More than a strategic plan, a hedgehog is an organization’s very simple, very clear concept that emerges from a deep understanding about the intersection of three core questions, which translate into circles.

• What you can be the best in the world at (and, equally important, what you cannot be the best in the world at)? 
This discerning standard goes far beyond core competence.  Just because you possess a core competence doesn’t necessarily mean you can be the best in the world at it.  Conversely, what you can be the best at might not even be something in which you are currently engaged.
• What drives your economic engine? All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability.  In particular, they discovered the single denominator – profit per x – that had the greatest impact on the economics.  (It would be cash flow per x in the social sector.)
• What you are deeply passionate about? The good-to-great companies focused on those activities that ignited their passion.  The idea here is not to stimulate passion but to discover what makes you passionate.

Great organizations, Collins explains, rely on their hedgehog as a frame of reference for all decisions and efforts, because it simplifies today’s complex environment down to one core concept that drives their path and makes it easier to say “no” to projects, people or new business lines that aren’t aligned with the central idea.

Despite its vital importance (or, rather because of its vital importance), it would be a terrible mistake to thoughtlessly attempt to jump right to a Hedgehog Concept.  You can’t just go off-site for two days, pull out a bunch of flip charts, do breakout discussions, and come up with a deep understanding.  Well, you can do that, but you probably won’t get it right.  Insight just doesn’t happen that way.  It took Einstein ten years of groping through the fog to get the theory of special relativity, and he was a bright guy.

It took about four years on average for the good-to-great companies to clarify their Hedgehog Concepts.  Like scientific insight, a Hedgehog Concept simplifies a complex world and makes decisions much easier.  But while it has crystalline clarity and elegant simplicity once you have it, getting the concept can be devilishly difficult and takes time.  Recognize that getting a Hedgehog Concept is an inherently iterative process, not an event.

The essence of the process is to get the right people engaged in vigorous dialogue and debate, infused with the brutal facts and guided by questions formed by the three circles.  Do we really understand what we can be the best in the world at, as distinct from what we can just be successful at?  Do we really understand the drivers in our economic engine, including our economic denominator?  Do we really understand what best ignites our passion?

- Extracted from Good To Great by Jim Collins

I.  Strategy:

SageCreek’s  experience with early stage companies is that the top strategy for any annual operation plan is focus.  Companies need to make sure that they limit the number of strategies they create.   They need to  allocate resources where they will do the most good.   It is critical that organizations do a critical review to really understand strengths and weaknesses.   Bottom line:  Develop the company by doing the most important things, according to the most important opportunities and objectives.  Here are some possible points to consider when creating a plan:

1.    Geographic expansion:  Is this the right time to look to diversify revenue?   There needs to be a balance long term towards revenue from the US, EMEA, and AsiaPac.  Ensure there in a plan in place to have defined achievable goals around the percentage of revenue that needs to come from various geographies.   Think global, act local.

2.    Leverage:  Make sure the company has a global strategy around our routes to market (R-T-M).  The company need to make sure that the R-T-M meets local needs but fits into an overall plan to maximize company value without creating negative conflicts (different channels, verticals, geographies).  Who are the right partners:  SIs, VARs, Hardware manufactures, other software companies (Citrix, MSFT, EMC…), regional VARs and channels.  The R-T-M should expand the overall total addressable market without cutting the margins or segments.  Company leadership needs to clearly understand  the overall discounting and pricing being provided to different channels.

3.   Vertical Specialization:  What are the drivers that are needed in the product capabilities as well as go to market activities that match key verticals?

4.    Market Positioning:  There must be alignment among sales, marketing, and engineering around the positioning of the products.   Everyone in the organization needs to understand this at some level to make sure that the products are services are created in a way that maps to the marketing activities and that this maps with the sales opportunities that the R-T-M brings to the company.

II. Operational and Functional Plans:

Executive staff needs to make sure that in the rolling out of the strategy that there are functional plans to make sure all departments and employees know their role on executing the plan.  Agreed upon metrics need to be established to track progress toward the goals by department or functional group.  Bottom line:  Make sure that there are company and department KPIs and metrics that cascade from the company goals and track progress.  What products, marketing campaigns, partnerships, client services… are needed.

