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Yes!  I’m saying it - we are in the early days of an entrepreneurial renaissance in Boston.  Even in the wake of TechCrunch Disrupt.  Even though every VC that talks about the greatness of New England is doing so from the Acela to NYC. 

Those of us who have been engaged in the Boston startup eco-system know that this is the most excitement we’ve seen in many years.  I was having lunch with a prominent local entrepreneur, and he remarked that there is more startup activity among young entrepreneurs in Boston than anytime in the past 10 years.  And as I’ve said before, more shots on goal will result in more big winners.

There are many reasons for this.  I’m going to talk about two.

1. We are seeing multi-generational involvement and mentorship in the Startup Community.  This is thanks both to successful entrepreneurs who are actively giving back, as well as motivated young entrepreneurs who are creating buzz and density among their peers.  For the late 20’s - early 30’s crowd, there is the PopSignal group led by Brian Balfour and Jay Meattle.  It’s THE entrepreneur gathering for the up-and-coming founders, but you will almost always see some of the more successful local entrepreneurs attending to give back to the community (guys like David Cancel, Andy Payne, Rich Miner, Mike Baker, and others). And the early 20’s crowd is not being undone, with Dart Boston getting under-30 founders together to collaborate and get feedback from top VC’s in town.  

2. There is critical mass of great companies (and recent exits) where future founders and entrepreneurial executives are being trained. Not everyone will found a company right away.  For those that don’t, it’s important to have pockets of excellence where talented folks can work, learn a trade, and gain experience behind successful entrepreneurs.  It’s also nice to put a little money in one’s pockets too, to create flexibility to experiment.  Boston has several very important pockets of excellence and great companies that are talent magents.  Including:

• E-Commerce (RueLaLa, CSN Stores, Shoebuy)
• Mobile (Quattro, Skyhook, JumpTap, Enpocket, MocoSpace)
• Marketing, Advertising, and Analytics (HubSpot, BzzAgent, Visible Measures, Pangea Media, Dataxu, Constant Contact, Compete)
• Other Awesome Companies (TripAdvisor, ZipCar, Grasshopper, Kayak, etc)
• Other companies in vibrant sectors I’m ignorant about like Cleantech and Life Sciences. 

I think what’s happening in NYC is great, and I definitely spend my fair share of time there and in Silicon Valley (and have angel investments in both locations).  But I’m thrilled to live in Boston, and I’m partially glad that other investors are spending time elsewhere.  Leaves more opportunity for me :)

I remember early on in my VC career, I chatted with an entrepreneur turned VC who remarked “as an entrepreneur, time is your enemy.  As a VC, time is your friend.”

What I think some VC’s mean when they say this is that investors typically have limited incentive to move quickly.  Unless there is a forcing function like a competing term sheet, it’s usually preferred to spend more time doing diligence on an investment mainly to get to know the founder better, watching the company make more progress (or eliminate risks), and getting buy-in from others in one’s firm.

One of my current partners calls this “hanging around the hoop”.  It’s a good strategy in basketball, but I think it’s pretty lame as an early stage investor, and specifically at the seed stage. 

I was chatting with another successful entrepreneur today who is also an active angel investor.  He emphasized the high value he places on speed of decision-making, and remarked that being known for speed will lead to positive selection bias.

This is particularly true for repeat entrepreneurs.  Often, successful founders can fund the early stages of their company themselves.  But if they are going to raise outside money (to provide feedback, help, and leverage on their dollars), they are more likely to go to folks they know will move fast and make decisions on rational dimensions that will actually help the company.  They will avoid investors who hang around the hoop, or send entrepreneurs on assignments that aren’t truly productive.  The truth is all VC’s can make fast decisions if they need to, they just need pressure to be applied properly. 

It’s hard to force an investor to move quickly unless you create competition.  But what you can do is try to tell whether the VC is doing good vs. bad due diligence.  ”Good” due diligence doesn’t take up entrepreneur time, burn the time of their valuable references, and are usually productive towards the goals of the company.  They include:

1. VC’s doing backchannel due diligence on the team.  This is good practice as an investor, and doesn’t burn a lot of cycles for the entrepreneur.  Usually if the VC is reaching out to their own networks, it means that they care enough to burn the time of their own contacts. 

