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Signs It Might Be Time To Consider Hiring A CEO

By Vinod Khosla, TechCrunch – November 11, 2012 at 08:00PM

Vinod Khosla

Editor’s note: This is Part II of a two-part guest column written by legendary Silicon Valley investor Vinod Khosla, the founder of Khosla Ventures. In Part I, he offered suggestions to help founders determine if, when, and how to avoid hiring a CEO. You can follow him on Twitter at @vkhosla.

As a founder, there sometimes comes a point in your company’s growth trajectory when you need to hire a CEO or president from the outside to get to the next level. This can be an incredibly difficult decision to make, but it’s better for you to make the decision yourself than to be told by your board that they’re hiring one whether you like it or not. That situation is avoidable both by minimizing the chance the hire needs to be made, and also making sure communication lines with your board are wide open so you’re part of the process in picking a CEO complementary to you.

Unfortunately, unreasonable founders sometimes get in the way of good execution, especially when a company gets large enough to need structured management. It’s not always possible to keep the founder as CEO, and the best indication of whether a company needs a new CEO usually comes from the management team. New team recruits may not want to join, old ones may indicate a desire to leave or get disengaged, and the whole team may approach a board requesting a change.

The first stage of a company’s growth is one in which leadership generally happens in a “hub and spoke” style, where the leader/CEO/founder(s) is (are) at the center of most decisions and integration among functions happens mostly by the CEO. A CEO and his or her co-founders operate like a “kitchen cabinet” to make most decisions relatively informally and outside any normal process. This is often what I like to call the “feel” stage, or “make it up as you go along.” There are usually fewer than 30-40 employees, and many things are in flux as the collision of the founders’ vision and the real world is still working itself out.

As a bit of a tangent – make note that the quality of the people you hired at this stage into nearly any role are critical to your future success. You want the gene pool to start A+; this will set up a positive cycle and draw more and more top people to your company. See our papers on Gene Pool Engineering and Recruiting, which dig further into this topic. If you cannot hire the A+ people, get someone who will attract them, because a company becomes the people it hires early in its life! Hiring the hirers of the future is a critical factor to future success.

Stage two of a company’s growth requires more integration, coordination, and sharing of leadership with the team as they begin to work cross-functionally and define processes and shared metrics. This is generally the stage where you want to start surrounding yourself with more senior people – both those who know the space, as well as those who bring experience from analogous areas to help you disrupt it. Usually, it’s best to have a mix of these different backgrounds, working well in “managed conflict” or “organized chaos.” At this point, you have to ask yourself as a founder – can you do this CEO job? Do you need to do it? What really matters to you most? Do you really even want to do it or just think it’s “expected” by your colleagues, family, and friends? Would you rather focus on vision and let someone else handle the details? Soraa and Lanzatech are two examples of companies with founders that looked forward to bringing in CEOs at this stage.

  • Sean Simpson (founder of Lanzatech) is a brilliant scientist, full of ideas and vision, but he came to us with what could only be described as a bad pitch with some brilliant nuggets that we picked up on. We bet on his vision and he built an excellent research operation in New Zealand, but when it became time to scale, we mutually agreed to bring in a strong business-minded CEO who understands the space well.  We were fortunate enough to find Jennifer Holmgren from UOP, who has been an excellent partner for Sean and has helped the company get to the next level with several partnerships worldwide that would have been difficult for Sean to put together. In Sean’s view, “The ideal timing for recruiting a CEO is when the technology just begins to demonstrate commercial readiness, and thus the company is on the brink of securing commercial interest.”
  • Steve DenBaars and Shuji Nakamura (co-founders of Soraa) were luminaries in LEDs, and did a great job building the technical organization around their fundamentally differentiated GaN on GaN technology, but they lacked critical business and operations skills. Steve acknowledged that he wanted to do it all, but was involved in the CEO recruiting process from the beginning and came to understand the critical importance of having strong business and operations leaders on the team. Now the company is scaling production quickly, with a professional management team onboard. “One insight for founders to recognize is that hiring a CEO and seasoned management team greatly increases the odds of a successful transition from R&D to product and revenue generation,” Steve says.