III. Financial Plan/Model:

Included in the plan the company needs a detailed financial model to execute on the plan along with assumptions, gates and controls as part of the model.  One of the keys to success is to make sure that all stakeholders are aiming for the same financial goals.  quarterly and annual goals are key  so the company can spend most of the  board time driving strategy and execution vs. looking back (rear view mirror) going over prior quarter and financials.  The company needs to make sure that the major investors and shareholders agree with plan.

IV. Compensation:

A key component to driving success is mapping and aligning compensation for the executive team.  From the executive compensation each executive should create plans for their departments and individuals in their departments that drive company focus and strategy.  The CEO needs to ensure that the company is compensating people for results tied to top company strategies vs. activity.

Characteristic 1: Drive for sustained results

Most leaders are driven to achieve results. The difference between the Level 5 and other leaders is that they are driven to produce sustainable results for their organizations. There are many examples of leaders who come in and do a quick fix, move on and the company is back at square one a few years later. There are fewer examples of those Level 5 leaders who have created long-term sustainable change.

Characteristic 2: Set up successors for success

As Level 5 leaders are interested in the long term sustained success of the organization, they look to set up their successors for success. This mindset arises because Level 5 leaders are generally more interested in the success of the organization than there own personal success. They want to leave a lasting legacy of an organization that continues to prosper.

Characteristic 3: Modesty

While many think that leaders need to be extroverts, many Level 5 leaders are introverts preferring to quietly get on with delivering results. They let the results do the talking.  They have modesty about their personality and do not always need to be the one getting all of the recognition.

Characteristic 4: Take responsibility

Level 5 leaders stand out because they take responsibility when things go wrong. They do not look to blame others when things do not work out as expected. In addition, they rarely seek to take credit for things that go right, generally seeking to attribute the success to other factors.

Characteristic 5: Organization focus

The ambition of the Level 5 leader is first and foremost on the organization. Their desire for success for the organization that they lead far outweighs their drive for personal rewards.

Great leaders are often hard to find but good leaders can become great Level 5 leaders. So what could you do differently to move you towards being a great Level 5 leader?

What is a typical investment size?  Do you have a target ownership percentage?

This is related to the next question (fund size) and a good way to calibrate the potential fit with this investor.  Depending on fund size and the firm’s investment philosophy, there will be a minimum (and maximum) amount of money that the investor targets for each deal.

Understanding how much of your company the VC needs to own to make their business work is really important information and very related to whether they lead and how much they can invest.  In terms of ownership targets, most firms want to own 20% – 33% of a company over time.  That means they don’t have to achieve that level all at once but expect to be able to invest to that level over time with other financings.  While firms will tell you that this is never a binary decision point, it’s true that not achieving these targets make the investment much more difficult to get through a partnership.  There are some firms that don’t have target ownership percentages; also, angel investors almost never have such targets.

How big is the fund that you’re currently investing out of?  When did you raise it?

This is simply calibrating how much “dry powder” the firm has on hand.  Big, new funds have different dynamics than small or older funds.

Funds typically have a 10-year life span with new investments being made in the first 3-4 years.  If the firm you are talking to raised it’s last fund 8 years ago, it is an older fund with less probability of supporting new deals.  The next few questions are really important.

How much have you invested out of that fund so far?   How many deals is that?

This will tell you what’s really left in the fund. There are issues with both “brand new” funds (such as new capital calls and when investments can start taking place) as well as with funds that are so old that they basically must be kept in reserve for companies the firm has previously invested in.   “How many deals” gives you a sense of how much capital they typically put to work per deal.  This is a fine question to ask directly (see above). This also gives you a sense of the firm’s over-all volume.  A very low volume means that your company really needs to line up with the firm’s core domain/interest or there is likely no deal to be had.

How many deals have you done this year so far?   How many do you expect to do?