2. Introducing the entrepreneur to real prospective customers and partners and seeing if they can close.  This is very informative for the investor and entrepreneurs want to sell to good customers.

3. Introducing the entrepreneur to executives with deep domain knowledge in the space.  This is a real opportunity for the entrepreneur to learn and the person may end up being a valuable advisor or even a member of the team. 

4. Meetings with a purpose.  The investor and entrepreneur want to get to know each other better.  But these interactions should be structured and constructive.  Debate business models, discuss product priorities, interview the founders to understand their strengths and weaknesses… these are all good, but definitely have a purpose and prepare to dig in deep at a level that the entrepreneur finds beneficial. 

5. Quick “no’s”.  It’s counter-intuitive.  But if a VC gives a quick “no” but with a very clear reason that seems addressable, there is no better due diligence than seeing if the entrepreneur responds and comes back having addressed the issue.  It happens rarely, but if the feedback was genuine, responding to the feedback will create genuine interest.  

Bad due diligence looks like:

1. Calling all an entrepreneurs references just to go through the motions or for selfish gain.  This does happen a lot.  The investor may know they are very unlikely to invest, but they think person x,y,or z on the reference list is interesting, so they’d love to talk to them. 

2. Multiple meetings rehashing the same information.  Lame.  It’s part of the difficulty pitching to large partnerships, but you’d hope that an investor would sufficiently brief his team so that conversations go deeper each time into the critical levers of the business.  Not rehashing generic stuff.  Also, this is a signal that the entrepreneur is hanging around the hoop.  They are waiting to hear an update and aren’t prepared and focused towards driving to a decision. 

3. Making entrepreneurs fly to partner meetings when they aren’t extremely enthusiastic about the investment (particularly a danger for junior VC’s).  Total waste of time and money. The investor in this case is not only hanging around the hoop, they are trying to take the temperature of their partnerships to see if they should spend more time with you. Remember, junior VC’s get “credit” for perceived activity, so they are more likely to do this so their partners know they “saw” the investment even if they know it won’t get through the partnership. 

4. Doing due diligence to inform an investment in a competitor (obvious and happens a lot, surprisingly).

5. Lame introductions to irrelevant people.  Of course, VC’s can’t always assess what kinds of customer/partner/executive intros would be fruitful, but their ability to get close is a) a signal that the investor “gets it” and b) really will be able to help.  But when there is a generational/industry gap between an entrepreneur and an investor, you are more likely to get intros to random or ill-suited people.  For example, there has been more than one example of Boston consumer internet companies in need of technical leadership talent that got directed to really old-school enterprise software executives.  Those types of cases are a waste of time at best, and truly harmful to the business at worst. 

As an entrepreneur, it’s not always easy to tell whether the VC is doing good or bad due diligence.  Hopefully these signals help.  But I would say that overall, speed is a great indicator.  If they are making progress quickly, that’s great.  If it’s taking a long time, it means they are hanging around the hoop.  And this is what should happen to people who hang around the hoop. 

This is my second post in my product leadership series. Today I’m chatting with Ben Foster, VP product at Opower. For those who don’t know the company, Opower is a fast growing energy efficiency software company that helps utilitiesmotivate consumers to reduce energy usage. Ben is an excellent product leader with a wealth of experience in numerous environments. He has held product management and product leadership roles at Webvan , Ebay, and Adchemy before joining Opower. There are few product leaders with his depth of experience across both startups and large companies across consumer, ad tech, clean tech, and SaaS. He’s also a dear friend and was a collaborator in my early career. As I said in my previous post, the first step to great product leadership is a winning process. This interview focuses on the lessons learned from Ben’s various roles and how he is looking to create a winning product process at Opower. 

I’m not a journalist, but will keep this in a Q&A format.  It’s not verbatim, but the content was approved by Ben. 

