Marketplace Quality Tactics


This post is by A Crowded Space from A Crowded Space

I talked about the marketplace quality flywheel today with mini case studies from Rev, MasterClass, Faber Connect, and others. 

This is the link to presentation and slides from the Marketplace Conference 2020 (COVID virtual edition).  

Hope you enjoy. 

Big thank you to Autotech Ventures, SpeedInvest, and Battery Ventures for organizing and sponsoring my favorite event every year.  

https://www.slideshare.net/jbreinlinger/marketplace-quality-tactics

Marketplace Quality Tactics


This post is by A Crowded Space from A Crowded Space

I talked about the marketplace quality flywheel today with mini case studies from Rev, MasterClass, Faber Connect, and others. 

This is the link to presentation and slides from the Marketplace Conference 2020 (COVID virtual edition).  

Hope you enjoy. 

Big thank you to Autotech Ventures, SpeedInvest, and Battery Ventures for organizing and sponsoring my favorite event every year.  

https://www.slideshare.net/jbreinlinger/marketplace-quality-tactics

Marketplace Quality Tactics


This post is by A Crowded Space from A Crowded Space

I talked about the marketplace quality flywheel today with mini case studies from Rev, MasterClass, Faber Connect, and others. 

This is the link to presentation and slides from the Marketplace Conference 2020 (COVID virtual edition).  

Hope you enjoy. 

Big thank you to Autotech Ventures, SpeedInvest, and Battery Ventures for organizing and sponsoring my favorite event every year.  

https://www.slideshare.net/jbreinlinger/marketplace-quality-tactics

Sell it Now


This post is by A Crowded Space from A Crowded Space

eBay is one of the most famous marketplace success stories.  It started as a simple auction site with listings and users bidding on the items.  This was great for easy price setting and unique items, but it was inconvenient for more mainstream items with multiple units available. Then came the introduction of the “Buy it Now” button, which at the time was a big change and strong innovation.  The Buy it Now button dramatically accelerated growth.  Part of this is simply because it lowered the customer effort to buy something.  It went from guessing on an appropriate bid and monitoring the item and auction, to simply clicking a button.  

Ecommerce companies have long known the power of the “buy now” button.  Amazon even patented the “1-click buy” button.  

I’m a big believer in lowering customer effort.  It pretty much always works to drive more demand and expand the market.  The convenience factor is something that traditional economic theory has never fully understood.  Economic theory would suggest that sellers will go to the platform that offers the highest price for their goods.  As it turns out, that’s not really true. 

Take a look at a StockX – just one of the current high-flying secondary sneaker marketplaces.  If I own a pair of sneakers that is listed on the platform, I have this handy Sell Now button.  

image

This is an awesome button to enable.  I did an eBay search and there are plenty of people looking to sell these at $199 or more, but they will certainly have to do more work and more waiting in order to get that amount.  Is it really worth it?  Where would you sell your stuff?  

1) The brightly lit, reputable store that guarantees payment, guarantees it quickly, and is always willing to make an offer.  May make less $, but will be safe and convenient.  

2) The shady bazaar where you must beware of scams, must haggle with buyers, and have no guarantee of any sales.  May make more $, but will be shady and inconvenient. 

The notion of Sell it Now is not entirely new.  Priceline was one of the first innovators here – let me name my price for travel (a bid) and any airline or hotel can sell their inventory immediately if they hit the bid.  It’s also been a big driver in some labor marketplaces.  Lyft and Uber are effectively Sell Now labor marketplaces, any driver can hop on and get work right away.  

The interesting thing to me is that we’re now seeing more of these Sell Now marketplaces for goods.  Outside of the good ol’ fashioned pawn shops, there aren’t that many opportunities for consumers to sell their goods instantly and conveniently.  Now we’re seeing some excellent online marketplaces enter this space at two opposite ends of the spectrum.  

1) Sneakers – GOAT + StockX

2) Houses – OpenDoor + Zillow (the Rich Barton Returns edition) 

Stay tuned… there will be more success stories with this Sell it Now model.  

Response Rate is a Quality Signal


This post is by A Crowded Space from A Crowded Space

I’m sure everyone here has received several hundred of these emails: “How would you rate this book / freelancer / coffee maker /_etc_, on a scale of 1 through 5 stars?” 

If you know me, you know that I’ve ranted about how these questions don’t get to a true understanding of high quality.  They might help identify some bad actors, but they are terrible at identifying the highest quality in a marketplace

However, I recently learned that some marketplaces are using the quantitative score in addition to the response rate to get a more interesting signal of quality.  See this excellent paper by Chris Nosko and Steven Tadelis for a thorough academic perspective. (hat tip to Andrei Hagiu for pointing this out to me)

I was excited to learn about this – it makes a ton of sense.  The mental reaction when I get one of those “how would you rate xyz?” emails is to almost always immediately ignore it.  The only time I will take the time to respond is if I had a truly terrible or a truly wonderful experience.  

It’s no surprise that many marketplaces have a response rate to that feedback question in the single digit percentages.  I’d guess that a typical response rate is between 5-20% for email questions. Marketplaces get much higher response rates if the question is asked via SMS or in-app.  What I did not appreciate until recently is that the response rate will vary widely based on the quality of the good or service

Consider this scenario: 

“How would you rate Game of Thrones?”  – result: 4.9 stars, 500 ratings out of 1,000 possible responses.   

“How would you rate Lord of the Rings?” – result: 4.9 stars, 500 ratings out of 5,000 possible responses. 

Which one is better? 

Most platforms would probably say that they are the same.  However, I think it’s reasonable to say that Game of Thrones is much “higher quality” based on the response rate.  If 50% of people that watched thought it was worth spending a minute to rate the show, that is an incredibly strong indication that it’s a well-loved show.  It is creating that exceptionally wonderful experience that causes people to invest additional time to provide a high rating.  

On the other hand, a very low response rate is likely an indicator that there are actually a lot more silent people that would rate things somewhere in the middle, perhaps a 3 or 4 star rating, but didn’t think it was worth the time to enter a rating.  3 stars, just ok, not worth a single click.  

Consider this scenario:

4.9 stars, 100 ratings, 20% response rate

5.0 stars, 100 ratings, 10% response rate

This is where I think things really start to get interesting.  I could easily see the higher response rate being a more important indicator of quality than the actual star rating itself. 

As usual, these platforms are all special snowflakes and everyone will need to decide if and how to implement a measure of response rate into your overall quality and matching algorithms.  

I put together this trusty 2×2 to help think about the categories. 

image

Please reach out if you have any more experience using response rate for quality.  Would love to hear from you.  

Response Rate is a Quality Signal


This post is by A Crowded Space from A Crowded Space

I’m sure everyone here has received several hundred of these emails: “How would you rate this book / freelancer / coffee maker /_etc_, on a scale of 1 through 5 stars?” 

If you know me, you know that I’ve ranted about how these questions don’t get to a true understanding of high quality.  They might help identify some bad actors, but they are terrible at identifying the highest quality in a marketplace

However, I recently learned that some marketplaces are using the quantitative score in addition to the response rate to get a more interesting signal of quality.  See this excellent paper by Chris Nosko and Steven Tadelis for a thorough academic perspective. (hat tip to Andrei Hagiu for pointing this out to me)

I was excited to learn about this – it makes a ton of sense.  The mental reaction when I get one of those “how would you rate xyz?” emails is to almost always immediately ignore it.  The only time I will take the time to respond is if I had a truly terrible or a truly wonderful experience.  