This is related to the previous question but starts to consider the firm’s behavior in the current environment…and this is where it starts to get interesting.  If the firm does x deals per year and they’ve already done that many, then the investor is really going to need to love your start-up to justify a higher volume than their firm was planning.

How long do you think it would take to close this round if we started today?  And would you anticipate any unique “conditions to closing” for this deal?
Closing typical rounds of financing takes time; and, in general, the larger the round, the longer it takes. Even in the best situation, 60 days would be considered blazingly fast.  Today, honestly, 3-6 months isn’t surprising. There are many standard conditions to closing a round of financing, such as due diligence.  However, this question is trying to get at whether or not there are conditions that might make the financing more difficult than usual. For example, does the VC require another venture firm to participate in the round?  Does the VC require some significant new customer traction before being ready to fund?

What other firms / individuals do you like investing with?

A syndicate (the set of venture investors in a single round of investment) adds complexity to any round of financing AND the go-forward board and outcome dynamics for any company.

That said, finding out what other firms this VC likes to invest with in a syndicate is a great way to do two things: first, you find out who you should go talk to next.  And don’t forget to ask for an introduction to whoever comes up after asking this question.  Second, it is increasingly important to make sure you have a set of investors that get along and have history together. As your company executes through typical challenges, venture firms will be forced to make decisions around their portfolio, funds, and strategy. Trying to ensure that you have a set of investors who have a good relationship and have worked together on other deals can de-risk the negative effects of diverging investor/firm agendas.

What value add (other than money) will the VC provide?

Once you determine that a VC firm is targeting your market segment, and stage of your business.  It is important that you recognize that you interview, evaluate and do due diligence on the VC firm.  As mentioned above, money spends the same regardless of where you get it…the real value comes from selecting a financial partner who will not only provide you the money you need to grow and scale your business but will be in alignment with your short and long-term objectives of the company.  Bottom line:  What additional value add (contacts, routes-to-market, business development) will the VC provide.

Does the firm have a competitive company in their portfolio?

Usually you would not want to enter into a partnership with a VC firm that has made an investment with a competitor.  Clearly, if the firm has a competitive investment, it’s probably not a good idea to spend time with them providing a lot of competitive information that could eventually be used against you.  In rare circumstances you might consider taking capital from a VC who has made a competitive investment:  There is a consolidation strategy to roll-up a market segment, the VC has industry knowledge or contacts that is worth the competitive risk, or you are confident that they have the sophisticated processes to ensure confidences and lack of contamination.

You will want to determine if the VC will lead or follow

This question is really simple but very important.  If the firm you are pitching does not lead, you are not done even if they want to invest.  A lead investor prices the round, sets the terms of the deal and generally makes the majority investment for that financing.  Many firms are happy to lead the investment – but some don’t.  And you need one in order to raise this round of financing.

Similarly, some firms won’t follow other leads. In other words, they want to be the lead investor for one reason or another.  There are always exceptions to this rule but understanding the firm’s basic philosophy is helpful. This particular philosophy is usually related to the ownership a firm targets for each investment (see below).

Items to consider before you begin with your pitch

How much time do I have?

It is always a good idea to start you pitch by setting an agenda or asking how much time they have for the presentation; you may get a couple of different answers based on how many people are in the meeting.  In general, I suggest you pitch to the time frame of the most senior partner and use any remaining time with anyone who has more time to fill in details and context.  Remember that most VCs see multiple pitches per week and it is not the most favorite part of their job.  Make sure you are passionate, concise, answer their questions and do not waste their time.  Too often people get stuck on giving their pitch verses being flexible and adapting the presentation to meet the needs of the audience.  If they ask you a “yes” or “no” question your answer is “yes” or “no” do not give a fifteen minute lecture on why it is yes or why it is no.

Technology

Do not get caught up in the technology.  All to often presenters waste valuable time setting up the computer to the screen, waiting for the presentation to boot, or they end up being rigid and follow the slides regardless of audience interest or questions.  At the end of the day, VCs invest are mostly interested in the team.

