Vator brought its popular Splash to Manhattan this week. Kicking off Vator Splash NY on Wedneday night was Brightcove CEO Jeremy Allaire, who shared his lessons he had learned in “building great companies," including how to build a team, what to consider when raising capital and how to know hire, and fire, the right people.
The founder’s vision
“Great companies are built on broad, world changing ideas,” Allaire said, and they are built by founders who see a transformation that is going to take place.
In his case, Allaire had the vision in 1994 that the web could be an application platform. And in 2004, with Brightcove, he had the vision that “every insitution on the planet was going to publish video and that it was going to touch consumers on their television sets, and just on their personal computers and on their devices.”
What founders have to realize, though, is that they must have “a long-term vision” that will not be realized overnight.
“I have a general rule that any good idea takes about 10 years to execute,” Allaire said, and the founders should inform the investors that founders choose and the people they recruit that this is going to take a long time.
Visionary entrepreneurs have a talent for seeing around corners, including what trends are going to come together and how that is going to be realized in a significant opportunity. Because ideas take so long to come to fruition, though, they have to be able to manage to that over a long period of time.
Translating the vision into a market or product
The translation from idea to execution can be very difficult, Allaire said, so is advice is to “take that long-term vision and you boil it down to something very narrow that you can do in a short period of time, that is one initial step on the way toward that bigger set of ideas.”
The key to long term success is finding customers early on who “have an itch to scratch, who have a problem to solve," and then ruthlessly executing in favor of those customers. The vision of the company will morph to what the market needs, and it will eventually find a balance between what customers are asking for and what they actually need.
Building a team
One thing that Allaire says that founders have to realize is that they don’t know that much. Instead of becoming a dictator, they have surround themselves with people who know more than they do.
Another key lesson: be careful hiring friends. Yes, will be loyal and trustworthy, but they are likely to be let down since they probably were not the right people for the position in the first place.
When hiring an executive or leader, Allaire says that he wants someone who is going “stretch in role,” meaning he wants up and comers, and not someone who is already established. This goes all the way up the role of CEO.
“Hiring experience actually can be a challenge. You want to hire people with just enough experience that they can do the job, but you want them to be hungry to achieve and stretch themselves," Allaire said.
Another lesson: leadership team will change. The people in charge of the company at the beginning will not be the ones to take it to a new point in its evolution. In fact, Allaire said, he takes pride in the fact that he churned through people on his leadership team because it was the right thing to do at that point in the company’s evolution.
Thought leadership and PR
Public relations is the most effective marketing investment for young companies to make, Allaire said. Since there is no money to pay for brand awareness, PR can build buzz and get the company's name out without it costing anything.
This can pay huge dividends, especially in the early stages since, at that stage, people are much more interested in writing about companies than they are in later stages.
Building for the long term will change a company’s capital strategy than if the founders think they will sell the company in a few years.
If this is a business that they expect to be around for a number of years, and eventually go public, the founders should think of their VC partners as business partners rather than just a source of money. The VC should be problem solver, so the founder better really like them, and has to make sure that they feel like they can collaborate with them. The VC also better be focused on the long term success of the company.
Strategic investors are a good idea in the second or third round for a company, since it gives value and credibility, but make sure that there are no control provisions so they have no say in how the company is run.
Allaire’s final piece of advice regarding raising capital: “take it when you can get it.” Take as much as you can, as building strong balance sheet can be key to long term success.
Board of directors
Allaire’s advice on building a board of direction is to keep it small, especially for private companies, and to limit management team members.
The CEO manages the board, not other way around, though this shifts when the company gets bigger, since it becomes accountable to public markets.
Allair is fan of adding star power to a board, but not in excessive way, he said, as they can add rolodex power.
Hiring and firing
Hire slow and fire fast, Allaire said. Take your time finding the right people, but fire people quickly when you begin to have questions about them. Letting people roll way too long can eat away at the organization.
This is related to building the culture of the company. The first 50 people that you hire set the culture of the company in stone, Allaire said.
Allaire goes by the 10% rule, which means that a founder should be thinking about trimming 10% of the company every year. Don’t take for granted that you will be in a favorable economic environment and things can turn fast. If it happens, act decisively and quickly and trim the fat by getting rid of people who are no longer contributing to the company.
Competition will be fierce, so founders need to “stay strong and have conviction.”
While founders must also be ready to make sharp pivots, they shouldn’t let large companies, which enter the same market, scare them. Young companies have agility, and can have a deep focus, while larger companies are trying to balance investments across a bunch of different needs. Smaller companies are able to be pure in a way that larger companies simply can’t be.
Small companies tend to treat every new project as a puppy, thinking that its special and perfect but harsh trade offs are often necessary, and some projects will have to be killed off.
Founders have to be willing to drown the puppy, meaning they must be willing to get rid of something that you love, in order to be successful in the end.
Mergers and Acquisitions
In reference to the “buy side,” Allaire says that it is extremely difficult to do well and that, the majority of the time, he said, M&A deals are value destroying, not value creating.
“A merger of two entities is an act of violence,” Allaire said. “You’re taking two organisms, and you’re slamming them together. Those organisms were developing on their own path, with their own culture, with their own leadership, with their own DNA. And, when you try to put those together, it’s really hard.”
Allaire said that there are two principals he has for founder who is thinking about doing an M&A deal: be a partner first. Get to know each other and make sure it is a good fit for both companies.
The second principal of a successful M&A deal is how key people in the company that is being acquired are treated, what kind of position they are put in.
Finding an exit
Focus on creating value and making the company as successful as possible, and not on what the eventual outcome will be for the company, Allaire said.
Founders also have to decouple their personal situation from what is right for institution. People might need money, but that should not inform what happens to the company.
But founders will need to be able to step back every six months to ask certain questions: has the environment changed? Has the competition changed? Has the quality of my own team changed?
And, based on these answers, a founder should consider if the end goal for the company has changed.