The business of entrepreneurship for lawyers

I'll be teaching a class at University of Chicago Law in the spring quarter. Entrepreneurship as a title was taken, so I had to go with the longer and more confusing "The business of entrepreneurship for lawyers". I'm excited, but also scared out of my head. Nothing helps you understand how little you know like trying to teach it to someone else.

The goal is to teach law students that they have plenty of training to be entrepreneurs themselves. If it's not in them, the secondary goal is to help them understand how they can be good legal partners for entrepreneurs they eventually represent. My first draft of the syllabus is online, and I'll post the material as it develops. If the school lets me, I'll use my blog for the course discussions and del.icio.us for identifying the material. I think the best way to get feedback on my first attempt will be to distribute the info widely and open it up to all sorts of viewpoints.

How to win in the market

Scott Adams says it best.

The losers in MSFT/YHOO - employees of small web companies

Assuming the Microsoft takeover of Yahoo goes through, it's a really bad time to be at a small web advertising startup. As Jeff Bussgang from IDG points out, the number of possible exit paths has shrunk by one, and the two remaining primary acquirers (Microsoft and Google) are both going to be busy digesting their other deals (Yahoo/aQuantive and Doubleclick) for awhile.

In addition, Microsoft sees $1B in synergy. Not all of that will be in people, but it probably means at least a few thousand job cuts (on top of the previously announced Yahoo job cuts). Those cuts will be in a bunch of overlapping businesses (many of which are funded by advertising), so you’ll have talented people in the market looking for jobs or starting companies at the same time you reduce the number of exit paths. It’s not a great time to be a small, independent web advertising business model. With some heft, exit via IPO or large acquisition will still be possible, but I’d be wary of ad companies with tens of employees and dozens of customers.

(Added later in the day, after I got out of the airport): Marc Andressen has a somewhat contrary view. It's a compelling post in its own right, but given he started two >$1B companies, it's especially compelling. I agree that any "hugh quality" startup is unaffected by the MSFT/YHOO merger. I don't think small, web ad startups necessarily meet that qualifier. Those that can get to scale while independent (essentially building real businesses) will do fine. The quick flip small web ad startup, never a good place to be anyway, is looking even less attractive.

Management and company culture

I recently had the opportunity to take an interim turnaround role at WebTrends and learn from the mistakes of the previous executive team (had there been no major mistakes, there also would have been no turnaround team!). The most powerful lesson I took away was how profound a role the corporate culture can play in the success of a company, and at the same time, how quickly that culture can diverge from whatever controlled messaging comes from the top. Culture is a productivity multiplier for every employee – and a bad culture sets a fractional multiplier that makes the entire company less productive.

At the old WebTrends, management attempted to control internal messaging more than any group I’d ever seen. Several man months of preparation for every board meeting (despite being a private company with no outsiders on the board), countless iterations of non-customer-facing slide decks and emails, and lots of rehearsal time for the smallest internal meetings. Internal messaging was polished and re-polished until it sparkled. Unfortunately, this led to two major problems: (1) because the rest of the employees weren’t idiots, management credibility shrank and shrank as the spin got further and further away from what employees saw on the front lines every day. You might be able to convince them your view is true for awhile, but in the face of overwhelming evidence, they catch on; and (2) the culture that took hold came from the behavior, not the messaging, of management (much to their chagrin). It turns out people really do learn by example, no matter how many times we scream “Do what I say, not what I do!” Publishing “meeting guidelines” to the rank and file employees is actually much less effective at getting them to have efficient meetings than having them attend efficient meetings run by management (and running inefficient management meetings while simultaneously publishing efficient meeting guidelines is the worst of all worlds!)

The culture became a fractional multiplier. Because management was more concerned with internal spin than with their own results, employees learned that their output should be directed at spinning, not doing. Because management would frequently shoot the messenger when bad news got in their way, people learned never to raise their hands when there was a problem. Because management abused anyone who questioned them, plenty of good people left and the ones who stayed learned to lay low. This led to a toxic culture that hampered every employee’s output – even though the management messaging was always upbeat and well polished, employees didn’t feel that way and it showed in their work. Of course, that just led to the management view that they needed better employees. (That view was right in the end, just that the people who needed to be replaced were different than the previous management thought!)

After the turnaround, the culture is much better (so is productivity). But what could management have done to prevent the culture from running off the rails in the first place?

1. Management needs to care about employee welfare. Telling employees you care and actually caring are very different. Lipservice is easy to detect. Management should care because it's the right human thing to do, not because it makes the rank and file better workers (even though it does.)

2. Management shouldn't make every corporate decision at executive staff. Instead, the executive staff should focus on setting the right decision-making context and the right process and then empowering every other manager to make decisions within that context. That gives leverage not only directly (since you then have managers making decisions similar to what you would make) but also indirectly, since empowered managers are more engaged and more productive. There's a multiplier here if they follow the management example and lead their teams this way as well (and a double fraction if they follow the non-empowerment path instead). A healthy culture is one where most decisions are made on the front lines (even if some of them are wrong), and only the major, company-killing issues get pushed up the chain.

3. Management should never work to build a distinction between themselves and front-line employees; instead, management should do everything it can to eliminate that distinction. If management has incentives aligned with the success of the overall company, then their reward be the success of the corporation. If what motivates the management team is power and authority and a separation from the rank and file, then the corporate culture is guaranteed to be terrible. Management isn't better and smarter than the rank and file employees - usually just older or luckier.

4. Be optimistic, but honestly connect to the reality on the ground. Management always needs to stay upbeat, obviously, but there needs to be a careful line between optimism and delusion. Employees can get motivated by optimistic realism, and they won't shy away from hard work if motivated well. Management delusion makes them look for jobs instead.

5. People in management should be strong, confident leaders. They should care about ideas (regardless of who has them), be their own biggest critics and their teams' biggest supporters (instead of the other way around), and be able to convince people to follow without resorting to intimidation or directive (except in very rare cases). Threats to fire people, non-disparagement agreements, email filters - these stem from paranoia, not confidence, and will always lead to a toxic, unproductive culture. The old WebTrends team used to say "leadership requires followership". That's a bunch of (*!@&. Leadership requires leaders. (Unless they meant leadership requires connecting to the people around you and then following their lead as to what they need - but I don't think that was the intended context...)

After the turnaround experience, I have become convinced that good culture is a key to building a successful company. By itself, the best culture won't generate any success (you still need a market and customers!), but by itself, a bad culture can lead to failure - or to a turnaround team.

Technorati: entrepreneurship, WebTrends, management, corporate culture