Downsizing (the right way), board exposures to management, boarding schools

A few topics I want to discuss today that are meaty:   Downsizing the right or wrong way, board exposure for management (good and bad) and boarding schools

Portfolio Update:

BIG news coming in agtech.   Agtech is back and the code is finally cracked. The growth numbers I have seen in my new ventures are fulfilling the promise as are margins. The models are different.  Its B2B.  And its not ERP systems.

Direct to farmer is not the way to profitable scale.  It took me a decade to figure this out, but here were are.

As for others, no new investments this month, but some additional follow ons and some follow on requests.  The trends:

1) Continued "bridge" financings, mostly for non-ai companies, including some wind downs/imminent wind downs

2) Frustration with lack of growth.   The bar is high if you take venture funding and you got to hit that bar to keep it going especially in the world of ai.

3) Regrouping/restarting (hint this typically doesn't work).  Sometimes shutting down is better

I know most of my angel/seed investments will fail.  I accept that.  Failing the right way is essential for you and legacy.  Give your best effort and follow through on what you said. No gamesmanship.  If you operate that way then you have ever right to call out the behavior of investors or others.  If you don't then you are no different. 

Entrepreneurs Corner: Downsizing the right way. Bad boards, suits and costs cutting.

The death of a company is usually overstated.  Meaning, any drama and people think a company is going to die.  But usually death comes slowly and its self-inflicted.  Its a cycle that those on the "inside" often don't see.   They think they are being smart.   I will give you two to consider:

1) Downsizing simply for profit, without investing in the future or the next disruptive trend:  Monkey's can cut costs for you as a board (not a joke they could just throw a dart, fire people and costs come out).  Cutting thoughtfully with next level investment in mind is harder.  I think of cuts as opportunities not paths to profit.  Profit with legitimate growth comes from transformational thinking and doing something nobody else can do. 

2) Bad terms/deal structure:  I wont bemoan this one as I have stated it many times before but you can't recover from ridiculous financings.   Trust me its usually over when that happens. 

I will cover the first today in some detail.  

Often cuts come when a company realizes it has overinvested in infrastructure related to growth.  It takes a lot to scale up so you go raise capital and invest in the team.  They usually are good but if the sales growth doesnt company you either have to raise more money or cut.   Also the sales growth can come but it has to be on good economic terms or you end up cutting anyway.    

Every company has had to do this.  I kid you not, every single one.  Some do it better than others.  most of the time that is a result of an experienced board and real professional investors who have succeeded before- see how Sequoia, a16z, etc... backed companies do it.  They know the core is technology and differentiation.  Can't cut those.  Related if you do a financing they also know you can't totally obliterate structure-- its hurts them, not just early investors.  Stubborn investors learn this the hard way. 

So here is what happens with a "bad board" and bad management:  Board says cut.  Management says ok and just makes a list, checks it twice and cuts.   The report back and say "operating expenses are XXXX lower.".   Then that cut doesn't seem like enough so "bad board" says instead "cut to profitability".  This is the death of things.   An entrepreneur who runs a company would generally not agree to this in an indiscriminate way.   But a so called executive or professional team will.   

Then a few quarters later the costs are much lower, losses have narrowed and suddenly they think things are great.   Then reality sets in.  Your competition has lapped you even smaller ones with focused teams.   Your employee morale is crap and they are all in a downward spiral of talent.   Eventually to use a metaphor your body still works but your soul is dead.   A differentiated, growth company- a disruptor- cannot have its soul die.   

This cycle of bad financings and indiscriminate cuts is impossible to recover from.   It will not recover.  The best you can now hope for is a zombie like state with anyone outside seeing talent flight, awful terms and management that really doesn't care. 

What is a better way? 

- Start with strategy and differentiated thinking versus just cut numbers.  Spend time there - what is the next disruption you need to bring- and why are you where you are?  What needs to fundamentally change and do these so called cuts get you there? 

- Next, be clear about what absolutely CANNOT BE CUT.   That would be the differentiated engines in the company.  The things that give you different technology, margin and a long term advantage. 

- Finally never cut great performers, culture carriers and dedicated to the end professionals no matter the function.  I dont care if you need less sales people, you dont cut a great one.  It makes no sense. Its how you finally kill you soul. 

After these considerations have been done then you can cut.   And it may be it gets you to profitability even sooner.  But there is a tradeoff, small revenue line, different strategy etc.. So be it.   Your soul must be preserved at all costs.   

Topic 2: Board exposure for management team

Do you try to hide conversations or insulate too much? Be cagey? I will tell you that is a long (or short) term recipe for disaster. You cannot say one thing and do another. I might couch a message in a certain way depending upon audience but the facts are always the facts.

I have for many years allowed anyone on my team to present at board meetings and get exposure. I dont think its the job of a CEO or entrepreneur to do all the talking. Also, your board meeting isn't a sales pitch.

Also, its career development. If someone is taking on an important role in a growing company, let them also have the pressure and dynamic of presenting their work, answering questions. I call this "exposure therapy" for management.

You need to develop people and you also need to have consistent communication across all layers of the org- board, CEO, management, employees and beyond. The process of having people present creates accountability and transparency. It also furthers careers and prepares for people for their next leg up, next promotion, next challenge.

Parents corner:  Board school, I can't believe I am saying this

Hi all, I am shocked I am saying this but I am now 100% pro boarding school.  I know not all have this option or can afford it. Although there are supportive programs if you think its good for your kids. This is from a large public school guy all the way.   I think it does depend on the kid but what I have seen even in a short sample so far has blown me away.   Especially for kids that need to build skills its a leapfrog opportunity.  

Paradoxically, people think a kid needs to be super independent and capable to board on their own at a young age.  Maybe but what if you look at it the opposite way?  Its actually the opportunity for builidng those skills and even to a level beyond peers.   At first it was hard to get my head wrapped around it.   I do now.   I think a wave of the future, especially for the neurodiverse, but maybe all around, will be kids living and boarding to build these skills at a younger age.   

It goes back to some other points I have tried to make-- sometimes you as a parent are not the best thing for the kid.  Our own ego and narcissim makes us believe we are but honestly we have our own issues and depending upon the situation a fresh environment may change the game.   Stay tuned for more updates on this...