Download - Mark Leslie - Leadership and The Virtuous Cycle

Leadership and the Virtuous Cycle

mark [email protected]

650/561-1228

Or How I Made

Quarters in a Row

40

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Copyright M. Leslie 2

$95K $1.5 Billion Revenue

12 6,000 employees

0 $20 Billion Market Cap

Startup Fortune 1000

--In 11 years

Veritas Software – 1990 - 2001

The Virtuous Cycle

Copyright M. Leslie 2008 3

Exceed Revenue Expectations

Increase Stock Multiples

Exceed Profit Expectations

Grow the company

Increase Stock Price

The Virtuous CycleExceed the Sales Expectations

► Set the goals realistically on an individual basis

► Manage the quotas such that ~70% of population achieves > 100%

► Create a culture of success

►Build an industry reputation for sales success and for paying well Attract and retain the best talent in

the business4Copyright M. Leslie 2008

The Virtuous Cycle

Exceed The Revenue Expectations

► When sales over-achieves…

► Avoid EOQ / EOY discount pressures …And channel stuffing

► Plan manufacturing capacity in advance► Build a backlog for next Q

► Avoid the temptations to take the first step onto the slippery slope of ethical / legal misconduct

5Copyright M. Leslie 2008

The Virtuous Cycle

Exceed The Profit Expectations► When the revenue is above expectation…

► Manufacturing efficiency is improved► Discounts are shallower

If there is a channel distribution, yields higher street prices► Which increases channel loyalty

► Operating expenses are at lower % of revenue► Excess GM falls to bottom line

► Which can be reinvested in the business

► Or made a permanent improvement in the company’s operating model


The Virtuous Cycle

Increase your Stock Multiples

► When the profit is above expectation…

► Growth in profit will exceed expectation► Greater absolute profit and greater

growth in profit and consistency of performance will result in a higher multiples

►Greater multiples yield higher stock prices


The Virtuous Cycle

Increase your Stock Price► Higher stock prices…

► Build the public reputation of the Company

► Provide shared rewards for the employee base

► Create culture of success across the company


The Virtuous Cycle – Higher Stock Prices

Recruit / Retain the industry’s best

► Everyone wants to join the HOT company

► Rapid growth in stock prices allows for smaller options with bigger bang

► Stock options lock down the best and the brightest



Increase Market Share

► Invest more rapidly than competitors to take share Now - Distribution (sales and marketing) In the Future - Product (engineers)

► Use high multiple stock to strategically acquire / consolidate key technologies High stock multiples will allow you to win

acquisition deals competitively



Reduce the company’s cost of Capital

► Higher stock multiples reduce the company’s cost of capital Raise Equity / Convertible Debt Build a War Chest

► Note to SelfKEEP THE CASH!

You never know when you will need it Never do a share buy back unless you are

COMPLETELY BANKRUPT of ideas!►Except to extinguish stock option dilution


The Virtuous Cycle





Grow the company


Leadership

How the CEO Can Create

and Foster thisVirtuous Cycle?

ML Definition of Leadership►Creating the environment, where…

►You can attract the best and the brightest

►Who can exercise autonomy and judgment,

►While furthering the mission of the organization,

►And get a sense of personal achievement and satisfaction over and above financial rewards


Leadership

Leadership is holistic –

Creating this particular

Virtuous Cycle is a single

dimension15Copyright M. Leslie 2008

It Starts with the Forecast

► Difficult to have much effect on the revenue line

► The further out in time, the more the company can affect the revenue plan New products New Markets Strategic Partnerships Leveraging industry trends / changes

► But these initiatives are measured in years, not months!


It Starts with the Forecast

► Only Tactical programs affect the next 12 months revenue Limited effect Often borrowing from the future…

► Critical to ACCURATELY FORECAST Conservative High likelihood of over achieving - A “Lay Up”


Grounded in Realism

► Externally pressures of the business are antithetical

► Internally everyone is gaming the system

► Tempting to set high goals and inspire all to be heroic

► Success brings Temptation to believe in your own omnipotence Indulgence in wishful thinking

► The most important thing is to be realistic and objective!


Grounded in Realism► Determine the correct operating plan

The operating plan is where all the ambitions and the constraints of the company (and each department) come together

It is a battle for resources

► Determine the most important corporate priorities and each department priority

► Determine a realistic / honest revenue number

Iit will most certainly be less than the sum of the individual quotas

This is called an “over-assign” ( we did 20%)


Grounded in Realism► Set each of the operating function expenses at a

proportional share of the revenue dollar This will tighten expenses, drive up productivity

► Iterate through the negotiations to an agreed upon plan

► Which needs to be eminently achievable


A Little Review - Do the Math

►Start with realistic number►Over-assign the goals by 20%

(The total of the SR goals is equal to 120% of the corporate number)

►70% + of the sales force makes their goal

►Guess what happens…


Trusted Relationships► How do you get the “honest number”?

“The highest possible number that you are certain you will make. Anything less will inhibit our investment in the future of the business.”

► Build and maintain a high-trust relationship with the EVP of Sales To engender trust, you have to trust first Break the cycle of gaming the system Incent the VP Sales on corporate results (EPS?) instead of

revenue or contribution margin (And with a lot of stock)


Leadership

► Looking beyond Sales…► Create a high trust environment with and

between the entire management team► The aura of trust, and the transparency of

style spreads throughout the company Pervasively diminishing the gaming of the

system and politics Enlisting the energies and talents of the

employee population in the mission of the company

►Above the mission of “self”

►And The Virtuous Cycle Continues… 23Copyright M. Leslie 2008

Some words to live by:

it is regret for the things we did not do that is inconsolable.

Sidney J. Harris (1917–86)

Regret for the things we did can be tempered by time;

The Virtuous Cycle





Grow the company


Leadership and the Virtuous Cycle

mark [email protected]

650/561-1228

Or How I Made

Quarters in a Row

40

mailto:[email protected]