During 2012 SageCreek Partners helped our clients raise approximately 100 million in capital to scale their businesses.  One of the biggest misconceptions in raising money is that the Venture Capital firms are in the drivers seat and call all of the shots.  Ultimately you are in the drivers seat and you should do due diligence to make sure you select a financial partner(s) who will be in alignment with your overall vision and strategy for your company.  In this document I will identify the key items and questions you should ask to determine if there is a good fit between you and prospective financial partner(s).

Know your audience:  Who will are you meeting with?  General Partner?  Partner? Associate?

In the VC world there is a well-defined hierarchy that is important to understand if you are going to be successful raising money.  In VC firms General Partners (GPs) are the most influential decision makers at a firm, Partners are a level down and associates are typically the entry-level position in a firm.  The goal would be to meet with a GP if at all possible; that said, it’s unfortunately uncommon to get a firm’s GP in a “first meeting.”

Many times, associates proactively reach out to companies in specific market segments and start-ups in a particular category; they also do much of the front-end company and deal analysis.  The associates are gatekeepers and can say “no” but rarely can say “yes” when it comes to their firm making an investment.

How to handle inbound calls from a VC firm

Many VC firms have a staff dedicated to proactively making outbound calls to companies in a particular market segment for the purposes of generating market research, and deal flow.  When your start-up receives a call “out of the blue” from a VC firm – this is probably what’s happening. Don’t be overly flattered because you’re probably one of many companies that received a similar call.

When you get a call, you should ask who you are talking with, their title, and ask questions to determine why they are calling.  Don’t feel obligated to give out any information that you wouldn’t give to someone cold-calling.  If you are in the process of raising or thinking about raising capital ask them to set up a meeting with a larger group.  Important note  –No decision will be made on the first call.  What you want to accomplish with this call is to get exposure to a broader group.

If the firm is reluctant to set up a follow-on meeting –don’t spend any more time with them.

It is very important to determine the firm’s investment focus:  Do they have a specific Market segment?  Geography?  Stage?

Most firms focus on particular market segments or specific geographies.  Some firms want to be the first money in a deal and others only invest after the company is cash flow positive, has hit specific quarter or annual revenue targets.  What is the firm’s focus when it comes to market segments and stage of company?

It is common for a VC firm to prefer to have a “local partner” (either another VC firm or Mentor Capital Company) when they’re investing in a geography that is a plane flight away from their home offices.  This is a way to reduce risk for out-of-town investors because they know that a local investor or partner would be able to help the company on a more frequent basis.  It should be noted that SageCreek Partners (SCP) usually has weekly meetings with clients and many VC firms have decided to invest in a company because that company has selected SCP as a trusted advisor.

If a VC firm does not focus on your market, geography or stage, they will more than likely not invest in your company and if they did, there is a high probability that it would not be a good partnership.  It is important that you select the right partner.  Remember that raising capital is the beginning not the end of a relationship.

Jan Newman of SageCreek Partners has worked closely with the Aviacode management team throughout the process.    Jan has worked with the team helping recruit members of the executive team and helping on the execution of the business strategy.

Full details of the press release are available at the Heritage Group website.

How to Create a Strategic Plan for a Kick-butt Year in 2013

I’ve been fortunate to be surrounded by some incredible mentors in my short career.  In addition to Lendio‘s board members, I have had the opportunity to meet and learn from some entrepreneurial giants: Alan Hall (sold his company, MarketStar, to Omnicom), Josh James (sold his company, Omniture, to Adobe for $1.8B), and Greg Butterfield (sold his company, Altiris, to Symantec for $1.2B and pictured to the left)… just to name a few.

In preparation for 2012, Greg Butterfield taught me some incredibly important lessons on how to create a strategic operating plan that shaped what we did and how we executed during 2012 at Lendio.  Going through the process helped us to meet our major strategic goals — including doubling our monthly revenue (from last year til now).  If you want to kick butt in 2013, you’ll want to nail the following 5 steps:

1.  Define the Company’s Vision / Three Year North Star: Prior to working on the 2013 strategy plan, make sure to understand and articulate the long-term vision of the organization.  This is your opportunity to look up from the day-to-day operations to study industry trends, macro conditions, customer data, competitor data, partner initiatives, and company strengths/weaknesses.  As the leader of the organization, your team will be looking to you to steer the ship in the right direction.