RG: Tell me about the different product orgs you have been a part of and the strengths and weaknesses of each. 

BF: Webvan had a product team of about 6-8.  Each PM had ownership over a specific piece of the product, regardless of the scope or complexity of the product. Product management served the interests of the business units.  We focused on moving very specific metrics that was not determined by the product owners. The good thing in this model was that there was total role clarity.  The bad thing was that there was a very poor sense of product prioritization. It was primarily driven by gut feel and arguments. 

Ebay was a well oiled machine designed to push code live.  It was a very well structured waterfall process.  Ultimately, you got the results that the process managed towards: a huge number of features with the minimal level of quality required to meet the metrics.  And the metrics we focused on were things like lines of code in production, Product Requirement Documents delivered per quarter, number of bugs, etc.  There wasn’t a focus on elegantly designed solutions and a poor sense of what products would ultimately make an impact. Ultimately, I think Ebay’s product innovation struggled for a few reasons:

• Products were justified and measured based on an NPV analysis.  This works some of the time. But the importance of many products can’t be measured in this way.  Plus, we’d pad the numbers all the time to get products prioritized, so they ended up not really being that meaningful.  It contributed to the illusion that we could really quantify everything. 
• Occasionally unhealthy tension between the business team and the product team.  The units were separate and did not collaborate well and there was misalignment of goals.
• The fear of ruining Ebay’s “secret sauce”.  Products could be vetoed by the heads of various functional units if it threatened “the community”.  But no one really knew what made the business so successful, and so there was major resistance to non-organic change.  Our most vocal and successful community members were the very same people who benefited from the inefficiency of the Ebay platform.  So we had major disincentives to innovate. 
• Seller focus.  Sellers paid Ebay the money, so the company focused innovation on them.  We listened to sellers that said that they wanted feature X, Y, or Z.  But we missed what sellers really wanted.  What sellers really want is for buyers to think of Ebay FIRST when they want to buy something.  

Finally, Adchemy.  I joined Adchemy as their first full-time product person, and built the team to about a dozen folks before I left. There were two important learnings from Adchemy for me:

• First, I guided the shift in the product development process from waterfall to Agile. I actually hired someone to manage the process - sort of a technical project manager to really make sure that we were shifting to a consistent Agile process.  It was a very hands on role at first, but once the machine was going, that person transitioned to being a PM.  I would do this again if I ever had to make the transition.
• Second, I saw the challenges of being a product manager without taking full ownership of the product vision.  Because our founder and CEO was such a visionary himself and interfaced with customers all the time, I spent more time managing the team and focusing on the design of products.  I think this hurt me and hurt our team’s ability to collaborate on the vision of the products and prioritize the products and markets we would tackle.  

RG: So, this brings us to your current role at Opower.  Tell us about the organization you inherited and how you are organizing your team. 

BF: I came in as the only product leader in the company.  We had a team of a couple smart and capable PM’s, but who really had very little prior experience. So I could craft the entire process and take ownership of the product vision.

I’ve learned there are two ways to organize product teams.  

1. Organize around components (ie: product manager for transaction flow)

Pro’s: Clear ownership.  Long term continuity of knowledge base.  

Con’s: Work gets fragmented as each product gets looked at from a component lens.  You end up not focusing on the users’ real problem and your solutions are less creative and less comprehensive as a result.

2. Organize around initiatives

Pro’s: More focused on solving customer problems.  More flexibility and ability to pivot and experiment.

Con’s: Initiatives are transient.  Context ends up changing constantly, which hurts productivity.  Harder to continue to update existing products because there isn’t consistency of ownership. 

What I’ve decided to do at Opower is to create a hybrid structure. 

• 30% of a PM’s time is focused on component ownership. They lay out a roadmap and strategy to optimize their components or flows.
• 70% of a PM’s time is focused on delivering products that are end to end customer experiences.  
• Forces PM’s to develop products that overlap the domain of others, thus forcing collaboration. 
• Any PM can work on any initiative, and engineering team is organized by initiatives, not components

RG: What process do you put in place to understand customer needs?

