Author: Steve Shu

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Personal Account On Mentoring In The Moment

Some years ago I had the opportunity to sit down one-on-one
with a well-known CFO in the Valley who was with his firm from a run from like
employee #5 as a start-up to the time when the company became one of most
recognized software infrastructure firms in the world. The company is public
and in largest 200 of all software firms in the world.

It is pretty rare that someone can be with a firm from early
start-up through IPO and multiple capital market transactions. The different
phases of a company often require very different skills of its executives at
each point in the game.

While the original, more general introduction to the CFO was
made through a board director, it was the CFO that reached out to me to offer a
more personal one-on-one advisory meeting. A true statement of character. When
we finally had a chance to arrange our meeting, what struck me was that this
CFO (very senior to me by a number of years) covered a spectrum of mentoring-like
questions and perspectives. The areas started off broad but became very
concrete to the software space. Some topics covered:

  1. He asked me what I wanted to do professionally? Did I aspire
    to become a CFO of a large company?     I
    recall telling him something to the effect that it might be difficult for me to
    pursue this as I have not spent significant time in large company finance (mostly
    entrepreneurial and project finance) nor did I have a CPA. He told me that prior
    to becoming CFO he didn’t have much of that experience either. As for my latter
    concern, he mentioned that he has had to manage accountants and the like with straight-up
    MBA training as well. He obviously has both been very successful and lived an
    unlikely path through multiple growth phases of a company. In any case, a key
    thing I took away from our meeting was that one should step back from
    time-to-time. It is sometimes very easy for one to get caught up in the
    day-to-day hustle, and prospects of a capital raise are a good time to reflect
    further on how the organization will shift around and where one wants to be
    professionally.
  2. He told me that as a start-up through growth-phase CFO,
    he got involved in all the operations like I did ranging from pricing strategy,
    legal contract negotiation, to sales force training.     Not something you’ll find in most finance books on
    the formal division of labor in the finance and accounting area. He told me how
    as CFO he had to train salespeople how to represent the company’s product. Efforts
    not only included interpersonal stuff like handling sales meetings but also
    included implementing some nitty-gritty details like creating product value
    propositions cheat sheets for the backs of the badges of salespeople. We also compared notes about how legal IP terms could be negotiated for a software company,
    and how market terms for structuring international partnership deals. The CFO and I also batted
    around a few points like CPU-based pricing norms in the industry versus
    emerging pricing schemes. Nevertheless, my discussion with this CFO helped to
    reinforce a concept in my mind about CXO positions. Whether the positions are “gearhead”
    (e.g., CFO) positions or other (e.g., CEO), the style of management that
    resonates with me is grounded in leadership and general business skills.
  3. We compared notes on more detailed finance concerns like the need to
    report both natural P&L and functional P&Ls.     Unfortunately, many accounting packages don’t
    necessarily make it easy for early-stage ventures to do everything they want to
    do (although they do frequently do things better than Tier 1 accounting
    packages). One area for me in the past has been reporting natural profit and
    loss (P&L) data (e.g., which rolls up things like travel & living
    expenses across all departments) versus functional P&L data (e.g., which rolls
    up data into the functional groups like sales & marketing so that one can
    compare information to competitive data from the 10-Ks of public companies).
    I’ve always hacked these different views together using Excel because it seems
    there are only so many ways to tag data in certain accounting packages. In any
    case, my discussion with this CFO helped to give me some other “hack” ideas as
    leveraged from large company finance (such as using formal account codes in the
    unstructured text fields [yikes!]).

In any case, although I have always looked to permanent
mentors at different phases of my career, I find it is also useful to gain
mentoring and peer input wherever you can get it. Variety is good, and there is
a lot to learn out there. No need to limit yourself to one or two people when
it comes to getting mentoring.

I thank both the board director and CFO for the mentoring
opportunity.

