Podcasts

The value of long-term relationships

October 28, 2015 – Christopher Michel is a serial entrepreneur and an investor, as well as an accomplished photographer. In this podcast, Chris talks with Mayfield’s Navin Chaddha about relationships leadership, culture, and  how running his second company was different than his first.

Chris also explains the importance to him of the long-term relationships he has built with investors and colleagues, on hiring and keeping a high bar of fit and excellence in a company, and on the difference between activities vs outcomes that actually affect the business.

Chris manages Nautilus Ventures, an early-stage venture capital firm he founded in 2008. Nautilus has made over 40 investments including Palantir, Luxe Valet, Nuzzel, Goodreads, and Blue Bottle. In 1999, he founded Military.com, an online portal for servicemembers, veterans and their families.  In 2006, Chris founded Affinity Labs, which runs a portfolio of online professional communities. Both companies were purchased by Monster Worldwide. Prior to his business career, Chris served as a Naval Flight Officer in the United States Navy.

The full transcript is below.

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Chris on tenacity:

So many people told me, including my board and advisers, that it’s okay to quit and we never quit at Military.com. We never quit, even when we were talking to bankruptcy lawyers we never quit; even when people were going to come to take the stuff from the office. We learned everything in those most difficult moments. For those of you out here listening that are going through a lot of challenges in your company, I hope you see it the way I did today, which is there’s a huge learning opportunity and a huge opportunity to focus on what matters and you might be really, really close to success. Thomas Edison said, “Many of life’s failures are people who did not realize how close they were to success when they gave up,” and I think that that’s incredibly true.

Chris on interviewing and fit:

A tip that I have for people is when you’re interviewing people, when you think about the nature of an interview, sometimes we’re trying to de-screen people through tripping them up with questions. What I always tell people in the interview is that the worst thing that could happen isn’t that you don’t get the job; it’s that you get the job and it’s the wrong job for you. Once you step over to their side, we all have the same interest, which is finding the right people.

Chris on the value of long-term relationships:

The thing I am most proud of maybe is all of the people who have left my companies that have done incredibly, incredibly well in their lives. I get very proud to have helped a lot of those people because my view is it isn’t just about the business that we’re in right now; it’s about that longer term relationship. I know at Mayfield, it’s been 16 years since you funded my first company; we still have a relationship. That’s the wonderful, wonderful thing about Silicon Valley culture and it can be the wonderful thing about the right company culture.

Chris on outcomes vs activities, and a culture of focusing on things that make a real difference:

I’ve just observed it over and over and over again, it takes a kind of culture where we ask tough questions to avoid it because if you don’t, people throw bodies at the problem. They do lots of things that sound good. A great example of an outcome versus activity I just thought of is business development. I can’t tell you how many business development deals I’ve done that made no difference for any of my companies, no difference and that’s including the 40 companies I’ve done investing in. A lot of things sound good but will they really, really make a difference?

That’s a lens that, particularly for heavily funded companies, I really recommend that the management team spend time talking about. What are the things that we’re doing that don’t matter?

 

 


Transcript

Navin: Welcome back to Chat with Champions. My guest today is Chris Michel, a serial entrepreneur, investor, photographer, explorer and writer. Chris is a former Navy officer and was founder of two Mayfield companies, Military.com and Affinity Labs, which were both were both acquired by Monster. Chris has been an angel investor in many companies including Castlight, 3D Robotics, RelateIQ, Goodreads and Palantir. Chris, welcome to the podcast.

Chris: It’s an honor to be here, Navin.

Navin: Chris, let’s start with your most recent accomplishment, which was photographing your journey to the North Pole. Can you talk about that and how your passion for photography mirrors your passion for entrepreneurship?

Chris: Thanks, Navin. I just got back from a trip through Murmansk up to the North Pole. It was kind of a capstone trip; I had been to the South Pole the year before. Pretty interesting trip, took a Russian nuclear icebreaker from Murmansk all the way to the pole. I think this was the 116th visit by a surface ship since people first walked upon the pole. It was a very interesting trip.

I think the second part of your question was how it mirrors entrepreneurship. This is my third career. My first career was flying for the Navy. My second was as an entrepreneur and my third, starting right at the bottom again is to be a photographer and to take photos of people doing extraordinary things. How does it mirror entrepreneurship? Well, I guess both are similar in the sense that they’re both creating and they both have a lot of interest and focus on people and individuals and helping tell their stories.

Navin: That’s great. My belief is, for companies and startups, people make products; products don’t make people. It’s all about the people and it seems even in photography you hold the same principles.

Coming back to entrepreneurship, you founded and led two Mayfield companies; both pioneered the idea of vertical social networks but they were founded at different times. For our listeners, can you compare and contrast these experiences and how the time frame difference mattered? And what were your key learnings?

