|
|
| Home - CEO Spotlight - Nov 02 Issue |
CEO Spotlight: Bob Walters, CEO, Stratum8 Networks
continued... page 2 |
Sterling-Hoffman: Would you rather take money from a Tier 1 venture firm where the partner was less experienced, for example, a junior partner or an associate, or would you rather take money from a Tier 2 venture firm with a much more seasoned partner?
Bob Walters: I think there are a couple of considerations in making that determination. The first consideration is that I personally don’t have a huge hang-up about seniority of individual VC’s. I rather focus on ‘how good do I think that individual venture capitalist is going to be at helping me take my company to the next level. What is their skillset? What is their personal experience base? And often times I’m looking operationally in their past not simply what is their experience-base as a VC; I’m not terrifically biased towards ‘got to have John Doerr or this deal doesn’t go down’ (with all due deference to Mr. Doerr!).
The second thing is I think that there is probably less of a premium that companies get landing a Tier 1 VC as there was in the boom days. I mean, in the boom days the whole objective was to land a Tier 1 VC.
That said, I still do believe that quality VC firms rise to the top and so do their portfolio companies.
Sterling-Hoffman: Is this your first time as a CEO?
Bob Walters: It is.
Sterling-Hoffman: What are the experiences that are different then what you expected in terms of the role?
Bob Walters: I guess the first one is one of the things that people often point to is it’s kind of lonely and that the ‘buck stops here’.
Second, there are many decisions that have to be made. The sheer velocity of decisions can be overwhelming. At peak (like during a funding road show), I’m literally making a decision every 5 minutes and analysis paralysis just won’t work. I think successful CEO’s figure that out right away.
The third thing that I think can be a challenge for first-time CEO’s like myself, is managing the Board. Executives are usually accustomed to managing one boss. The CEO has many constituencies. Internally, a CEO has his/her executive team and, by extension, the entire employee-base, the shareholders both common and preferred and they have the Board.
Externally, of course, you’re right in the middle of customers and partners too. You’re often intermediated by a VP but you’re right there too, and when things go wrong the customer will not hesitate to call you directly.
So the many ‘constituency-thing’ and the ‘buck stops here’ thing are two of the bigger dynamics that take some getting used to.
Sterling-Hoffman: What tips would you have for first-time CEO’s, especially entrepreneurs who aren’t used to reporting to anyone?
Bob Walters: First of all, you now report to your Board and antagonistic stand-off relationships with the Board seldom work. I would say for start-ups in the 2002 environment, you want to try to cultivate a very collegial, open-exchange type of relationship with your Board Members. The worse thing that any CEO could do is surprise the Board, particularly with bad news. Boards have a great deal of patience for CEO’s that surface problems to them, pitch one or more optional solution paths and then execute on those solution paths. This is much better than CEO’s that try to hold it all inside and make a big show of things on Board Meeting days.
The Number 2 thing is in today’s funding environment your company cannot survive without the support of your Board. You will not get follow–on funding if you have a major rift with your existing investors. The probability goes down to small single-digit percents of getting follow-on funding if your existing investors don’t back the gig. I think total candor and early identification of problems are two key things for successful Board relations.
Sterling-Hoffman: To what extent has your military background affected your character and your leadership qualities?
Bob Walters: First of all, just from dealing with fellow executive Boards it’s a great topic of conversation. I’ve done many things in my career with start-ups, Princeton, the Naval Academy, but everybody wants to talk about Fighters. For some executives it’s talking about golf, for me, it’s talking about Fighters, so it’s a great icebreaker with partners, VC’s, etc.
There is just no doubt that the discipline and the leadership skills that I learned at Annapolis and then in the Marine Corps apply as an executive or a CEO. That discipline really begins with fundamentals. Annapolis, both on the academic side and the leadership side, did a great job in schooling me insofar as ‘integrity is the basis upon which all other leadership is built’. If you don’t have integrity many other great things that you might have as a leader such as intelligence and vision will be eroded to the point of making you ineffective. Without integrity nobody can trust you or believe you; you can’t build teams to follow you to these great places.
Silicon Valley, especially during the boom lost sight of a lot of leadership fundamentals.
Sterling-Hoffman: For example?
Bob Walters: During the boom, it was so hard to find talent that underperformance was often tolerated, even elevated to higher levels and that’s not really fair to the team. I mean, one of the most fundamental things that a CEO or any team leader has is the responsibility for the overall quality of the team. If a leader tolerates improper or substandard performance in a team member, then what do the other team members think? What is their reaction? So what ensues is discord and frustration with a situation like that. It was quite difficult to even compose a team during the Boom times since there was a shortage of skills and we forgot about the basic fundamentals of good leadership. I don’t want to make TOO big a point of it but with all the cases of restated revenue and the hype explosion surrounding IPOs and all that jazz, I think we forgot a few integrity things along the way.
Sterling-Hoffman: Is it as much fun being in a start-up post-bubble?
Bob Walters: To be brutally honest, I’d say no. I mean, when we were at LinuxCare for example, we all thought we were going to be multi-millionaires within 60 days and that was quite fun.
On the other hand, there is a ton of satisfaction from building a company the old fashioned way. There is a certain satisfaction from doing more with less capital; you savor every win. Knowing that the increased valuation you get isn’t because you know Joe Schmo in some other company or you did some Mickey Mouse partnership with them, but because you delivered value to customers or created a partnership that is a revenue driving win/win for both partners. There is a ton of satisfaction with that, as well.
Plus on the building of the company side, it’s never a better time to build a company. Assuming you have the capital to do it with things like hiring and getting office space and all that is terrifically easier and cheaper.
Sterling-Hoffman: What advice would you have for start-ups that are dealing with the issue of having to convince corporate customers they’re going to be around in 2 years?
Bob Walters: The first one is the obvious one and that is despite the fact that you’re going to get diluted more then any time since 1967 by the capital that you take, go for more then you need. Get at least 2 years of capital when you do your round, particularly if it’s a later round like a Series B round as we just did. It’s painful on the dilution side but it’s almost essential on the operational side and will lend you credibility with your prospective VC’s if you recognize this fact and ask for more money.
The second thing, and I hinted about it earlier, make sure you have your burn rate under control. I mean, one can take down $10 or $20 million dollars and if you’ve got a million dollar a month burn rate…from a million dollar a month burn rate anything is possible including very bad things. What’s to keep you from doing $2 million a month? So as a small company just starting out when you’re in your early revenue phases try to keep your burn rate as small as possible ideally less then a $½ million a month and take down more capital then you need.
Angel Mehta is Managing Director at Sterling-Hoffman Management Consultants, Sterling-Hoffman Management Consultants is a retained executive search firm focused exclusively on enterprise software companies. Angel can be reached at: angel@sterlinghoffman.com
 
|
|
|