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Update on Prior Post on Management Consulting Blogs

Reader Phil was interested if I’ve found out anything more about the lack of management consulting blogs. To bring everyone up to speed, I had an original post that questioned why there weren’t many management consultant blogs out there. McKinsey only happened to be cited by me to get people’s attention (because of its prominent reputation). It is noteworthy, however, that in my original post I found a public reference that indicated that McKinsey was encouraging its employees to blog, but I have found no blogs to date. Some factual updates on consulting blogs to consider:

  • I did find Mike Nevens (ex-McKinsey) is blogging at the Sand Hill Group from time to time (note my post here)
  • Sapient CTO has spoken out against blogging
  • PR consulting firms are making moves.

An additional factor to consider, one that I did not explicitly address in my original post, is that it is important to think about how deal flow is generated in many management consulting models.

In management consulting, clients problems are generally confidential and they are infrequent (or at least do not follow as regular patterns as may occur in other services areas). Thus, a significant amount of time needs to be spent on marketing (as opposed to sales), because one needs to be at the top of mind, have relationships, and show up at the right time when a client calls. There are some firms that have more dedicated business development resources, but this is more the exception that the rule for the traditional management consulting firms.

To single out McKinsey, they have a very significant marketing vehicle around the McKinsey Quarterly. They provide world-renowned thought leadership there, and they already have eyeballs for their target audience. If one reads the book, "The McKinsey Way," the McKinsey Quarterly type of vehicle serves as one primary mechanism for staying at the top of people’s minds. The presence of this vehicle probably has a diminishing effect on the needs for blogs. Other consulting companies also have firm-specific publications – it is not unique to use these things for marketing in consulting firms.

Risk management is probably the strongest argument I can find to not wanting to adopt blogs in the management consulting firms. That said, I have seen a number of law firms that seem to be able to provide adequate counsel in the blogging area.

So if I were to update my hypothesis on why there are "no" McKinsey blogs, well there’s no urgent need to do so right now. Management consulting firms can afford to be second movers because the needs are diminished by a lack of CXO readers and other marketing vehicles already in place.

All said, I am a fan of Bob Lutz’s blog (Vice Chairman at GM). That’s a great example of what some companies are missing out on.

Update (1/4/07): Update on consulting blogs after two years …

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What Is Triangulation?

I’ve wanted to write down information about the subject of “triangulation” for some time because it seems to be one of these things that is used in the investment banking and management consulting areas, but it is something that I have found used much less frequently when working with operating companies. It is also something that I have a hard time finding information about on the web or in books (for like the past 10 years!). I even had to manually confirm my definition with some investment bankers that I know because I couldn’t find any referenceable information on the net. Note according to Wikipedia triangulation is “…the process of finding a distance to a point by calculating the length of one side of a triangle, given measurements of angles and sides of the triangle formed by that point and two other reference points”, but this definition does not suit what I am thinking about.

My working definition of triangulation is “the systematic process of using multiple methods to gather a range of quantitative estimates for either an unknown or debatable value.”

Perhaps the least controversial, high-level example of triangulation exists in the investment banking area surrounding how the value of a company can be estimated. A classic example of how one could triangulate the value of a company is as follows:

  1. Estimate value of company using a multiples method of company value based on revenue (e.g., value of company equals 2.5 times revenue). Use market comparables to determine right multiplier (or low and high range of multipliers).
  2. Estimate value of company using a multiples method of company value based on profits (e.g., value of company equals 6.0 times EBITDA). Use market comparables to determine right multiplier (or low and high range of multipliers).
  3. Use discounted cash flow (DCF) method (e.g., adjusted present value [APV]) to estimate company value. This method involves taking current financials and projected financials (pro-formas) to value the company based on the free cash flows thrown off by the business.
  4. Layout the all of estimations on a “football field” type chart. Here the horizontal axis is the method used (so there are three points signifying multiples method #1, multiples method #2, and DCF method). The vertical axis is the valuation of the company. The plots would be floating bars with the high and low end of the bars signifying the high and low estimates for each valuation technique. (Sort of like how daily stock charts are plotted using a low, high, and close pricing data.).
  5. Apply any weighting technique you may have developed. Sometimes a company or practitioner may have methods of weighing one technique more than the others.
  6. Come up with your final range of estimates for the low, high, and average based on the football field.