Chris: Thanks for asking. Just after I finished business school — I finished in 1998 — I started Military.com in the summer of 1999. It was an exciting time, sort of the time that mirrors the excitement of today. There was lots of venture dollars, people were thinking about new business models in the internet. I had been inspired by a famous entrepreneur at business school named Dan Bricklin who created VisiCalc and knew I had wanted to start a company. Didn’t know what it was, which is a kind of particularly stressful experience in a budding entrepreneur’s life. But in the summer of 1999 I was drilling at a reserve drill weekend and had the idea that the military really needed to be brought together and the Internet was a great vehicle to do it. We went out to raise money and that didn’t go particularly well.

Whenever one says there are lots of venture dollars and you have a difficult time raising money, it doesn’t feel good. I’m sure that’s going on right now for some people. But I was lucky enough to meet Michael Levinthal, one of the early partners at Mayfield. He funded us with $5 million for our series A and that moment changed my life forever.

One of the differences between now and then and what were the lessons, well the biggest difference really is me. We raised about $25 million in about 4 months. We all know what happened in March of 2000; there was a major correction in the market. About a year later, I had been fired from my job as the CEO and the new CEO asked me not to come by the office, which doesn’t feel good, I can tell you. I spent about six months swimming, getting back in shape, thinking about all the mistakes I had made as the CEO of Military.com. We can talk about some of those learnings but I was fortunate enough to be able to come back six months later ostensibly to shut the company down but Anne Dwane, who is the Chief Business Officer at Chegg and I — she was my co-founder — we were able to turn the company around, really at the last minute.

Fortunately, Military.com is still around today. I can take you through some of the lessons but at Affinity Labs, I didn’t make the same incredible mistakes that I had made in the first company.

Navin: Yeah. I think one or two key takeaways, it’s always good when you’re a serial entrepreneur. I believe one will always make mistakes but let’s make new mistakes and not the same ones. What were the key one or two things you did wrong and then how did you improve the second time I think would be very helpful.

Chris: The first bit of it, I think, really was we’d raised a lot of money and we’d spent a lot of money on a lot of things that didn’t matter. There’s a lot of things you can do in a company that don’t move the needle and a few of the things really do. In a world of incredibly constrained resources, those things become more clear. In less constraint, they don’t and the repercussions of mistakes here can be very significant.

The second probably and most important lesson was the laser-like focus required on people, passion and performance. I had lots of leadership challenges, all probably relating to my insecurity as a leader. I made a lot of mistakes. Particularly it’s very important for leaders to make sure that they have a culture of excellence in the company and that means that there’s a high bar across the whole business. For a lot of us that raise money and are ramping up very quickly, we went from 0 to 50 people in 5 months in a tough hiring environment. We made some hiring mistakes and I didn’t address them quickly enough.

I sometimes talk about a kind of two by two matrix where maybe fit is on one axis and competence is on another. In the top right quadrant is those incredible employees that really fit the culture and are great, and your challenge is to attract them and retain them. The bottom left quadrant is somebody who’s not good at their job and they’re not a good cultural fit. If you can’t fire them, you probably shouldn’t be a leader. The other two quadrants are the ones that get people in trouble and got me in a lot of trouble. These are really nice people that aren’t great at their jobs. We all know those people, we like them, they’re tough to fire because we enjoy being around them and they’re good people. The bottom right quadrant is the one that’s trickiest for all of us. Those are the people that are kind of a cultural problem in the company but are very competent. It’s your VP of sales that no one likes that talks bad about the other executives but you’re afraid to get rid of them because they’re doing important work for the company.

I had a lot of problems optimizing that mix. The problem is great people don’t want to work in a company where they see people who aren’t good at their jobs or people that aren’t great people working there. As I have observed, my companies and the companies I’m involved in, there are a few of them that have incredible super powers. These are the ones where everyone on the team has a high degree of passion, has a real commitment to the culture, a real commitment to the mission and to each other, and there’s a great environment of trust. Trust is everything and we can talk more about trust. You could probably skip business school and read this really great book I can recommend by this guy Feltman. It’s called The Thin Book of Trust and it’s about six principles of trust that really matter.

And the final point, and I’ve gone on a bit long, is just the importance of tenacity. So many people told me, including my board and advisers, that it’s okay to quit and we never quit at Military.com. We never quit, even when we were talking to bankruptcy lawyers we never quit; even when people were going to come to take the stuff from the office. We learned everything in those most difficult moments. For those of you out here listening that are going through a lot of challenges in your company, I hope you see it the way I did today, which is there’s a huge learning opportunity and a huge opportunity to focus on what matters and you might be really, really close to success. Thomas Edison said, “Many of life’s failures are people who did not realize how close they were to success when they gave up,” and I think that that’s incredibly true.