BF: Customers tend to be good at describing their pain points, but are rarely good at solving them. We try to talk to our customers frequently and really dig into why they want what they think they want.  It’s probably the skill that most distinguishes a good product manager from a mediocre one. A couple tactics that I find useful:

• Have some methodology for root cause analysis.  It can be as simple as the 5 why’s. 
• Find different ways to get users to better articulate their problem.  One that I find interesting is “Product Box”, which is a game where you get users to design a product box they would buy and present it to you infomercial style. It helps articulate why the customer believes the solution will solve their problems.
• Create a market and advisory panel.  This is a reliable system to get the right types of people in front of your product and engineering teams on a regular basis. Figure out the personas of end users you are targeting, and then recruit the right mix of these folks to give you feedback on an ongoing basis.  We are building this now at Opower and had this at Ebay through their Voices program. 

RG: How do you manage and prioritize the product roadmap?

BF: 

• When you can truly quantify the benefits of products, do it.  Just know when you are kidding yourself.
• Identify dependencies in the business and the critical path items that are slowing things down.  Focus products on those.  It seems obvious at first, but gets complicated as a company scales.
• Do what I said above in terms of organizing the product team and training them to understand the root issues of users.  It’s vital for making wise decisions when making judgment calls on prioritizing products with subjective value vs. easily quantifiable impact.
• Maintain a very close relationship with sales (primarily important in enterprise software). I spend a lot of time with our head of sales and give him a “budget” of man-hours for new deployments.  It forces him to prioritize the items that are important in closing a sale and helps me understand customer requirements better. 
• Create a roadmap with the right level of granularity and measure actual products delivered against it.  At Opower, we have a 12-18 month detailed roadmap.  We measure the % of features that we actually end up building.  The number should be between 60-75%.  If it’s too high, it probably means that we aren’t working hard enough to collaborate with customers and pivot as their needs evolve.  If it’s too low, it means that our product vision stinks and we don’t really understand the root causes of the problems our customers face. 

RG: Finally, want to add any points on actual product execution?

BF: I’m a pretty strong believer in Agile, and there are plenty of good books out there that I think can describe good processes better than me.  It’s kind of a commodity.  What I do is add a little more documentation vs. what’s typically suggested in Agile.  The concept of “the product is its own documentation” doesn’t work as well in highly algorithmic products or ones with a lot of configurability. It’s also difficult when you are scaling a company quickly, because it’s hard to onramp new recruits.  And we’ve been growing at more than 200% per year over the last few years, so that’s actually pretty important to us.

RG: Thanks Ben. Congrats on the success of the company - you guys have an inspiring mission and we’ll all be better off the more you are successful. 

VC’s always talk about the “deals” they have done.  The word is thrown
around like crazy and is ingrained into the VC vocabulary (deal flow,
deal pipeline, my deals etc).

I think “deal” is one of the ugliest words in the business.  It’s
really a terrible word for everyone.

For entrepreneurs, it belittles their companies and their personal
sacrifice.  I once even heard a prominant executive recruiter call his
placements “deals”.  I will never work with this guy.  Entrepreneurs
and executives are people. Their companies are their babies.  They
aren’t transactions.  They aren’t deals.

For LPs, it’s terrible because it connotes that the job is done when
the “deal” is closed. It’s obviously not - that’s when the work really
begins. For younger VCs, it creates a really bad motivation to “get
deals done”, which is not the objective of the game.

When I first started in this business, I saw that I was letting this
word creep into my vocabulary.  My former colleague Santo saw the word
in an offsite deck I was preparing and reminded me: “we don’t do
deals.  We make investments.”.

I want to strike this word out of the VC business.  Maybe no one else
cares, but there has to be something better.  ”Investments” works, but
it’s too long.  ”Opportunity Pipeline” is way better than deal flow,
but is too long as well.

Any other suggestions?  Let’s get rid of this ugly word.