The methods of triangulation are useful in many situations. In start-ups looking to raise capital, it can help one to be not only more rational about valuation but also more sophisticated when it comes to negotiating. Triangulation methods are not restricted to company valuations, and triangulation can be valuable in general management areas. For example, these methods can be used when trying to estimate a prospective channel partner's product demand, guesstimate job loading on a workforce, or analyze the potential penetration and growth rate of a competitor in a particular market).

In any case, although triangulation can be a bit of a mundane topic, it can be a powerful friend. Triangulation skills are something that many management consulting firms test for during the interviewing process. It takes some conscious effort to make it a habit, and it takes some creativity to come at things from different angles, but that keeps you on your toes too.

Steve Shu

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Update 2/12/09: Here is another triangulation example (with graphic).

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Fordham’s Graduate School of Business Starts Mini-Course on Business Blogging

Charlie O’Donnell, analyst for Union Square Ventures (yes, the firm was part of the recent investment round in del.icio.us via Fred Wilson), is going to be another pioneer in the business blogging area at Fordham’s Graduate School of Business. Charlie will be teaching a mini-course there, and he has a course overview posted here (note: Word document). Also noteworthy is that del.icio.us (one of my prior posts consolidating info on del.icio.us is here) will be part of the course. I would guess that Charlie may have some good leverage to get a couple of guest speakers in that area …

Also noteworthy is that Fordham will be using to blogs to help build alumni relations. I think this is a great idea. Alumni networks are natural communities, and universities should consider blogging as a way to connect with their alums outside of traditional magazine, local event, and fund raising/telemarketing activities.

Update (4/25/05): Charlie’s full post about the Fordham course is here. Sorry I forgot the original link the first time around.

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Understanding Wine Better Makes Me Demand Wine More

I’m no wine connoisseur, but if you are looking to
understand French wine better, a book that has helped increase my knowledge is
Windows on the World,
a book named in parallel with and connected to the restaurant on the 106th
and 107th floors of the former World Trade Center.
From the link I provided:

Until 8:48 a.m., on September 11,
2001, [Window’s] sold 10,000 bottles a month and had 1,400 bottles on its list.
Now, 78 of 450 employees are presumed dead. Others are out of work. A
50,000-bottle cellar is atomized.

… On Windows’s final business day,
its $37 million annual revenue made it America’s top-grossing restaurant.
Stuffy types shunned the dining room, calling it a corral for Midwestern
tourists, but democrats enjoyed the non-elite style and Executive Chef Michael
Lomonaco’s imaginative menus.

Now I only happened to read through the French red wines
section of the Windows book (an earlier version of the book that my wife picked
up back in college during the eighties). The book puts a nice, quick, and layered
structure around how to tackle wines. The layered structure allows one to dive
deeper as needed and as your brain capacity will allow. I’ve tasted hundreds of
wines. Never really had a way to hone in on what kind of wine to buy after all
of that drinking other than by type of wine (e.g., Cabernet Sauvignon, Zinfandel).
Now I have much more of a structure for appreciating red wines from this region
of the world.

The Windows book has helped to formulate in my mind *very
rough* mental shortcut maps for French red wines (note the maps are rough and
not precise) such as the following:

  • Bordeaux – Blends of Cabernet Sauvignon, Merlot, or Cabernet Franc grapes
  • Burgundy – “100%” Pinot Noir or Gamay grapes
  • Cote du Rhone – Blends of Syrah or Grenache grapes.

As an example of how the information is layered, if one looks within the Burgundy wine
family, one can get a proxy for quality (e.g., where other designators are not
there) by using some simple, but powerful shortcuts on reading the labels (listed
from higher quality to lower quality) as opposed to memorizing geogrpahy or every single wine and vintage:

  • Grand Cru wine – only the name of the vineyard is on the label
  • Premier Cru – both the village and the vineyard is on the label
  • Village wine – only the name of the village is on the label.

In any case, by understanding how to select French wine
better, it has increased my demand for French wine more. (Of course, being in France right
now also increases my demand, but that is beside the point!)