At Affinity Labs I didn’t make those same sets of mistakes and it worked really, really well. We had what I though was almost a perfect company.

Navin: I witnessed the second one because we invested in the company when I was here. Let’s talk about the environment today. You have had the history of starting a company in the dot-com era and then you did another company in 2006 and now you are a very active angel investor. Has anything changed in the environment or is it still the same?

Chris: I’m going to take a slightly edgy view and say I don’t think anything’s really changed. It’s so much cheaper to build companies today. We have a different view of who is fundable. Having an MBA is certainly not a requirement; it might not even be a benefit. It’s more of a meritocracy. But I would say the fundamental principles of great company building are still in play which is, do you have that culture of people, passion and performance? Do you have a product that matters? I think a danger in today’s environment is perhaps less focus on profitability. Maybe there’s a view that the funding will continue in your company for a long time. We’ve seen the cycle, there’s a lot of people, a lot of pundits I hear talking about, is the bubble about to burst?

Well, it’s difficult to say and I don’t think any of us know but to the extent that your company requires many additional rounds of financing, the company is at an inherent risk. If the market environment changes quickly, that next round of capital that you’re expecting may not be there despite of what anyone tells you. I would suggest that caution matters and profitability matters. Maybe I would suggest that our objective here is to build enduring companies, not just products that can be bought or acqui-hires; it’s to build an environment where a great team can come together and do something that matters. I think that those principles are not new, they’re not new to the dot-com era, they’re not new to 2008, they’re not new to today. These are the fundamental principles of great business.

Navin: Got it. That’s a very important perspective. Let’s shift gears. You mentioned culture. I believe culture is extremely important or probably one of the most important things an entrepreneur, a CEO has to set right. In your experience, what do you think has been the importance of nurturing a company’s culture and are there one or two useful things you have seen founders adopt to foster that?

Chris: I’ve kind of touched on them a little bit. I’m with you, Navin. When we think about today’s world, we have a variety of different kinds of companies. Some companies might have some novel technology where what they bring to the market is so unique that they can carve out a market niche and be successful in a variety of conditions. But for the rest of us, we’ve got to build a machine that can build other machines. This is really a company and a culture. To me it starts right at the top with the CEO. That’s a CEO that loves and cares about the people in the company, and the people in the company know this. That means that the CEO is vulnerable and honest and direct, and people that join the company feel like they are equal participants in the business. It doesn’t matter what level you are in the company, everyone has a right to excellence in the business.

I see companies that do that — achieve great things. A tip that I have for people is when you’re interviewing people, when you think about the nature of an interview, sometimes we’re trying to de-screen people through tripping them up with questions. What I always tell people in the interview is that the worst thing that could happen isn’t that you don’t get the job; it’s that you get the job and it’s the wrong job for you. Once you step over to their side, we all have the same interest, which is finding the right people.

On the other side of that is one day everyone on your team, whether it’s one of your managing directors, Navin, or somebody in one of your companies, they’re going to lose passion for what they’re doing. It just happens in our lives. When people lose passion, this is one of the things we talk about in new hire orientation, come talk to me. Maybe there’s something in the company that’s going on that you don’t like, that’s not helpful; maybe I can do something about it. We might share that view. But it might also be it’s just time for you to do something else. If you take the big picture about love of people and you extrapolate more broadly, these aren’t one off transactions, these companies; these are lifelong relationships.

The thing I am most proud of maybe is all of the people who have left my companies that have done incredibly, incredibly well in their lives. I get very proud to have helped a lot of those people because my view is it isn’t just about the business that we’re in right now; it’s about that longer term relationship. I know at Mayfield, it’s been 16 years since you funded my first company; we still have a relationship. That’s the wonderful, wonderful thing about Silicon Valley culture and it can be the wonderful thing about the right company culture.

Navin: I think my belief is it’s all about relationships at the end of the day. And as we see an entrepreneur, investing in relationships has to be paramount for anybody because you don’t know what a relationship is going to lead to and you need to look and take a long term perspective and not look for short term gains.

Chris: It’s also interesting to think about why is it that we’re doing these companies. Maybe for you… well I don’t even speak for you, but for your LPs, it’s very clear that they’re looking for a return on capital. But for you and I and for a lot of people that work in the company, it could be about money but I think in the big picture, what we all realize eventually is it’s about the relationships we have. There’s a great quote by this guy Frederick Herzberg. He said, “The powerful motivator in our lives isn’t money, it’s the opportunity to learn, to grow in responsibilities, contribute to other and to be recognized for achievement.”

I might add to that, it’s also to feel like you made a difference in someone’s life. Those are the rewards that matter most to me today. It’s the relationships with the people and a feeling that we were part of a great journey and a great adventure together.

