by definition you have limited resources and need to allocate them appropriately to get the best bang for the buck.

Obviously it is quite difficult to cover the above topics in such a brief post, but I hope to dig deeper into the strategic plan and budgeting conversation in future posts. Maybe you can even suggest some other areas of interest for you?

Moving up the food chain

Normally I do not read too much into press releases on industry hires but I found this one interesting on many levels. Intel, a tremendous brand in its own right, hired a marketing executive from Samsung, a Korean company. Most people assume that the US’ competitive advantage over the rest of the world lies in design, innovation, and branding. We can outsource manufacturing and development to countries like China, Korea, and India to create great products at lower prices. However, what we need to understand is that these countries are not just content in producing widgets. They, too, have aspirations in moving up the product food chain to develop their own brands, design their own products, and manufacture them. So for me it was quite ironic to see one of the world’s best brands, Intel, hire the marketing exec from Samsung, where just five years ago it had no brand and was just seen as a low cost producer. What a tremendous job Samsung has done in just a short period of time. As you can see from Samsung’s numbers, it has done an excellent job moving up the food chain, innovating, and creating a brand. This culminated in Intel hiring a Samsung executive. This is just the beginning. In the WSJ today, there was a great front page article (sub required) on Chinese telecom equipment companies penetrating worldwide markets. Once again, this is another example that the very advantages that the US has in innovation, design, and brand may be threatened in the long term, especially if we do not pay attention.