It’s no surprise that many marketplaces have a response rate to that feedback question in the single digit percentages.  I’d guess that a typical response rate is between 5-20% for email questions. Marketplaces get much higher response rates if the question is asked via SMS or in-app.  What I did not appreciate until recently is that the response rate will vary widely based on the quality of the good or service

Consider this scenario: 

“How would you rate Game of Thrones?”  – result: 4.9 stars, 500 ratings out of 1,000 possible responses.   

“How would you rate Lord of the Rings?” – result: 4.9 stars, 500 ratings out of 5,000 possible responses. 

Which one is better? 

Most platforms would probably say that they are the same.  However, I think it’s reasonable to say that Game of Thrones is much “higher quality” based on the response rate.  If 50% of people that watched thought it was worth spending a minute to rate the show, that is an incredibly strong indication that it’s a well-loved show.  It is creating that exceptionally wonderful experience that causes people to invest additional time to provide a high rating.  

On the other hand, a very low response rate is likely an indicator that there are actually a lot more silent people that would rate things somewhere in the middle, perhaps a 3 or 4 star rating, but didn’t think it was worth the time to enter a rating.  3 stars, just ok, not worth a single click.  

Consider this scenario:

4.9 stars, 100 ratings, 20% response rate

5.0 stars, 100 ratings, 10% response rate

This is where I think things really start to get interesting.  I could easily see the higher response rate being a more important indicator of quality than the actual star rating itself. 

As usual, these platforms are all special snowflakes and everyone will need to decide if and how to implement a measure of response rate into your overall quality and matching algorithms.  

I put together this trusty 2×2 to help think about the categories. 

image

Please reach out if you have any more experience using response rate for quality.  Would love to hear from you.  

Elizabeth Warren Doesn’t Understand Marketplaces


This post is by A Crowded Space from A Crowded Space

As everyone with access to the internet knows, Elizabeth Warren recently shared her hopes for breaking up some of the monopolistic power of so-called “platform utilities” or, as we call them, marketplaces.

On one hand, I respect that Washington now realizes what Silicon Valley has known for decades: marketplaces and platforms have powerful and influential network effects.  But I think Warren misunderstands these marketplaces.  They can only thrive and grow and be unassailable IF they continue to serve the customer.    

Marketplaces and platforms exist to increase efficiency in the world. They are successful only if they improve productivity—saving people time and precious resources. As they get bigger, they can start to have true positive impact on global GDP as they allocate resources more effectively than the status quo. So let’s be clear: crippling their ability to execute would only be negative for the global economy.  

Warren’s proposal would negatively impact consumers. Here’s why:

Negative Impact to Consumers

Warren proposes restrictions on platforms participating as a vendor on their own platform.  Basically, she wants to outlaw Amazon Basics. While people are coming up with arguments to support this, is is a terrible idea.  Amazon’s goal is to lower prices, decrease shipping time, and increase selection—value propositions that consumers benefit from tremendously. Amazon Basics primarily looks to lower prices for common consumer goods, something I admire and enjoy as a consumer.  But Amazon—and any other marketplace—will only launch their own product when they identify a gap in the market (not enough selection) or an opportunity to lower prices for consumers or to improve quality.  Every one of these initiatives benefits consumers.  

While I don’t believe any legislation is necessary, if you insist, any theoretical legislation should be focused only on allowing for fair competition of Amazon-built products vs other vendors on the marketplace. Amazon does have a bit of an advantage vs others just because of the buyer data that they have and vendors do not. And they may give themselves “unfair” placement in their own search results. Some say you could enforce more transparency in the algorithm. But, this is another bad idea. It would be counterproductive and again, ultimately hurt consumers.  There is a good reason Google keeps the details of their search algorithm a very closely guarded secret. They do not want to open themselves up to fraudulent attempts to game the system. Those attempts will always end up hurting consumers. Are you noticing a trend yet?

Also, smartly run marketplaces already enforce fair competition for their own products vs the various vendors. That is the smartest way to run the business.  If your own products can not compete on their own, you shouldn’t be building them in the first place.  It’s more efficient to just let the vendors handle it if they can handle it better.  

Monopolies and Competition

As for monopolies creating an unfair playing field and discouraging competition, I for one am not concerned about this issue. I’ve been in the venture capital business for about 8 years now and have only seen an increasing number of startups going after every imaginable industry.  Venture capital dollars have never been higher. VCs invest in promising startups that have a chance to disrupt incumbents on new platforms or utilizing new technology or simply improved customer experiences.  Disruptors will be successful if they can dramatically improve the customer experience. If they can’t do that, they will fail.  

The ecosystem thrives on constant disruption and government does not need to intervene. If the tech giants lose focus and have their customer experience deteriorate, I can guarantee that competitors will emerge and venture capital will be there to back them.  

———-

Disclaimer: While I am a managing director at Jackson Square Ventures, these opinions are my own and do not necessarily represent the views or opinions of JSV or its related entities.

Elizabeth Warren Doesn’t Understand Marketplaces


This post is by A Crowded Space from A Crowded Space

As everyone with access to the internet knows, Elizabeth Warren recently shared her hopes for breaking up some of the monopolistic power of so-called “platform utilities” or, as we call them, marketplaces.

On one hand, I respect that Washington now realizes what Silicon Valley has known for decades: marketplaces and platforms have powerful and influential network effects.  But I think Warren misunderstands these marketplaces.  They can only thrive and grow and be unassailable IF they continue to serve the customer.    

Marketplaces and platforms exist to increase efficiency in the world. They are successful only if they improve productivity—saving people time and precious resources. As they get bigger, they can start to have true positive impact on global GDP as they allocate resources more effectively than the status quo. So let’s be clear: crippling their ability to execute would only be negative for the global economy.  

Warren’s proposal would negatively impact consumers. Here’s why:

Negative Impact to Consumers

Warren proposes restrictions on platforms participating as a vendor on their own platform.  Basically, she wants to outlaw Amazon Basics. While people are coming up with arguments to support this, is is a terrible idea.  Amazon’s goal is to lower prices, decrease shipping time, and increase selection—value propositions that consumers benefit from tremendously. Amazon Basics primarily looks to lower prices for common consumer goods, something I admire and enjoy as a consumer.  But Amazon—and any other marketplace—will only launch their own product when they identify a gap in the market (not enough selection) or an opportunity to lower prices for consumers or to improve quality.  Every one of these initiatives benefits consumers.  

While I don’t believe any legislation is necessary, if you insist, any theoretical legislation should be focused only on allowing for fair competition of Amazon-built products vs other vendors on the marketplace. Amazon does have a bit of an advantage vs others just because of the buyer data that they have and vendors do not. And they may give themselves “unfair” placement in their own search results. Some say you could enforce more transparency in the algorithm. But, this is another bad idea. It would be counterproductive and again, ultimately hurt consumers.  There is a good reason Google keeps the details of their search algorithm a very closely guarded secret. They do not want to open themselves up to fraudulent attempts to game the system. Those attempts will always end up hurting consumers. Are you noticing a trend yet?

Also, smartly run marketplaces already enforce fair competition for their own products vs the various vendors. That is the smartest way to run the business.  If your own products can not compete on their own, you shouldn’t be building them in the first place.  It’s more efficient to just let the vendors handle it if they can handle it better.  