It’s worth taking a look at Noah Kagan’s blog post “Why I got fired from Facebook” for context on how excellent individual contributors (founders, but others as well), can end up being bad managers or even bad for an organization at a particular phase. There are different types of people in organizations and they have value at different phases.

Stage three of growth occurs when your business requires more functional depth and more consistent, integrated execution. Business processes need to be more defined and predictable, and the CEO becomes more of an orchestrator to make sure that each leader is driving functional excellence and all the functions are integrated across the organization. This helps to meet overall goals in keeping with an agreed upon vision.

As the company grows, you should ask yourself, what are you, as the founder, doing well and what don’t you have time for? Can you bring in a “hired gun”/partner to cover some of the time-consuming but less critical/less top-of-mind/less well-executed aspects of what you do? Maybe the right person will even help you stretch your vision. A good leader should strive to have 50 percent of their time free at the beginning of each week. This way, you can be proactive about where you want to lead instead of being reactive and buried when urgent events, emails, calls, and requests pop up. At some point, you may realize that you do not have the skills or experience to lead the organization on to its next stage of development, and/or it may be moving so fast that you don’t have the time (or often the interest) to develop them. This isn’t failure – it’s success!

There comes a time in many startups’ lifecycles when bringing in an outside CEO or president is necessary and good.  They’ll bring vital management bandwidth, knowledge to respond to the unknown unknowns, and many other executionally important attributes to help make your vision a reality.  The hardest part is trying to hire before the need – don’t wait too long. This means understanding your challenges ahead and anticipating when they might be too much to handle alone.

You should try and hire someone that shares your fundamental values about people and leadership but brings complementary skills. Don’t rush into a decision and don’t settle, but realize that your tendency may be to block any hire. Be proud that you’ve built enough value to attract a great CEO and build something even more valuable! Or, if you haven’t built enough value for whatever reason, give your shareholders a chance to recoup some value from their investments. There won’t always be consensus, because there are many hard judgment calls to make in this process, and everyone has different biases, goals, and aspirations. But the earlier you shore up the needs of your company, the less likely it is that the situation will become unpleasant for you. More likely, acting early will provide leverage and bandwidth.

Steve Crane, CEO of LightSail Energy, offered a perspective that applies to an important subset of companies:

The key transition point is when a start-up is getting ready to go to market with its first product, especially if that product is a substantial one. The company goes from being inwardly focused to being externally focused. Of course, it’s critical from the beginning to understand the market need in detail and to establish close ties with early customers. But, in my experience, everything changes when you start to ship. Completely new challenges show up all at once – customer support, scaling, managing a sales force. Most founders fail to proactively prepare for those challenges because they’re so consumed with the task of getting that first product out the door.

Avoiding Common Pitfalls Of Management Transitions

It is a common misconception that CEOs need to know the business or technical area in detail in order to be effective – this is most often not a requirement! An excellent leader with the right mindset and experience in related areas can often be better than a person with deep area expertise who “knows too much” and is overly attached to conventional wisdom vs. how things could be different.

Some of these management hires don’t work out (I’d say roughly 30 percent) and some end up not working well with the founder while potentially doing well for the company. Save your “bullets” to admit a hiring mistake and effect a change if you or the board made a hiring mistake. As hard as they might be, the best decisions you can make are ones that benefit the company, and there may come a point when it’s time to leave your baby in others’ hands. To minimize the likelihood of this happening, it’s important for the board not to force a hire without the founder’s buy-in. They should at least be transparent and say they will do it despite a founder’s objections. Brutal honesty helps greatly in this situation, and the worst case happens when the board pushes a candidate and you hold back and don’t share your reservations.

