Tech Capital Partners Blog

Over the years Tech Capital has developed a set of best practices for building technology companies. Some of these best practices have come from our own experiences and some have come from the fantastic people we have chosen to work with at our portfolio companies. We try to share these best practices with each new portfolio company that gets added to the Tech Capital family but this is the first time we have formally documented them… We also try to facilitate interaction between our portfolio companies so that they can all learn from each other’s best practices. Here are some of the highlights — hope you find them helpful.

1. Recognize that it takes a team to build a successful company. Companies typically start out with one or two founders, and no founding team is “complete”. We like to work with founders who recognize where they are strong and where they could use some help. As the team grows, management needs to focus on where the team is strong and capitalize on these strengths. At the same time, management needs to identify where the team is weak and hire to fill these gaps. A rapidly growing company doesn’t have time to try to strengthen or hide weaknesses.

2. Hire top talent. Of course. Easier said than done. How do you identify top talent? Are you willing to hire someone who is more accomplished than you? How do you convince these people to join your company? How do you make sure they stick around? We’ve invested a significant amount of Tech Capital’s resources to make sure our portfolio companies have access to and retain the best talent (80% of the money we invest in companies ultimately goes to the employees). We have two full-time employees at Tech Capital who focus on human resources programs and support at portfolio companies. From the get go, we help our companies establish HR management principles to ensure they are ready for rapid expansion and growth. Programs include: recruitment and retention of talent, development of talent, compensation strategies, management of organizational change, and general systems and processes.

3. Share the wealth. We encourage our portfolio companies to issue stock options to all employees. By giving employees a share of the company’s upside, employees have a vested interest in the success of the company. Everyone celebrates when the company is successful. Some of our companies also use variable compensation to reward employees for success on specific initiatives. For example, additional stock option grants for successful customer deployments or cash compensation for growing the company’s user base by a certain percentage. We do not subscribe to a “standard” compensation formula but we believe that employee ownership should be included in whatever form of compensation management chooses to adopt.

4. Spend money but make sure you spend it on things that matter and don’t waste it. We invest money in our portfolio companies knowing that they are going to spend it, and we want them to spend it to grow the company. The key is to use money as efficiently as possible so that the company gets to cash flow positive as soon as possible. Don’t waste money on fancy office space or expensive furniture and shop around for the best deals on travel etc. so you can pay your employees well, give them the tools they need to be successful, and have more runway.

5. Identify, focus on, and track metrics in all key areas of the business. The old adage “What gets measured is what gets managed” is certainly true. Metrics give all employees a clear view of what matters to the company and tangibly shows the progress the company is making. One of our portfolio companies has a large monitor in its development area that tracks one of its key metrics. Everyone in the company can see the impact of new product releases and the growth of the company — in real time. This type of visible metric is incredibly powerful for team motivation (and impressive when investors stop by…).

6. Focus on the “right” revenues. Generating revenue is very important but it is equally, if not more, important to make sure that the revenue you generate comes from your target market. Referenceable and relevant customers play a big part in technology sales cycles and are key for driving revenue growth, especially in the early stages of a company’s development. Having these referenceable customers also helps validate your business value proposition when you are speaking with potential partners and investors. Chasing revenue wherever you can find it may help keep the lights on but it can keep you from building your core business. If you are unable to secure revenue from your target market, you might want to reevaluate your value proposition and target market.

7. Move quickly but maintain a strong balance between planning and execution. One of our CEOs suggests setting annual goals and then working backwards to determine what the company needs to do each 30 days to ensure it meets these goals. The company executes over the 30 days, measures the results, adjusts the plan if required and then executes for the next 30 days. Monthly company update meetings provide a good “deliverable point” to keep everyone accountable (including the CEO). He also suggests having no more than four key, well-defined deliverables (three is best, easy to remember, no confusion) and that nothing else should be started until these four are completed. Along with this point, do what you say you are going to do, when you say you will do it. Or, “Underpromise and Overdeliver”. Clearly understand the abilities of your team and set realistic expectations about timelines on deliverables.

8. Communicate effectively with employees on a regular and scheduled basis. Continuing on with my last point, every employee in the company has a role to play in ensuring the company executes on its strategy. Communicate regularly with employees both informally and through scheduled company meetings (we recommend at least monthly) in which management clearly articulates the company’s annual goals, results from the prior month, and where everyone should be focused for the current month.

9. Knowing when to say “no”. There are so many paths for companies and employees to take in building a business but financial and human capital resources are always limited. How do you figure out which paths to pursue and which to say no to? Ask yourself these simple questions: “Does this [opportunity / feature / tool / resource / project / information / etc.] help us deliver on our key deliverables?” and “Does it provide a return on investment within [timeframe]?” Keeping people accountable for their actions and rewarding them for achieving goals makes answering these questions somewhat easier.

10. Encouraging innovation. A difficult challenge is finding the balance between focusing on the execution of a plan vs. innovation and new ideas, which always creates a pull in a different direction… One portfolio company maintains a constant dialogue so that every new idea that pops up is put on the table for consideration and evaluated along with everything else. Another company gets ideas and buy-in on product design from everyone in the company, not just the engineering and product teams. Their process includes full, company-wide, design reviews and prioritization sessions on each product release. A third company considers every new idea and rapid prototypes whenever possible. To support and encourage idea exchange, they have a 4′ x 8′ whiteboard for every developer.

11. Develop a culture of empowerment and decision making. Employees need to feel comfortable making decisions — taking risks / trying new things / experimentation is good. If an employee makes four decisions and one of these decisions turns out to be wrong, three were right! (and the company moves forward!) If employees are scared to make decisions, the company stands still. Trust your team and encourage them to make decisions.

12. Participate in community. When I speak about community, I’m referring to the community in which the company chooses to do business. I recognize that this is a vague definition but community is different for each company. Our companies participate in their industry communities — For example, contributing to standards bodies, joining trade associations, and speaking at industry events. They also participate in their local communities and believe that building a reputation locally is important for recruiting the best local talent. A company needs to be engaged with its community on many fronts to develop its reputation, get feedback on its products, cultivate relationships, build its team, etc.

This list is obviously not exhaustive, would love you to post your own best practices in the comments.

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