Monopolies and Competition

As for monopolies creating an unfair playing field and discouraging competition, I for one am not concerned about this issue. I’ve been in the venture capital business for about 8 years now and have only seen an increasing number of startups going after every imaginable industry.  Venture capital dollars have never been higher. VCs invest in promising startups that have a chance to disrupt incumbents on new platforms or utilizing new technology or simply improved customer experiences.  Disruptors will be successful if they can dramatically improve the customer experience. If they can’t do that, they will fail.  

The ecosystem thrives on constant disruption and government does not need to intervene. If the tech giants lose focus and have their customer experience deteriorate, I can guarantee that competitors will emerge and venture capital will be there to back them.  

———-

Disclaimer: While I am a managing director at Jackson Square Ventures, these opinions are my own and do not necessarily represent the views or opinions of JSV or its related entities.

The Wheat from the Chaff


This post is by A Crowded Space from A Crowded Space

If you’ve read any of my blog posts before, you may know that I hate the traditional 5-star feedback systems. I think they are missing so much opportunity and often present a false signal of quality.

I was chatting with the founder of interviewing.io recently and was pleasantly surprised that they are taking a big step forward in a feedback system that’s really designed to separate the proverbial wheat from the chaff.

It made me realize that we’ve all been making a big mistake with feedback systems.  In most marketplaces, we’ve been operating in a one size fits all mode.  Everyone from eBay to Uber to Upwork to Amazon uses a 5-star feedback system on competed transactions to accomplish two very distinct goals.  

Marketplaces have been misusing  the 5 stars to poorly accomplish both of these goals.  

Goal 1) prevent bad transactions from happening in the future.  (Expel bad)

Goal 2) identify the highest quality good or service.  (Retain & Optimize great)

The standard 5-star system has unwittingly accomplished the first goal of preventing bad transactions, although you really only need a 2 or 3 point scale to accomplish the same thing.  However, due to a variety of reasons —> the 5-star system does a terrible job at identifying the highest quality good or service.  I believe it’s naive to think that the same approach can both identify the worst and the best in a marketplace.  Note that for some marketplaces the goal may be only to prevent bad transactions (Uber / Lyft) while in some other marketplaces (Farfetch / Toptal), the goal should really just be about identifying the best.  Depends if you’re a commodity or master marketplace.

I’d like to use this post to explore how to do a better job of identifying the best.  Let’s proceed.

Why don’t 5 star feedback systems work to identify the best services or goods?

I’ve blogged about this topic, see here.   There are multiple issues:

  • There is massive grade inflation – I adequate.
  • There is an apathy problem – I don’t care to take the energy to rate a middling service.   
  • I want reciprocity – if I rate something 3 stars, will I be punished by the other user?
  • I have misaligned incentives – do I really care about the future users of a marketplace or do I mostly care about myself?

The result of all these things is that you end up with tons of “5-star” rated users or products and can’t tell the difference between them.   

I’m not going in depth on this one since you can read all about it here.  

Let’s talk about what elements could truly improve the ability of feedback systems to identify the best?

To Chess:

ELO ratings have been around since about 1960 and do a remarkably good and accurate force ranking of worldwide chess players.  (My ELO ranking on chess master pro is a wimpy 1150 – a bright beginner).  There are millions of chess players in the world, and I believe the vast majority of serious players know their ELO ranking and also know exactly what it means to be 1000, 1500, or 2000.  It’s also remarkably accurate and a very good predictor of the outcome of a match. 

As a thought experiment, could we rank all of the CEOs in the world in the same way? Could we rank all of the sales people in the same way? The answer is probably not – but there’s still a lot to be learned.  ELO ratings work so well because chess is purely a game of skill (no chance or external factors involved) and every game is a pairwise competition involving 2 and only 2 players.  So we’ll never get to be as clean and accurate as chess, but shouldn’t we try? How valuable would it be if we knew a forced ranking of every software developer in the world? We don’t even need to be that accurate. If we could merely separate the top quartile, we would have ridiculously valuable data for recruiting and hiring.  We actually invested in a company that was using pairwise (1 vs 1) competition style rankings of people to generate this exact data.  It didn’t work out for external factors, but I still believe the data would have been highly accurate and incredibly valuable.  

The lesson we should take from ELO ratings is really the same lesson all of us learned in  college.  People should be graded on a curve.  In marketplace 5-star lingo, someone who gets 4.8 stars might actually be 10 times better than a 4.7 person.  Or they might be the same.  Just need to graph out the distribution curve of feedback and grade people according to a standard deviation.  In ELO rankings, this happens naturally by bumping people up or down the scale based in their wins or losses versus other users.  This can be accomplished easily in a marketplace if the same user has ranked 10 different things.  

And now, off to Dribbble:

Who’s the best graphic designer in the world? It’s a very tough question to answer, but Dribbble provides some answers.  You can go to their site and sort descending by number of likes.   Pretty damn good designers at the top.  This user-generated data based on likes (and not on feedback) is way more meaningful to separate the wheat from the chaff.    

And to Google:

Google is truly the innovator here.  SEO should serve as a very informative field since Google does a pretty good job of picking the top 1-10 webpages out of 30 trillion options for every search query.   To oversimplify everything, Google started with the observation that website links were a great indicator of authority and importance.  Over the past 20 years, they’ve added another 150+ behavioral factors to assess importance and relevance of any webpage to any search query.  One of the great (and scary) parts of this whole Internet thing is that we can track and analyze pretty much everything that everyone does online.  So, we know if people spend 5 seconds or 5 minutes looking at a profile.  Or if they hit like at a 20% rate or a 2% rate.   I believe that behavioral data — data about time on page, click-thru %, % like rate, etc will be one of the more meaningful opportunities to identify the best in any network of lots of people or goods.    

Marketplaces are WAY behind – most have a single search relevance function based on some sort of keyword and a simple feedback score sort option.   Over time, marketplaces will develop more advanced algorithms that incorporate more behavioral data – things like job approval rate %, message response time, on-time delivery %, etc.  

Who’s the best chef in the world?

Easy.  Just look at the 180 or so 3-star Michelin chefs.  It’s probably one of those. Why doesn’t a similar ranking system exist for VCs, founders, sales reps, software developers, or admin assistants.  Well, for one – the Michelin guide is a unique and amazing institution.  Two –  nobody has really tried.  Could you survey and ask 10,000 people who is the best VC you’ve ever worked with directly? What would the results be? Would they be correlated with the VC performance?  I started a habit several years ago that has been very helpful in my career.  After most meetings, if there’s a good connection, the 2 parties ask, “how can I help?”  I’ve tried several different asks  but my favorite is to simply ask for, “please introduce me to the best entrepreneur you know.”  Interestingly enough, most people have no problem identifying who that is and I get some fabulous intros this way.  However, if I asked for, please introduce me to all the 5-star entrepreneurs you know, I think the results would be very different and I’d be left with all the filtering on my plate.  I strongly believe that humans are exceptionally good at assessing relative quality and absolutely terrible at assessing absolute value.  It’s easy to answer which hamburger was better – McDonalds or Roam Burger.  It’s very hard to answer, how good was McDonalds.  

Is my dad qualified as a VC?