I still think I prefer California over French wines, but the
Window’s book has really helped me to appreciate the depth of the French wines
and their history. I now contemplate things like why it is that French wines
and California wines (or US wines in general) taste so different to me. In the hundreds of
wines I have tasted, it only hits me now that I have never had a California
wine that tastes like a French wine (if there is such a thing as a wine being in
the French style). As the climates don’t seem too divergent to me at a gross
level, it seems as though it might have more to do with the grapes then. I
would think that the wine-making process itself is much easier to replicate
(say if a French entrepreneur wanted to start a business in California) than carrying over the vines and
grapes. Perplexing to a layman.

In any case, I am thankful for the opportunity to discover
the Windows book. The book, in the context of the significance of World Trade
Center events, also gives
me moment to reflect on the knowledge captured within.

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Inside Acknowledgements

Wanted to put up a quick post to acknowledge some of the bloggers associated with business schools that my wife (Suzanne Shu) and I are directly connected to. The business schools are INSEAD (France), Southern Methodist University, and The University of Chicago. Haven’t met any of the bloggers here at INSEAD yet, but perhaps that time will come for me.

More business school blogs can be found at The League of MBA Bloggers.

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21Publish Launches New Pricing Model

As I highlighted in a prior post, 21Publish, a niche provider of blog software for turnkey blogging communities, has launched a new pricing model. The pricing model supports 100 free users with 2MBs of space for each user. A free model should be quite attractive for non-profits, alumni groups, ad-hoc organizations, and the like.

Disclosure: I am a consultant to 21Publish.

Update (4/21/05): Torsten Jacobi’s post reminds to link to some blogs developed using the 21Publish platform:

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Dream Interpretation As It Applies To Business

An increased amount of attention has been brought back to
the decision-making field of research with the release of Malcolm Gladwell’s book,
“Blink”. Gladwell’s book focuses on the power of the subconscious and tacit
knowledge in decision-making processes (while conscious). The book is available here at the bookstore at the business school at INSEAD, and his other book, "The Tipping Point" is part of the reading material for one of the courses on organizations (similar to how positioned at the University of Chicago business school to my understanding).

Completing the "Blink" book made me remember a book I read many
years ago on dream interpretation (note Gladwell’s book did not cover deep sleep dreaming, daydreaming, nor spontaneous thoughts that appear during the day). A key motivator for the book was this … wouldn’t it be powerful if one could gain additional benefits
from the activity that we spend one-third of our lives doing, i.e., sleeping?

The book was not Freud-style dream interpretation, where
Freud advocates (to my understanding) literal
interpretation of dreams. Instead, the book I read offers up the notion to the
effect of that each person has their own
data dictionary – dreams are a way of the subconscious communicating with
the conscious mind using images. The meaning of images in a dream (which are frequently
severely exaggerated) can best be understood by reflecting upon the dream as a
whole and the feelings the dream imparts and then determining what feels right
and comfortable as an explanation.

As an example, a woman described a dream where she was
murdering her husband by bludgeoning him over the head with a vacuum cleaner.
Also noteworthy was the fact that the husband appeared as an animal in the
dream – specifically a pig.

Freud might argue the dream literally – that the woman was
at risk of murdering her husband. Reminds me of the Tom Cruise movie, “Minority
Report”.

The book I read offered a different explanation. The
exaggerated nature of the dream was simply an artifact of dreams trying to
communicate with us. Here, the woman had some hard feelings toward her husband
because she felt he was restricting her in the home. The vacuum cleaner
represented “domesticity,” and the pig reflected feelings towards the husband
as a “chauvinist pig”. Murdering only meant that there were strong feelings
that the woman and husband should try to resolve (before things got out of hand).

When working with the executive team at my prior employer to
bring in a corporate venture capital round, I recall many tense discussions
surrounding negotiating terms for the new investor class with respect to angel
investors. I would dream about some of the issues during my sleep, and I would
wake up with the tenuous items popping into my head. Sometimes these cues would
trigger me to go back and talk with an angel investor or founder on specific
points. At other times, dreams simply reflected anxiety or feelings of
happiness as to how a client project for me was going. Much like a subconscious
reminder that pops into one’s head during the day that you should call someone
you haven’t talked to in awhile, pursue someone for a job opportunity or
project, etc., I would sometimes find subconscious cues important to
prioritizing personal action items, raising my sensitivity to other parties, and
recognizing my own feelings better.

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