Navin: Makes sense, right? Let’s shift gears. I have a strong belief that mentors are really important for everyone in every field. I know you believe in the same and have talked about a lot of great mentors in your life. Is there any specific one that you’d like to chat about with our listeners and the learnings you got from them?

Chris: There’s been a few. There’s guys like Ed Zschau who was a two term congressman and a Professor at Harvard Business School; Dan Bricklin, who inspired me to be an entrepreneur. Probably the person that made the most difference in my entrepreneurial career was one of your old partners, Mike Levinthal. Mike believed in me when no one else did and funded the company. I talked to him two or three times a week for years as he helped me through some of the most difficult challenges building this company. It’s funny, a year ago… Mike was the guy who also said it might be time to get in a new CEO. And Mike was the guy who said, “It might be time for you to come back as the CEO.”

He was there and we had a kind of relationship where we could be very, very direct with each other but I just trusted him with my life. Somebody who’s been there, done that, cares about you and the relationship is such that they can be really honest and direct with you. Those are the best kinds of relationships and the ones that really can evolve and really help both parties. As a fun capstone to that, Mike and I actually with a couple of Mayfield CEOs we’re going to Croatia to go bike riding in just two weeks. Back to the long term nature of these relationships, these people were mentors, they were friends, and they are partners for life.

Navin: Very, very interesting. You’ve often talked about outcomes versus activities. Can you elaborate a little bit on that?

Chris: I remember when I was doing Military.com, the board said we should hire a PR firm to do PR. That’s one of the examples that I use a lot. They were able to get us a front page Wall Street Journal story. Let me ask you, Navin. Is a Wall Street Journal story about Military.com is that an outcome or an activity?

Navin: It’s an activity probably, right? I don’t know how much it moves the needle.

Chris: It’s interesting. Maybe that’s obvious to you but it wasn’t obvious to me at the time. You could have a lot of good things happen but they’re not outcomes necessarily. What are outcomes? Outcomes are things that relate to hiring team members, they relate to revenue, they might relate to profitability. They might relate to a number of things that are very, very close to the KPIs for your company. You’re right to say a front page story by itself is not an outcome at all. If you start using that lens, there are lots of things that we’re probably doing that are good things for sure, like bringing in a consultant to look at a problem. I remember we had a UX lab, doing the analysis of how our usability was working. Unless those things really do move those key needles, they don’t necessarily matter for the company.

I’ve just observed it over and over and over again, it takes a kind of culture where we ask tough questions to avoid it because if you don’t, people throw bodies at the problem. They do lots of things that sound good. A great example of an outcome versus activity I just thought of is business development. I can’t tell you how many business development deals I’ve done that made no difference for any of my companies, no difference and that’s including the 40 companies I’ve done investing in. A lot of things sound good but will they really, really make a difference?

That’s a lens that, particularly for heavily funded companies, I really recommend that the management team spend time talking about. What are the things that we’re doing that don’t matter?

Navin: I think focus is paramount, right? My belief is startups die of indigestion, they don’t die of starvation. That’s a key lesson that I have had and Mayfield has had over the years. I think you and I agree 100% on that front.

Chris: Absolutely. We were watching some stuff going with Quirky and a bunch of other things. People probably should, and I’m hoping that Quirky will do this, they will look at the things that they did and hopefully draw some reflective lessons — it would be a great article — about the mistakes that they made. What went wrong? Was there something wrong with the business model or was it an execution question? Was it a focus question? I think there are a lot of lessons in there for a lot of companies.

Unfortunately, I don’t think a lot of companies are learning them. There are two classes of companies. You’ve got our unicorn companies that are incredibly well funded and then we’ve got these little startups that are really trying to get their Series A done. Those little startups, I think, have it easier in the sense that they don’t have an alternative but to only focus on the stuff that matters. These bigger companies, I really wonder about all the stuff that they’re doing. They’re building the wrong kind of company if they don’t have that discipline because eventually they will have to have that discipline. Public markets will require that discipline. It’s better to “build it in” than “lay off it out,” if you know what I’m saying. I’m not that sure if that’s a word.

Navin: I absolutely agree with you. I think in summary, this has been very, very informative for me and I’m sure it will be the same for our listeners. Not only are we living in very, very exciting times today, but also the times are frothy. There are a lot of ups and downs that we see in the market today and you have been a prolific angel investor. In parting, what is your advice to entrepreneurs today?

Chris: Leadership is everything, team is everything, culture is everything, product is everything. Navin, I just want to say thank you and thank you to Mayfield. Mayfield changed my life and I’ll never forget it.

Navin: Thanks a lot for taking the time, Chris. I know you get extremely busy with all the different hats you wear. We really appreciate you coming to the podcast and spending time with us today.