Also, hiring outside management shouldn’t be viewed as the first step in the founder’s exit. The best hired CEOs will still let the founder’s role and vision flourish while they help successfully execute it. Usually, founders are better at setting, iterating and evolving a vision, while the CEO/managers are good at helping an organization achieve the vision. As I said in Part I, a traditional manager becomes important when the critical questions are things that have been seen before, like: ”How sales people work” or “What constitutes a good VP of sales?” or “What sales cycle or sales economics really are in an existing area?”

Giving up the CEO role (or creating a president/COO role) is not easy, but it can be done gracefully so that you, as a founder, preserve your “silver bullets.” A productive transition can dramatically change the influence you have once you give up the job, and it will set the company and yourself up for long-term success.

David Friedberg, CEO of Climate Corp., has an interesting perspective (not one I completely agree with) on when a founder should stay or go:

A lot of companies have a limited opportunity in the end. Their technology or competency may have limited scope, as opposed to others that may be extensible to other markets, areas, regions, business models, etc. (i.e. Google vs Demand Media). I think when there’s a role for the founder to continue doing that first stage of innovation-driving in perpetuity, then you should stay, and will be happy doing what you do best. Otherwise, if a company scales into its ultimate opportunity and enters the optimization phase, then you should go, because your skill set does not have a great place in the now-scaled enterprise.

But make no mistake, sharing leadership can be a challenge. It’s important to have one CEO, especially as the company starts to grow. This is why keeping the founder as CEO and getting a president and/or COO for delegation makes things work better and keeps the vision intact. But (1) delegating away real authority voluntarily is key, as is being confident enough to trust your team and patient enough to not need to act as CEO on every decision. (2) You will generally not get as good a person as president or COO, as you would if you give them a CEO position. There are tradeoffs.

Entrepreneur/manager conflicts often result from entrepreneurs not completely understanding the real constraints, tasks, or roles of their core executive team, and sometimes it is the CEO who does not understand the reason they were hired. A good venture firm will have portfolio founders who have run into these situations and can advise you.

Building a startup from the ground up is a very challenging and rewarding task. I firmly believe that the key to successful companies rests most often on the founders driving the vision. However, it is almost as important that the founders have enough self-awareness to recognize when they need help. Sometimes a founder is able to steer the ship as CEO from the bare vision all the way to huge success, and we prefer this when possible, but they’re almost never able to do it alone. Working openly with your board and your team to determine what executive additions are needed at various stages is critical to your company’s success.

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An Entrepreneur’s Guide To Patents: The Basics

By Brad Woodcox, TechCrunch – Sunday November 11, 2012

Brad Woodcox

Editor’s note: Brad Woodcox is a technical specialist focusing on startup development for Novak Druce + Quigg, an intellectual property super boutique law firm. Follow him on Google+ and Twitter.

Patents. A single word that incites a fervor in the online tech blogging realm, perhaps only after the emotional responses to the iPhone vs. Android battle or TechCrunch using expletives in an article title.

With the publicity of the Apple and Samsung patent litigation, it became evident that some authors and commenters around the web do not fully understand patents and the patent system. In some instances, the scope of a patent was blown way out of proportion and deemed excessively broad. In other instances, conclusory statements were directed toward the entire patent system without an explanation or justification. For example, some people claim that patents are outdated relics that now only serve to stifle innovation. Typically, this argument has been made in regards to so-called “software patents,” but it is interpreted by many as implicating the entire patent system.

Before you accept these articles and statements as fact and write off patents completely, it might be beneficial to understand their history, the process, how they might help your current or future company, and how your company might be impacted by patents in the future. A series of articles will follow that are written in a style and format to provide the savvy entrepreneur/founder enough information to make his or her own decisions regarding patents and their applicability to the business.

A Bit Of History

Patent systems and other monopoly laws have been used throughout Europe for hundreds of years. The issue was so paramount to the U.S. founding leaders that they included its basic description in the Constitution (Article 1, Section 8). The formal U.S. patent system was established shortly after ratification of the Constitution when George Washington signed the Patent Act of 1790.