I’m at a small conference in New York of early stage investors.  One of the panels was on alternative early stage models.  Tom Keller from TechStars was speaking, and there were some grilling from the audience about the ability for a program like this to generate a meaningful amount of value. 

I’ve also heard offhand comments from folks in other venues that incubators like TechStars start little companies or features that can never be important businesses. 

In my view, this is quite short sighted. It is true that TechStars makes relatively small investments in very raw companies.  So far, they have had a number of successful exits, but have not yet had a large scale win by VC standards (although it’s too soon to tell for many of their companies.)

But what you are seeing is a major improvement in the quality of entrepreneurs and the pace of entrepreneurial activity in all the geographies that TechStars operates. Young entrepreneurs are getting more shots on goal, and more shots on goal results in more small wins AND more venture scale companies.

Consider SocialThing. I chatted with Matt Galligan before he joined TechStars four years ago.  He was working on a “small company” that eventually got acquired for $10M by AOL.

Matt was able to work within AOL to continue to develop his product within a larger platform.  He walked away from SocialThing an infinitely better entrepreneur and operator and made some meaningful money that gave him flexibility to pursue his next thing.

Matt is now the founder and CEO of SimpleGeo (with Joe Stump, another strong young entrepreneur). They have raised just under $10M from RedPoint, Foundry,First Round Capital, and a number of prominent angels.  They are going for a big win and are making amazing progress. 

I would consider SimpleGeo a part of the TechStars portfolio.  It’s a former TechStars entrepreneur, the company is building its team in Boulder, and multiple TechStars investors are also investors in SimpleGeo.  Matt is also an active mentor for new TechStars classes. 

What an amazing outcome for TechStars.  And I think we’ll have many more stories like this in Boulder and elsewhere. As the next class of TechStars Boston wraps up, I’m particularly excited to see the long term repercussions of the program as more entrepreneurs get great mentorship and more shots on goal. 

I’ve been a little slow writing up my most recent product leadership interviews, but will post my next two soon.

I’m also thinking about other ways to address the important topic of product leadership.  So I’m asking for feedback.

What topics would readers like to see discussed here on the art and science of product management? Try to be specific - like “how do you evaluate and interview a great entrepreneurial PM?” or something like that.  I’ll try to tackle them, or find someone who can offer insight. 

Valuations in venture backed companies seem to be a mystery to most.
Even in the past 18 months, when it was close to impossible to raise
money, we’ve seen valuations in early stage companies that caused a
lot of headscratching (Square, Foursquare, Groupon, etc).

It begs the question of where these valuations come ffrom.  B-school
students are trained to believe that valuations are driven by the
present value of future cash flows, which is a f(cash flow, growth,
risk, and capital structure).

But how does this hold when there are no cash flows (in fact, when
there is no business model)?

The answer is that vc rounds are priced by the market - by supply and
demand. I once met an experienced VC who admitted to me that he didn’t
actually know how to do a DCF.  But he did know where a deal would
likely close at based on pattern recognition.

Ultimately, the right way to think about VC valuation is not a finance
exercise but a negotiations one.   On the investor side, the goal is
to acquire as large a position in the company and exert as much
control as possible while keeping the entrepreneur sufficiently
motivated.  On the entrepreneur side, the goal is to maintain a much
ownership and control as possible while bringing in a helpful and
motivated investor. The bounds between sufficient entrepreneur
motivation and the potential to create an attractive return to an
investor is a very wide ZOPA (Zone of possible agreement).  Where the
deal closes is a function of the relative bargaining power of the
constituents.  In other words, are there many other Investors
clamouring to invest in the company (rarely)?  Do the Investors have
lots of options for where to put their capital (often).  To steal
another negotiations term - it comes down to having a good BATNA (Best
Alternative to a Negotiated Agreement).

Remember also that it’s not only about valuation, but a lot of other
terms that have value.  Liquidation preference, option pool, founder
liquidity, BOD seats, etc.  There are a lot of posts out there that
describe some of the levers Investors use to make up for higher
valuations.  Entrepreneurs should definitely read them.

Sorry for the typos, this was written on my iPhone.