I love my dad – he’s as unique as they come, a lifelong electrical engineer, and he’s grown an interest in startup and angel investing.  He met a random startup entrepreneur and decided to invest.  I checked out the profile and thought it was in the bottom 20% of founders I’ve met.  So – the question is – who is more qualified to rank the founders?  And should it matter? I believe it does, but every single marketplace I know treats all user feedback the same.  A Yelp review from a Michelin food critic counts just as much as the Yelp review from an annoying teenager that got rude service on their Groupon date. How could that possibly be the right approach?  User authority and relevance is still completely missing from marketplace feedback systems.  Marketplaces will eventually follow in Google’s footsteps by introducing some notion of user authority.  

————

We’re clearly still in the early days of marketplace science.  We’re doing ok with our current systems to identify the negative users and products in a marketplace.  But, we have a very long way to go to get great at separating the wheat from the chaff and identifying the absolute best people and products. 

I believe the biggest opportunities are in the following themes: 

1) Grading on a curve (ELO)

2) Analyzing user behavior

3) Asking for relative vs absolute value (who’s better / best)

4) Utilizing user authority (like PageRank)

5) Using more social signals (like Dribbble)

If you’re a marketplace entrepreneur out there doing interesting things to improve feedback science, please do reach out.  Would love to hear from you.  

Congratulations to Upwork


This post is by A Crowded Space from A Crowded Space

A huge congratulations to the entire Upwork team on a successful IPO! This exciting milestone for the freelance economy cements Upwork’s place as the dominant marketplace in the industry.

image

I was fortunate enough to be on the founding team of oDesk (now Upwork). When I joined, it was just 4 of us hacking away on crude systems with almost no budget. I remember when I made that first flight out to San Francisco from Boston to meet the team in 2004, the company was down to its last $20K in the bank. Since I was young and foolish, that didn’t deter me from joining full time.  

Very shortly after I joined, Greg Gretsch (now my partner at Jackson Square Ventures) co-led oDesk’s Series A along with Venky Ganesan (partner at Menlo Ventures and lead investor in Rev.com). Since then, the company has gone through an amazing journey.  To celebrate today’s public debut, I’d like to take a moment to reflect on the journey and share some of the lessons learned.

Discover Your Why

Simon Sinek is famous for his bestselling book, “Start with Why,” and the theory of acting with purpose. In my case, in the early days of oDesk, I didn’t start with why, but I quickly discovered it.  My first role was in sales and the buyers on the platform absolutely loved the access to global freelancers, the low hourly rates, and the full transparency and flexibility in the system. But it wasn’t until a little later when I spent more time with the freelancer side that I discovered the true power and potential significance of the platform.  

Early on, we would routinely get emails and chats from freelancers in Russia, Ukraine, India, Bangladesh, and the Philippines expressing tremendous thanks. Upwork had truly life-changing potential. These talented and diligent individuals were able to find work, increase their pay (sometimes by 5X), and gain the freedom and flexibility that comes with freelancing. That was the purpose, and still is to this day.

Upwork has built a global meritocracy, providing access to high-quality jobs and earning potential for the right people, anywhere in the world.

Simplify vs Complexify

I’m proud to have been a part of such an incredibly bright team. We would engage in some rigorous intellectual debates about the pros and cons of pretty much everything in the marketplace – many features or policies would benefit one side of the marketplace while potentially harming the other side. Sometimes this debate is good, but sometimes it is poisonous.

The catch 22 of working with very smart people is that they have an ability to understand a lot of complex information at once, which can translate into an overly complicated point of view. But you need simplicity to build a great enduring product and company. I remember one particularly heated debate over something as (seemingly) trivial as a default feedback rating for new freelancers on the platform. The argument was that a new “unproven” freelancer was actually better and should be ranked higher than a “proven” low-feedback freelancer.  Therefore, the new freelancer should receive a default rating somewhere in the middle of the pack.  Fortunately, we decided not to pursue this path as it would have provided misleading information. The correct answer is to closely manage the overall network – promote the good people and kick out the bad people. Simple.  

Mistakes of Hiring

Like most founding employees, people tend to ask me what lessons I learned throughout my tenure at the company (hence, this post). While it may seem obvious, I can say that hiring mistakes are what taught me the most. When you are in hyper-growth mode, recruitment takes place at a breakneck speed. I hired a lot of people in a short amount of time and consequently made many mistakes.

The most acute mistakes were made when I felt a ton of pressure to move quickly, so I’d hire who I thought to be the best of a batch of candidates. In retrospect, it was really just hiring within a local maximum. It would have been so much more productive and beneficial to the greater company and team if we had slowed down. Waiting until you find a truly amazing candidate to bring on board is always worth the wait.  

Realistically for entrepreneurs, no matter how hard you try, you’re going to make hiring mistakes. What’s important is to correct them quickly. As I grew to understand the careful and strategic practice of recruitment, I developed an ability to make tough decisions quickly. I remember when we had a candidate join the marketing team and even on the second day, it was clear the fit wasn’t right on either side. By the end of the week, we’d parted ways, and I was nervous how a hiring 180 would be received at the board level. To my surprise, I received praise for making the tough decision quickly, and it became a culturally-rooted practice at the organization.   

Time for Banter

Jason Chicola and I were both on the founding team at oDesk. We lived together in a crappy apartment in San Francisco and commuted together from SF down to the peninsula every day. We were effectively together 24/7.

The interesting thing that developed was a separation of time to discuss short term goals and long term brainstorming. When we were in the office together, it was all business and we were relentlessly focused on hitting quarterly KPIs and OKRs (although back then we just called them “goals”).  Anytime I would bring up a crazy idea during the day, Jason would typically throw something at me and tell me it was the dumbest idea ever. But then we would get in the car and begin our hour-long trek back to San Francisco, when we moved into “banter” mode. It became a dedicated time for far-out ideas, brainstorming, long-term vision discussions, and theoretical arguments. The whole branding of Upwork’s Hire, Manage, Pay came out of one of these banter sessions. It’s important to have time to talk about risky ideas, just as long as it doesn’t detract from the first priority of continuing to hit growth goals. Having an hour set aside per day helped us stick to that.

Getting Served

When I was running the sales and customer service team in the early days, like most services, we would have a variety of complaints come in from buyers, freelancers, and other disgruntled people. We would even get some “prank” phone calls – one local developer called up to tell me that we were worse than Saddam Hussein. A different disgruntled freelancer once got in a dispute with a buyer and then hijacked the DNS records to the website and put up some Islamic text on the homepage.

And one time, I personally got served with a claim that a freelancer had stolen IP and we were being sued for ~$60k. It turned out to be totally bogus, but it taught me an important lesson. At first all of these things bothered me to no end, but I gradually came to the realization that success in a marketplace will likely disrupt some incumbents, and there will be people that try to fight you along the way. Don’t let it disrupt your core vision and goals.There will be a much bigger majority of people that are cheering for your success, and a more vocal, but much smaller group hoping for your demise.

Full Circle

My time at oDesk / Upwork directly led to my current venture capital career. Greg Gretsch was and remains on the board and is my partner at Jackson Square Ventures. Back in 2004 – 2010, he would routinely send me early stage companies to check out as part of his diligence process. I would frequently sign up and test out the new services as one of a startup’s first customers. I’d then report my findings directly back to Greg. When I left in 2010, Greg invited me to lunch and said a) I can’t believe you left and b) since you did, I think you should join us in venture capital. That lunch began my career in venture and my focus on marketplace investments.