One of the key principles of the patent system is to serve as an incentive for innovation. Thomas Jefferson (who was the first patent examiner and oversaw the patent program) stated, “Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody.”

This incentive is created by granting the inventor (or owner of the patent) a temporary monopoly on the invention. The monopoly allows the inventor time to profit from the innovation to recoup the development costs. Such development costs can be rationalized for many products such as hardware or pharmaceuticals. For example, it takes millions or even billions of dollars to develop, test, and get regulatory approval for a pharmaceutical drug. If a generic manufacturer could immediately reverse engineer and produce the drug and undercut the price of the brand name developer, the incentive to develop new pharmaceutical drugs is severely limited.

The system has generally worked as intended for decades. However, as technology progressed, new types of inventions were created. In particular, the rise of computers and software allowed novel ideas to be created quickly with little or no capital expense required, and they created a new virtual field, where inventors applied for patents for seemingly abstract ideas and business methods. Many of these types of patents are now being extensively utilized in litigation, in particular by non-practicing entities (NPEs) and so-called patent trolls, due to the large monetary damages that are being applied in these cases. This along with comparative differences with patent systems in other countries has served as key discussion points for supporters of patent reform.

Structure Of Patents

A patent is often structured into five segments:

  1. cover page
  2. background
  3. summary
  4. specification
  5. claims

The cover page contains several different elements, including the title, inventor, dates of application/grant, and an abstract. The background is a high-level overview of the subject area, often highlighting a problem that is solved by the innovative elements described in the patent. The summary is similar to the abstract, except that it often comprises several paragraphs, where the abstract is limited to a single paragraph.

It should be noted that the title, abstract, and summary may not be very descriptive of what the patent legally covers. Many people less familiar with patents will only focus on these areas when quickly reviewing a patent, which often results in misinterpretation of the true coverage of the patent.

The specification and claims are the heart of the patent. The specification is the what and how of the innovation. It describes the product or process in detail, such that one of ordinary skill in the subject area could build, perform, or recreate the innovation. Claims are the unique and often complex language that defines exactly what innovations are covered by a patent. Each word of the claim may be scrutinized by a patent examiner to determine whether a patent can be granted, or by an attorney in litigation to determine infringement. For these reasons, the claims are the most important part of a patent.

Patent Application Procedure

The patent system in the U.S. is quite complex, bridging laws and a defined process established by Congress and the U.S. Patent and Trademark Organization (USPTO). The rules and regulations are methodically defined in the Code of Federal Regulations (CFR) Title 37 and a lengthy manual termed Manual of Patent Examining Procedure (MPEP). However, the basic application procedure can be distilled down to the following process flow.

Step 1 (Optional): Filing a provisional patent application. This essentially serves as an option or placeholder to file a full application within the next year, while preserving the earlier filing date of the provisional. A provisional application is faster and cheaper than a full application, as it doesn’t typically include a full set of claims. Further, the document isn’t reviewed by the USPTO and it is not enforceable. Filing a provisional also allows you to advertise as patent pending. The cost of filing a provisional is $125 in USPTO fees (small entity) and approximately $2,000-6,000 in attorneys’ fees.

Step 2: Filing a non-provisional application. The most common type is a utility application, which covers any innovation that provides “utility.” It contains the same basic information as the provisional application (perhaps a little further refined) but typically adds a full set of claims. See Step 3 for costs.