If you don’t have the answers to the following questions, then it’s obvious that your organization is in need of a clearly defined vision or ’Three Year North Star’.
Who do you want to be in three years from now?  What does the organization look like?  What products/services are you offering?  How many customers do you have?  What problems will you be solving?  What will your financial performance look like?

2.  Plan a two-day offsite with your team: Prior to the meeting, provide all attendees with a copy of the clearly-defined Three Year North Star so that they can come to the off-site prepared.  In addition, I like to recommend other information that I believe is relevant to our planning session that might include:  1-2 books, white papers, competitive analysis, etc.

At the off-site, each team member needs to come prepared with two presentations:  1) a review of strengths / weaknesses of the prior year and, 2) the department’s proposed top three to five initiatives for 2013.  Don’t spend too much time looking back, but use this opportunity to celebrate “wins” and learn from mistakes.

Possible Agenda:

Day 1

• CEO/Leader presents high-level review of 2012
• Each executive/dept. head/group leader presents his/her review of 2012
• Break
• CEO/Leader presents Three Year North Star followed by the proposed top initiatives for 2013.  Connect the dots on how the 2013 initiatives will help the organization reach it’s goals in three years.
• Each executive/department head/group leader presents his/her proposed top initiatives for 2013.
• Break.  Go do something fun (movie?).
• Prioritize top initiatives.  The company will not be able to accomplish all of the proposed initiatives.  Take this time to have a group discussion and figure out which of the proposed initiatives are the top three to five most important for 2013.
• Sleep on it.  Once you’ve narrowed it down to the top three to five, call it a night.

Day 2

• Review the top three to five initiatives and make sure that everyone feels good about what was decided.  Make sure that each item is achievable during 2013.
• Start adding high-level goals that will help the organization to achieve the top three to five initiatives.
• Break
• Discuss other important items that will help your organization improve during 2013.  Ideas might include:  culture improvement, employee enhancement, funding strategies, etc.
• Fun team-building Activity:  go-karts, rock-climbing, bungee jumping, etc.

This year, our team tried something a little bit new and went skeet-shooting.  I have to admit, I’m not a hunter or an avid gun lover.  But, as a team, we had a lot of fun getting outside the workplace and enjoying a little friendly competition.

3.  Communication to stakeholders: Once the top three to five initiatives have been decided, it’ll be important to get everyone else within the organization on board.  Before presenting the plan to the employees, make sure that you meet with and present the plan to the Board or Key Stakeholders.  They can provide critical feedback to help refine the plan and ensure that it is realistic and achievable.  Once the Board has approved the plan, schedule an all-hands meeting with all of the employees and present the strategic plan.  Every employee should know the organization’s vision and the top three to five initiatives that the organization is focused on during 2013.  The type of transparency will create buy-in and excitement.  You also might want to consider handing out company SWAG with the year’s theme somehow tied in.

Last year’s meeting to present the 2012 Strategic Plan was one of my favorite meetings of the year.  Prior to the meeting, I asked each employee to read the plan and come prepared with relevant questions, ideas, and suggestions.  Throughout the meeting, we had an open discussion where new ideas were shared and plans were created.  Everyone walked out of the meeting with a clear understanding of our goals for 2012 and how their specific role contributed to the overall success of the company.

4.  Execute: The planning was the easy part. Now, it’s time to roll up your sleeves and get to work.  Financial forecasts and budgets will need to be created.  Resources will need to be allocated.  Key Performance Indicator’s (KPIs) will need to be established.  Execution plans will need to communicated.  And projects will need to be completed.  The good news is that each department and employee will now know how their day-to-day tasks are contributing to the success of the overall organization.