Congrats again to the Upwork team.  It was an absolute honor working with such talented founders Odysseas Tsatalos and Stratis Karamanlakis and CEOs Gary Swart and Stephane Kasriel.  I’m extremely proud of what Upwork has built and I’m thrilled for this milestone. .  

Onward,

-Josh

Congratulations to Upwork


This post is by A Crowded Space from A Crowded Space

A huge congratulations to the entire Upwork team on a successful IPO! This exciting milestone for the freelance economy cements Upwork’s place as the dominant marketplace in the industry.

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I was fortunate enough to be on the founding team of oDesk (now Upwork). When I joined, it was just 4 of us hacking away on crude systems with almost no budget. I remember when I made that first flight out to San Francisco from Boston to meet the team in 2004, the company was down to its last $20K in the bank. Since I was young and foolish, that didn’t deter me from joining full time.  

Very shortly after I joined, Greg Gretsch (now my partner at Jackson Square Ventures) co-led oDesk’s Series A along with Venky Ganesan (partner at Menlo Ventures and lead investor in Rev.com). Since then, the company has gone through an amazing journey.  To celebrate today’s public debut, I’d like to take a moment to reflect on the journey and share some of the lessons learned.

Discover Your Why

Simon Sinek is famous for his bestselling book, “Start with Why,” and the theory of acting with purpose. In my case, in the early days of oDesk, I didn’t start with why, but I quickly discovered it.  My first role was in sales and the buyers on the platform absolutely loved the access to global freelancers, the low hourly rates, and the full transparency and flexibility in the system. But it wasn’t until a little later when I spent more time with the freelancer side that I discovered the true power and potential significance of the platform.  

Early on, we would routinely get emails and chats from freelancers in Russia, Ukraine, India, Bangladesh, and the Philippines expressing tremendous thanks. Upwork had truly life-changing potential. These talented and diligent individuals were able to find work, increase their pay (sometimes by 5X), and gain the freedom and flexibility that comes with freelancing. That was the purpose, and still is to this day.

Upwork has built a global meritocracy, providing access to high-quality jobs and earning potential for the right people, anywhere in the world.

Simplify vs Complexify

I’m proud to have been a part of such an incredibly bright team. We would engage in some rigorous intellectual debates about the pros and cons of pretty much everything in the marketplace – many features or policies would benefit one side of the marketplace while potentially harming the other side. Sometimes this debate is good, but sometimes it is poisonous.

The catch 22 of working with very smart people is that they have an ability to understand a lot of complex information at once, which can translate into an overly complicated point of view. But you need simplicity to build a great enduring product and company. I remember one particularly heated debate over something as (seemingly) trivial as a default feedback rating for new freelancers on the platform. The argument was that a new “unproven” freelancer was actually better and should be ranked higher than a “proven” low-feedback freelancer.  Therefore, the new freelancer should receive a default rating somewhere in the middle of the pack.  Fortunately, we decided not to pursue this path as it would have provided misleading information. The correct answer is to closely manage the overall network – promote the good people and kick out the bad people. Simple.  

Mistakes of Hiring

Like most founding employees, people tend to ask me what lessons I learned throughout my tenure at the company (hence, this post). While it may seem obvious, I can say that hiring mistakes are what taught me the most. When you are in hyper-growth mode, recruitment takes place at a breakneck speed. I hired a lot of people in a short amount of time and consequently made many mistakes.

The most acute mistakes were made when I felt a ton of pressure to move quickly, so I’d hire who I thought to be the best of a batch of candidates. In retrospect, it was really just hiring within a local maximum. It would have been so much more productive and beneficial to the greater company and team if we had slowed down. Waiting until you find a truly amazing candidate to bring on board is always worth the wait.  

Realistically for entrepreneurs, no matter how hard you try, you’re going to make hiring mistakes. What’s important is to correct them quickly. As I grew to understand the careful and strategic practice of recruitment, I developed an ability to make tough decisions quickly. I remember when we had a candidate join the marketing team and even on the second day, it was clear the fit wasn’t right on either side. By the end of the week, we’d parted ways, and I was nervous how a hiring 180 would be received at the board level. To my surprise, I received praise for making the tough decision quickly, and it became a culturally-rooted practice at the organization.   

Time for Banter

Jason Chicola and I were both on the founding team at oDesk. We lived together in a crappy apartment in San Francisco and commuted together from SF down to the peninsula every day. We were effectively together 24/7.

The interesting thing that developed was a separation of time to discuss short term goals and long term brainstorming. When we were in the office together, it was all business and we were relentlessly focused on hitting quarterly KPIs and OKRs (although back then we just called them “goals”).  Anytime I would bring up a crazy idea during the day, Jason would typically throw something at me and tell me it was the dumbest idea ever. But then we would get in the car and begin our hour-long trek back to San Francisco, when we moved into “banter” mode. It became a dedicated time for far-out ideas, brainstorming, long-term vision discussions, and theoretical arguments. The whole branding of Upwork’s Hire, Manage, Pay came out of one of these banter sessions. It’s important to have time to talk about risky ideas, just as long as it doesn’t detract from the first priority of continuing to hit growth goals. Having an hour set aside per day helped us stick to that.

Getting Served

When I was running the sales and customer service team in the early days, like most services, we would have a variety of complaints come in from buyers, freelancers, and other disgruntled people. We would even get some “prank” phone calls – one local developer called up to tell me that we were worse than Saddam Hussein. A different disgruntled freelancer once got in a dispute with a buyer and then hijacked the DNS records to the website and put up some Islamic text on the homepage.

And one time, I personally got served with a claim that a freelancer had stolen IP and we were being sued for ~$60k. It turned out to be totally bogus, but it taught me an important lesson. At first all of these things bothered me to no end, but I gradually came to the realization that success in a marketplace will likely disrupt some incumbents, and there will be people that try to fight you along the way. Don’t let it disrupt your core vision and goals.There will be a much bigger majority of people that are cheering for your success, and a more vocal, but much smaller group hoping for your demise.

Full Circle

My time at oDesk / Upwork directly led to my current venture capital career. Greg Gretsch was and remains on the board and is my partner at Jackson Square Ventures. Back in 2004 – 2010, he would routinely send me early stage companies to check out as part of his diligence process. I would frequently sign up and test out the new services as one of a startup’s first customers. I’d then report my findings directly back to Greg. When I left in 2010, Greg invited me to lunch and said a) I can’t believe you left and b) since you did, I think you should join us in venture capital. That lunch began my career in venture and my focus on marketplace investments.

Congrats again to the Upwork team.  It was an absolute honor working with such talented founders Odysseas Tsatalos and Stratis Karamanlakis and CEOs Gary Swart and Stephane Kasriel.  I’m extremely proud of what Upwork has built and I’m thrilled for this milestone. .  

Onward,

-Josh

Thinking in Bets — A Book Review


This post is by A Crowded Space from A Crowded Space

I recently finished reading Annie Duke’s new book, Thinking in Bets.

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If you’ve never heard of her, you should know that Annie Duke is a pro poker player and one of the world’s best female players.  She’s fun to watch and has amassed over $4M in tournament winnings and has won a World Series of Poker bracelet.   