Step 3: Prosecution of Application. The non-provisional utility application is then reviewed by a patent examiner who is a subject-matter expert in the field related to the topic of the application. The patent examiner will search the prior art (patents and publications) to see if the innovations described in the claims have been previously disclosed. The patent examiner will issue an office action to the inventor (or the inventor’s attorneys). The Office Action document will specify either that the patent will be granted or that the claims are rejected. If rejected, the inventor may then reply to the office action and present new arguments or modify the claims. This back and forth process can repeat several times until the patent is granted or the application is abandoned. The prosecution process can be quite expensive based on many factors: number of claims, amount of back-and-forth responses required, and speed/priority of application. Often, an entrepreneur may be quoted a figure in the single-digit thousands for filing a patent. Note that this is just the cost of filing a basic initial non-provisional application (i.e. Step 2). It does not include all the fees through granting of the patent. The total cost of obtaining a patent from application through granting is typically $10,000-30,000 (highly dependent on complexity, subject matter, and circumstances of prosecution).

Step 4: Post-Grant. Even after a patent has been granted, additional fees must be paid to keep the patent valid. Further, it is up to the inventor or assignee of the patent to enforce the patent should they feel someone is infringing on the claims of the patent. In fact, failure to enforce the patent may result in forfeiture of some or all of the rights afforded to that patent.

Under a standard application priority, it typically takes 3-6 years for an application to become a granted patent. However, there are a few prioritization methods to reduce this time down to as little as a year, but the priority comes at the expense of an increased cost. If you work with a patent attorney or patent agent, the tasks required of the inventor are minimal and consist of disclosing the idea, signing some documents, and reviewing the application prior to submission.

Next week’s installment of “An Entrepreneur’s Guide To Patents” will be a strategic analysis to help you determine whether patents are a good fit for your company.

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Listen to Steve Wozniak when he talks about the internet and freedom

By (author unknown), Groklaw NewsPicks – November 10, 2012 at 06:29PM

Call me lazy if you wish, but right now I’m bored with Microsoft’s failing software releases and Apple’s childish tantrums and strategic shortsightedness in its patents litigation. Or perhaps it’s just that the recent hurricane damage and election in the US have distracted me. In any case, I’m going to give the floor here over to Steve Wozniak, speaking in a recent interview.

Woz, as he is known, was a co-founder of Apple along with the late Steve Jobs. Unlike Steve Jobs, Wozniak is still alive and has remained engaged with and occasionally willing to discuss public policy issues relevant to computing and the internet.

Here he is interviewed by Abbey Martin of the RT television network in the following video clip. In it, he discusses some of the current events that I have mentioned above, touching on Megaupload, Wikileaks and Anonymous. – Egan Orion, The Inquirer

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Turn Your iPhone Or Android Phone Into A Walkie Talkie With Voxer

By Tim Brookes, MakeUseOf – November 08, 2012 at 09:30PM

If you’ve been searching for a cross-platform means of communication using voice messages, text and images that works on both internal wifi and cellular networks, then Voxer is the app for you. Voxer is designed to be a push-to-talk (PTT) walkie-talkie replacement that works on both local and global networks.

Using the Internet and local Wi-Fi connectability, Voxer removes the restraints associated with radio frequencies while also operating as a standalone cross-platform messaging service that gives WhatsApp a run for its money. You can send voice, text and picture messages between iOS or Android devices – for free!

10-4

The age-old concept of a walkie-talkie that depends on a maximum operating range (the more you pay, the bigger the range) is still valid in many situations. If you’re taking a trip to the mountains or an area of exceptionally bad mobile signal, walkie-talkies and spare batteries will serve you well and smartphones probably won’t. To put it frankly, Voxer is not a direct replacement for dedicated units that use radio frequency and various bands. Don’t get caught out cold in the wilderness!

That said, in many situations the app can serve this purpose. Voxer can also serve a more useful purpose, allowing communication between both iPhone and Android contacts using free voice, picture and text messages, much like WhatsApp but without the $0.99 price tag. The app even works in the same way, with users able to identify each other using their real phone number (though the number won’t be publicly visible).

After downloading and launching Voxer for the very first time, you will be prompted to register. All you’ll need to surrender is your name, a valid email and a password before the app lets you start talking to people. On the iPhone version I tested, the app requests access to your contacts (naturally), notifications and location. I set up two iPhones on the same network, with minimal profile information, and without any work on my part both devices could see each other straight away.