5.  Follow-Up: Hold monthly meetings to maintain the energy throughout the year.  Use the meetings to report on company, department, and individual accomplishments.  Track the goals for each month/quarter and adjust as needed.

By executing these five steps, you’ll have a kick butt plan for 2013!

Author:  You can reach Brock on twitter at @brockblake or at www.lendio.com.

“Greg’s experience and insight will be extremely valuable as RES Software expands its leadership in the fast-growing workspace virtualization category,” said Klaus Besier, CEO of RES Software. “Greg recognizes the value we bring to IT organizations that are struggling to manage multiple end user devices across multiple new architectures, including cloud applications, virtual desktops, traditional PCs, and mobile devices. He has an impressive track record of helping companies achieve enduring, highly-scalable growth, and of defining and leading new technology categories.”

“RES Software has the wind in its sails with its workspace virtualization leadership,” said Greg Butterfield, newly appointed Chairman of RES Software. “In the last few years we have clearly seen the enormous value of server virtualization and desktop virtualization. Now workspace virtualization is gaining real momentum as it solves the challenges that hybrid desktop environments within organizations represent today. The upside for RES Software and its customers, partners and stakeholders is enormous. I am especially glad to join them at such a tremendous time.”

RES Software’s workspace virtualization solution allows organizations to create and manage a user “workspace” independently of the underlying device. This enables IT to gain more control over corporate applications, data and systems, while giving end users the flexibility they require to be more productive and effective. By leveraging RES Software’s workspace virtualization solution, organizations improve IT management and security, reduce end user frustration, and increase overall ROI. Forrester Research recently defined workspace virtualization as “the independent management of a user’s desktop experience, including user settings, data, applications, and the OS,” offering “personalized, consistent, and rich user experiences across a range of application and desktop delivery architectures and devices.” *

About RES Software

RES Software, the most comprehensive provider of workspace virtualization solutions, is helping IT organizations manage increasingly complex and hybrid technology environments with software that makes IT easier, less costly and more secure to manage. With technologies that automate, manage and secure corporate IT, RES Software helps IT professionals master the impacts of IT consumerization, changing employee work styles, bring-your-own-device initiatives and cloud technologies. RES Software patented technologies are used by a global customer base, and include superior customer support.  For more information, follow updates on Twitter @ressoftware and visit www.ressoftware.com.

She waved her fine lace handkerchief at him and said, “Brave knight, I have been trapped in this stone tower for nearly a year by a wicked old witch. I have survived only by the kindness of the birds and squirrels that bring me nuts, berries and water. If you can free me from this tower, I will be eternally in your debt!”

“But how can I reach you at such a great height?” asked the knight.
“Use the Ladder of Diminishing Returns,” came the answer. So the knight, looking around, found a strange ladder on the ground near the tower. He leaned it up against the tower and noticed that the rungs of the ladder were spaced in a very peculiar fashion. Near the bottom they were spaced about a foot apart—very similar to most ladders. But near the top—as the ladder went past the princess’ window—the rungs were closer together: first nine inches apart, then six, then three, then one, and finally there was only a half-inch gap between the rungs as it passed the window.

“What a very odd ladder,” murmured the knight.

“Oh,” said the princess, “you are just seeing the diminishing returns. You see, the ladder has to be tall enough to let you climb up to a little below my window. From that point you can pull yourself in or me out and rescue me. But if you continue to climb, the rungs are so close together that you don’t get any real benefit in rescuing me and you might get your foot caught—you’ve reached the point of diminishing returns.”

“Ah, I get it” said the knight. “If I don’t climb up enough, I fail to rescue you and lose my reputation as a great knight, but if I climb too far, there’s no real benefit and it could even get worse.”

“That’s right” cried the princess. Wow, you are really, really smart too, and I want to marry you. But first, can you get on with rescuing me from this stone tower? I could really go for a big ole’ burger and fries after all those nuts and berries.”

And that is the (nearly) true story of how the knight and princess met and why you should put in just the right amount of effort into the tasks that you are about.