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Annie has turned her attention to the business consulting world.  Interestingly enough, the best poker players have gained a specific set of skills that are highly applicable to the business world.  The fast-paced decision making in poker games forces players to make, evaluate, and analyze thousands of decisions per session with incomplete information.  Luckily for poker players – they have a very rapid closed-loop feedback system.  They see the results of their decisions at the end of each hand every few minutes.  Poker turns out to be an exceptional decision training ground.  

Overall the book is good, not great.  For people who have read a lot of behavioral economics or Kahneman or Ariely, the material will be a little basic.  For a more academic review of some of these topics I’d suggest checking out Superforecasting. Regardless, the key messages of the book are good lessons for any business manager.

Here’s my summary:

1) Stop using words like never and always.  Almost nothing in the real world can be described that way.  Instead, speak with confidence levels, eg There is an 80% chance of success.  

“It’s easy to win a bet against someone who takes extreme positions.” – Annie Duke

2) Putting skin in the game sharpens thinking.  Once $$ is on the line in a bet, the bettors are forced to start thinking more clearly about the odds of each possible outcome and the various reasons each outcome might occur.

People are more willing to offer their opinion when the goal is to win a bet rather than get along with people in a room.

– Annie Duke

3) Be outcome-blind when evaluating decisions.  It’s best to not know the outcome when evaluating your decision process.  If you know that calling a gut-shot straight draw worked on the river, you’ll be inclined to think it was a great decision.  It was not.  Conversely, if an initiative did not work, it wasn’t necessarily a bad decision to try.  This can be summarized w the term “resulting.”

Resulting, assuming that our decision-making is good or bad based on a small set of outcomes, is a pretty reasonable strategy for learning in chess. But not in poker—or life. 

– Annie Duke

4) Utilize dissenters – groups with diverse beliefs make better decisions.  In the absence of truly diverse opinions, you can hack this by appointing a dissenter or forcing people to argue the other sides.  

Skepticism should be encouraged and, where possible, operationalized. The term “devil’s advocate” developed centuries ago from the Catholic Church’s practice, during the canonization process, of hiring someone to present arguments against sainthood.

– Annie Duke

5) Scenario mapping can be very useful. For any decision, you should be able to map out the different possible outcomes and the relative likelihood of each one.  Obviously needs to add up to 100%.  This process is good for decision making but also good for removing some hindsight bias and outcome bias.  Eg, If it was unsuccessful, you always knew there was a 25% chance of that, so it could still be the right decision even if it didn’t work.  

…military units and major corporations sometimes use an exercise called scenario planning. The idea is to consider a broad range of possibilities for how the future might unfold to help guide long-term planning and preparation.”

6) Work backwards.  One helpful tactic for forming a coherent business strategy can be to start w a 10 year outcome in mind.  Then just work backwards.  What needs to happen for that vision to come true.  Try doing this with both successful and unsuccessful outcomes.  Eg, let’s imagine we go bankrupt in 3 years – what are the potential reasons this might have happened.  It turns out, understanding the negative reasons and outcomes may be more impactful towards the ultimate success.  

“A premortem is an investigation into something awful, but before it happens.”

– Annie Duke

—-

Those are my key takeaways.  And the way I intend to practice these is to simply make more bets.  I have a number of “long bets” with various friends about the number of drone deliveries in SF in 2025, the number of driverless cars, and Amazon’s stock price in 2026.  I intend to keep making more of these bets – let me know what you want to bet on? 🙂

Struggling to Tell the Story


This post is by A Crowded Space from A Crowded Space

I have a couple portfolio companies that struggle with how to tell their story.  Their businesses are doing great, growing like crazy, but the founders still find it difficult to concisely and clearly craft the message to other potential investors, employees, prospects, and customers.

Here are my quick thoughts on how to tell a better story.

1) Start with Why.  Watch this Ted Talk by Simon Sinek. It’s a great outline for thinking about the messaging.

2) Keep it Simple.  Founders have a tendency to talk about complexity, because they understand the complexity of their business very well.  But the brilliant entrepreneurs make the complex become simple.  The complexity of their business tends to stay internal – it is not outward facing.  Tell a simple story and then be ready to dig into complexity wherever your audience would like to dig in.  

3) Practice and Iterate.  Explain it to people completely unfamiliar with your business and industry.  Try it every day with random people that you meet.  I did this in the early days of oDesk (now Upwork) every day.   I made tons of calls to customers, told people at the bar, told people on the bus, and hardest of all, I told my mom.  Each time I would try varying the message a bit and gauging the reaction.  It’s a great way to quickly refine the message.  Pay close attention to the questions people ask and iterate until people “get it” instantly.  This practice must be done in-person, it cannot be done by A/B testing email messages. 

4) Go Long, then Short.  First you should be able to describe a master plan and a 20-year vision for the company in short concise statements.  Tesla has one of the best master plans.

  1. Build sports car
  2. Use that money to build an affordable car
  3. Use that money to build an even more affordable car
  4. While doing above, also provide zero emission electric power generation options

Once you’ve provided the long term vision, then you can explain the much shorter term go-to-market plan.  You should also have a very clear 1 year plan that describes how you’re executing on the next simple step along your master plan.  These 20 and 1 year plans need to be a key part of the narrative.  Start with the long game to provide context, then describe the 1 year plan to build confidence.

And now… a few book recommendations to help you on your journey.  

Marketplace Rake Factors


This post is by A Crowded Space from A Crowded Space

We all know that rake varies greatly in marketplace businesses.  For an overview of some different rakes, check out Bill Gurley’s work here

I’ve been thinking about some new businesses that are not yet monetizing and trying to figure out what the potential take rate will be in the future.  In order to do this, I mapped out a variety of factors that determine the rough rake that a marketplace can capture.  The map is far from scientific… it’s based on my observations of well-known marketplace businesses and estimates of the critical factors that drive rake up or down.  Note that these factors are also not mutually exclusive, a platform could have some things driving up the rake and other factors decreasing it.  

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The average rake I see in marketplaces is around 20%.  The various factors above can drive it up or down.  For example, let’s look at Ebay.  If you start from 20%, then deduct 5% for transparent fees and 5% more for buyer beware – you arrive at 10%.  Actual rake is about 9%.  However, for categories like cars and trucks, the rake is substantially lower since they are high price items. 

An analysis of Airbnb would be 20% + 5% for insurance + 3% for scheduling – 5% for high price items – 5% for transparent fees and – 10% for users meet in person = 8% total.  Actual is 9-15% depending on overall price. 

iOS would very simply be 20% + 10% for a monopoly platform – 5% for transparent fees = 25% with an actual of 30%.  

Again – these are far from perfect, only to be used as rough guidelines.  Let me know if I missed any critical factors or comment below with your marketplace rake and an analysis based on these factors.  I’d be happy to tune the numbers if I get a lot more data. 

Marketplace Rake Factors


This post is by A Crowded Space from A Crowded Space

We all know that rake varies greatly in marketplace businesses.  For an overview of some different rakes, check out Bill Gurley’s work here

I’ve been thinking about some new businesses that are not yet monetizing and trying to figure out what the potential take rate will be in the future.  In order to do this, I mapped out a variety of factors that determine the rough rake that a marketplace can capture.  The map is far from scientific… it’s based on my observations of well-known marketplace businesses and estimates of the critical factors that drive rake up or down.  Note that these factors are also not mutually exclusive, a platform could have some things driving up the rake and other factors decreasing it.  

image

The average rake I see in marketplaces is around 20%.  The various factors above can drive it up or down.  For example, let’s look at Ebay.  If you start from 20%, then deduct 5% for transparent fees and 5% more for buyer beware – you arrive at 10%.  Actual rake is about 9%.  However, for categories like cars and trucks, the rake is substantially lower since they are high price items. 