Voxer allows you to fill out your profile with city and country information and a custom profile picture, but none of that is necessary if all you want to do is chat. You can also look up users by name or email address, just tap the new conversation button in the top-right and search using the search box. It can be tricky finding people by name and picture only, though it’s nice to have access to the full Voxer database.

Chatting, Over

With iMessage, WhatsApp, Skype, and good old SMS, communication is something we definitely take for granted these days. Siri and Android speech-to-text features are nice for composing text messages, but none of these services allow you to send audio snippets. That’s where Voxer comes in.

At the bottom of the chat window is the push-to-talk button – tap and hold it, wait for the signature walkie-talkie beep to finish and begin speaking. Before you’ve let go of the PTT button the person you are speaking to will begin to hear your message, and in true two-way style only one person can technically “talk” at a time. Of course, this isn’t a problem because Voxer lets you replay any audio message sent in case you miss something.

To hear a message again tap the “play” button next to it, and Voxer will run through the whole conversation, message by message. This is a particularly nice feature, bolstered by the fact that each message displays the duration and a location pointer, for seeing where the message was sent from. The ability to send an “I’ll wait for you here” message without having to describe where you are is a pretty nifty feature I can actually see myself using.

In addition to voice, there are two extra buttons at the bottom of the screen for photos and text, both are nice features that I definitely take for granted since iMessage arrived with iOS 5. Tap the chat settings button in the top-right corner while viewing a chat to change personal and chat preferences. You can add more participants to the chat along the top of the screen, mute speakerphone, clear message history and block contacts if you need to. There’s also one more feature that I really wish Apple would implement, and that’s the ability to mute push notifications on a per-chat basis, so if you’re part of a loud group chat you can check in when you need to as opposed to being inundated with notifications all the time.

Finally there’s one last little feature that might just pique your interest if you’re not already rushing to the App Store, and that’s the Note to Self feature. From the main chat list, tap the Settings cog in the top-left, choose Account followed by Profile and then Note to Self. This places a chat titled Note to Self on the main chat list which serves as a dictaphone, allowing you to quickly add voice notes.

Download: Voxer for iPhone @ App Store
Download: Voxer for Android @ Google Play

Final Thoughts

Aside from a few feature requests I can’t find much to fault about Voxer, it’s both genuinely useful and fun to play with. The ability to set up a public Voxer voicemail and host it online would definitely be a feature I’d love to see, and an easier way to connect with all Voxers in your area would be great too.

If you’re young at heart and always wanted walkie-talkies for Christmas then you’ve just found your new favorite app. If you’re working in an office, on a building site or somewhere else where quick voice messages are useful then it might be one of the best apps you can download. If you’re in an area where mobile reception drops calls, but you can still send an email then Voxer might also appeal to you too. And if you’ve not yet fallen for WhatsApp messenger and want a different, entirely free way to communicate cross-platform you can do a lot worse than Voxer. That’s why it’s on our Best Of iPhone Apps page, where it should be!

Have you used Voxer? What did you think? Any features you’d love to see? Have your say in the comments below this post.

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Video: eLS Launches Hack.me Free Virtual Labs for Web Application Security

By (author unknown), The Ethical Hacker Network RSS News Feed – November 08, 2012 at 07:18AM

EH-Net EXCLUSIVE: eLearnSecurity Officially Launches Hack.me WebApp Labs

Imagine a security virtual lab that is run by the community for the community… Free of charge! This is Coliseum Framework (https://www.coliseumlab.com/), every vulnerable application created on hack.me is run on the fly in an absolutely safe and isolated sandbox. Watch this webinar from October 2012 where Armando Romeo, founder of eLearnSecurity backing the Hack.me project, and Thomas MacKenzie, web application security specialist, unveiled the project and launched it to the world.

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