An analysis of Airbnb would be 20% + 5% for insurance + 3% for scheduling – 5% for high price items – 5% for transparent fees and – 10% for users meet in person = 8% total.  Actual is 9-15% depending on overall price. 

iOS would very simply be 20% + 10% for a monopoly platform – 5% for transparent fees = 25% with an actual of 30%.  

Again – these are far from perfect, only to be used as rough guidelines.  Let me know if I missed any critical factors or comment below with your marketplace rake and an analysis based on these factors.  I’d be happy to tune the numbers if I get a lot more data. 

Welcome Victor Echevarria


This post is by A Crowded Space from A Crowded Space

I’m thrilled to announce that Victor Echevarria has joined the Jackson Square Ventures team. 

First – a quick history: Jackson Square Ventures is 6 years old, although many of us have been in venture for significantly longer since we spun out of a larger firm about 6 years ago. JSV is different than other firms – we focus on investing in real companies that are pursuing iconic outcomes. 

What does that mean? 

Real companies are anti-hype. Crypto and AI are not tossed around as buzzwords. They are focused on improving massive, existing markets. They talk about a transformational long-term vision for an industry and they focus their time and energy internally to constantly improve their team and their business. Iconic outcomes are the results of patience, discipline, and strong execution. They take time to build – but they also stand the test of time. 

It takes a special culture to go after these opportunities. It takes investors with the conviction to be non-consensus, the discipline to stay focused on sustainable and defensible growth, and the patience to pursue only the iconic-potential outcomes. Victor is a perfect cultural fit. 

In the process of recruiting to the JSV team, we looked at over 1,000 candidates both inbound, outbound, and within our own network. The conversations with Victor quickly accelerated because we felt a very strong alignment with our culture and mission. 

The venture job comes down to 3S’s – sourcing, selection, and stewardship. Victor demonstrated strength in each of these areas. With respect to sourcing, one thing that made Victor stand out was the consistent relationship strength within his network. It’s one thing to know a bunch of people, it’s a whole different level when everyone you’ve worked with in your career truly raves about the connection. For selection and stewardship – we were impressed by Victor’s insight into various potential deals that we looked at together and are confident that his experience as an operator and executive, seeing both success and failure, makes him well equipped to help other founders build iconic companies. 

Victor is a serial entrepreneur, most recently founding Remedy Labs, and a former executive at TaskRabbit. He has a broad experience across marketplaces, healthcare, and semiconductors. I’m thrilled to be working with him and am looking forward to seeing Victor make his mark on the world of venture capital. 

Welcome on board. 

Follow Victor on Twitter. 

——

PS – special thanks to Semil Shah at Haystack fund that first introduced us to Victor. Appreciate it. 

PPS – I would also like to extend a big thank you to the many other extremely talented individuals that we’ve talked with about potentially joining the team. We enjoyed getting to know all of you and hope to stay in touch.

Welcome Victor Echevarria


This post is by A Crowded Space from A Crowded Space

I’m thrilled to announce that Victor Echevarria has joined the Jackson Square Ventures team. 

First – a quick history: Jackson Square Ventures is 6 years old, although many of us have been in venture for significantly longer since we spun out of a larger firm about 6 years ago. JSV is different than other firms – we focus on investing in real companies that are pursuing iconic outcomes. 

What does that mean? 

Real companies are anti-hype. Crypto and AI are not tossed around as buzzwords. They are focused on improving massive, existing markets. They talk about a transformational long-term vision for an industry and they focus their time and energy internally to constantly improve their team and their business. Iconic outcomes are the results of patience, discipline, and strong execution. They take time to build – but they also stand the test of time. 

It takes a special culture to go after these opportunities. It takes investors with the conviction to be non-consensus, the discipline to stay focused on sustainable and defensible growth, and the patience to pursue only the iconic-potential outcomes. Victor is a perfect cultural fit. 

In the process of recruiting to the JSV team, we looked at over 1,000 candidates both inbound, outbound, and within our own network. The conversations with Victor quickly accelerated because we felt a very strong alignment with our culture and mission. 

The venture job comes down to 3S’s – sourcing, selection, and stewardship. Victor demonstrated strength in each of these areas. With respect to sourcing, one thing that made Victor stand out was the consistent relationship strength within his network. It’s one thing to know a bunch of people, it’s a whole different level when everyone you’ve worked with in your career truly raves about the connection. For selection and stewardship – we were impressed by Victor’s insight into various potential deals that we looked at together and are confident that his experience as an operator and executive, seeing both success and failure, makes him well equipped to help other founders build iconic companies. 

Victor is a serial entrepreneur, most recently founding Remedy Labs, and a former executive at TaskRabbit. He has a broad experience across marketplaces, healthcare, and semiconductors. I’m thrilled to be working with him and am looking forward to seeing Victor make his mark on the world of venture capital. 

Welcome on board. 

Follow Victor on Twitter. 

——

PS – special thanks to Semil Shah at Haystack fund that first introduced us to Victor. Appreciate it. 

PPS – I would also like to extend a big thank you to the many other extremely talented individuals that we’ve talked with about potentially joining the team. We enjoyed getting to know all of you and hope to stay in touch.

The Digital Doctor @ JSV Book Club


This post is by A Crowded Space from A Crowded Space

Jackson Square Ventures is excited to be hosting the next installment of the JSV Book Club. 

When: December 13th, 2017 @ 5:30 – 8 pm. 

Where: The Whiskey Room, 100 Vallejo St, San Francisco, CA

Who: Bob is a renowned UCSF internist, founder of the hospitalist movement, and former chair of the American Board of Internal Medicine.  He is a national leader in the fields of patient safety and healthcare quality. He is well known for his iconoclastic — and humorous — viewpoints on the pressing healthcare issues of the day, including the role of patients and physicians in medical care. Bob will talk about his book and his work, followed by a fireside chat with New York Times writer and author,  Katie Hafner.

Attendees are all founders, investors, and executives from around Silicon Valley.  

Why: Dr. Bob Wachter is the chairman of the Department of Medicine at UCSF, the most influential physician executive in the US, and the bestselling author of The Digital Doctor.  Read the book (or skim the notes), and come on by to discuss the intersection of healthcare and technology – a mega-trend that effects us all.  

How: Apply for invite at events@jsv.com.

Sponsored by: McKool Smith.  

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6 Tips for Managing a Board


This post is by A Crowded Space from A Crowded Space

I work with a number of first-time founders in our portfolio.  One thing some of them struggle with is how to deal with the board.  It’s often the first time they are involved in any kind of board meetings.  Here are a few pieces of advice I give to these first time founders.  These tips will make your life easier and your board will be more harmonious… I promise. 

1) Regular / Consistent Communication – I can’t overemphasize the importance of this. 

When a board member or investor doesn’t know anything about what’s going on, they get nervous.  When they get nervous, they cause problems for founders.  You don’t want nervous investors – it’s very bad for business.  

When I was on the early team at oDesk – we provided a web dashboard to all board members that showed a few charts and KPIs that people could access anytime they wanted to. It showed revenue, hours worked, feedback scores, new jobs, and other key stats about the business and was updated every 30 minutes.  Some board members (you know who you are 😉 would actually check this dashboard 10 times per day.  That was certainly overkill, but it highlights the need for regular communication.  The board knew exactly how the business was doing at all times.  There were never any surprises – they could see the progress or lack of progress on all key metrics and reach out and ask about any issues. 

My advice is to spend the time to build the infrastructure for a dashboard or a regular monthly metrics report that can be emailed to all investors.  It goes a long ways to keeping everyone on the same page and makes your life as a CEO much easier.  Add a couple sentences of commentary to the report that demonstrates you understand why the numbers are moving up or down and for bonus points, what you’re going to do next to improve the numbers. 

2) No Negative Surprises – hat tip to Jason Seats at Techstars for this one.  I like surprises – as long as they are positive.  But I never want to get negative surprises about the business at a board meeting.  (start at 1:40)

 If you have bad news – just share it with the board immediately. It goes a long ways to building trust in the relationship. Receiving delayed noticed of negative surprises just makes investors wonder what else we don’t know about.  I’ve also noticed several times that the best CEOs at the best businesses actually report the most problems.  This makes me feel good.  If the CEO is reporting it, it means they know about it and are addressing the problem.  But if the CEO is just reporting that everything is great, then watch out!

3) Remind the Board – Remember that board members see an in-depth look at the business once every couple months.  You live it in every hour of every day.  It’s extremely helpful to remind the board at each meeting – what did we say we were going to do last time and what have we done.  This builds credibility in your ability to execute.  It’s also a good management practice to use with your executive team.  Keep a record of your key initiatives and be transparent with the results.  Some things work out and some don’t – but the important thing is to keep the company on a steep learning curve by iterating frequently and being disciplined about executing on the planned initiatives.  Then reflect every so often about where you should double down and where to cut resources. 

4) What’s Changed – It’s also helpful to demonstrate to your board that you are on top of all trends related to your business.  One thing I like to see is a “what’s changed” slide in the deck.  This can give just a few bullet points of competitive dynamics, big BD deals, regulation changes, etc.  If a big incumbent makes some announcement about a competitive service, address it head on and discuss the risks to your business.  Investors have a tendency to be paranoid – you should demonstrate some healthy paranoia as well. 

5) Ask One Big Question – Several days prior to the board meeting, you should email all board members with one big question for discussion.  Think about where you most need board level input and just tell us to focus on that area.  If you don’t guide the conversation, you’ll likely end up getting little bits of product feedback or random ideas that you’ve already thought of and dismissed.  Sending out the question gives everyone a chance to think about it and think about how they can add value to the discussion. 

6) Board Meeting Agenda – 2-3 hours is ideal.  Take care of quick legal matters and option grants and the like in the beginning since it usually just takes a minute.  Then move to financial updates and product and growth updates with your executive team.  Then, leave ~15 min or so at the end of the meeting to have just the investors and the CEO alone without any other team members.  This can sometimes lead to a more frank conversation.  Then the CEO should depart leaving just the outside investors for a few minutes.  Then the board should bring the CEO back in and deliver any constructive feedback directly to the CEO.  

5 min – legal matters

15 min – financial update

1:15 – 2:15 – department updates; sales, marketing, product, etc

15 min – CEO & Investors only – open discussion

5 min – investors only. 

6 Tips for Managing a Board


This post is by A Crowded Space from A Crowded Space

I work with a number of first-time founders in our portfolio.  One thing some of them struggle with is how to deal with the board.  It’s often the first time they are involved in any kind of board meetings.  Here are a few pieces of advice I give to these first time founders.  These tips will make your life easier and your board will be more harmonious… I promise. 

1) Regular / Consistent Communication – I can’t overemphasize the importance of this. 

When a board member or investor doesn’t know anything about what’s going on, they get nervous.  When they get nervous, they cause problems for founders.  You don’t want nervous investors – it’s very bad for business.  

When I was on the early team at oDesk – we provided a web dashboard to all board members that showed a few charts and KPIs that people could access anytime they wanted to. It showed revenue, hours worked, feedback scores, new jobs, and other key stats about the business and was updated every 30 minutes.  Some board members (you know who you are 😉 would actually check this dashboard 10 times per day.  That was certainly overkill, but it highlights the need for regular communication.  The board knew exactly how the business was doing at all times.  There were never any surprises – they could see the progress or lack of progress on all key metrics and reach out and ask about any issues. 

My advice is to spend the time to build the infrastructure for a dashboard or a regular monthly metrics report that can be emailed to all investors.  It goes a long ways to keeping everyone on the same page and makes your life as a CEO much easier.  Add a couple sentences of commentary to the report that demonstrates you understand why the numbers are moving up or down and for bonus points, what you’re going to do next to improve the numbers. 

2) No Negative Surprises – hat tip to Jason Seats at Techstars for this one.  I like surprises – as long as they are positive.  But I never want to get negative surprises about the business at a board meeting.  (start at 1:40)

 If you have bad news – just share it with the board immediately. It goes a long ways to building trust in the relationship. Receiving delayed noticed of negative surprises just makes investors wonder what else we don’t know about.  I’ve also noticed several times that the best CEOs at the best businesses actually report the most problems.  This makes me feel good.  If the CEO is reporting it, it means they know about it and are addressing the problem.  But if the CEO is just reporting that everything is great, then watch out!

3) Remind the Board – Remember that board members see an in-depth look at the business once every couple months.  You live it in every hour of every day.  It’s extremely helpful to remind the board at each meeting – what did we say we were going to do last time and what have we done.  This builds credibility in your ability to execute.  It’s also a good management practice to use with your executive team.  Keep a record of your key initiatives and be transparent with the results.  Some things work out and some don’t – but the important thing is to keep the company on a steep learning curve by iterating frequently and being disciplined about executing on the planned initiatives.  Then reflect every so often about where you should double down and where to cut resources. 

4) What’s Changed – It’s also helpful to demonstrate to your board that you are on top of all trends related to your business.  One thing I like to see is a “what’s changed” slide in the deck.  This can give just a few bullet points of competitive dynamics, big BD deals, regulation changes, etc.  If a big incumbent makes some announcement about a competitive service, address it head on and discuss the risks to your business.  Investors have a tendency to be paranoid – you should demonstrate some healthy paranoia as well. 

5) Ask One Big Question – Several days prior to the board meeting, you should email all board members with one big question for discussion.  Think about where you most need board level input and just tell us to focus on that area.  If you don’t guide the conversation, you’ll likely end up getting little bits of product feedback or random ideas that you’ve already thought of and dismissed.  Sending out the question gives everyone a chance to think about it and think about how they can add value to the discussion. 

6) Board Meeting Agenda – 2-3 hours is ideal.  Take care of quick legal matters and option grants and the like in the beginning since it usually just takes a minute.  Then move to financial updates and product and growth updates with your executive team.  Then, leave ~15 min or so at the end of the meeting to have just the investors and the CEO alone without any other team members.  This can sometimes lead to a more frank conversation.  Then the CEO should depart leaving just the outside investors for a few minutes.  Then the board should bring the CEO back in and deliver any constructive feedback directly to the CEO.  

5 min – legal matters

15 min – financial update

1:15 – 2:15 – department updates; sales, marketing, product, etc

15 min – CEO & Investors only – open discussion

5 min – investors only.