Steve Shu's Blog

Venture Capital Test Suggests Some Weaknesses About MBAs and Consultants

Paul Brown tipped me on Guy Kawasaki's post on the Venture Capital Aptitude Test. (Disclosure: Paul's kind words come from years of he and I working together in a startup where he and the other developers did all the hard work) . Thanks, Paul.

In Guy's post, Guy gives two positive nods two areas I've had lead roles with (engineering & sales) and disses two other areas I've been also been involved with (MBA and management consulting) in terms of how it affects one's ability to be a venture capitalist.

Guy writes about management consultants:

The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups.

Guy writes about MBAs:

Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.

While I won't address Guy's claim about the whether these areas are good or bad for venture capitalists (as I can't claim to be an expert about picking good venture capitalists), what I will address is Guy's claim that "Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups" and "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside."

On the point about management consulting I simply disagree (with no disrespect) with Guy. Guy's statement is an overgeneralization. There are different types of consulting firms out there, and Guy's perspective may be more influenced by pre-2000 practices. Consulting firms pre-2000 that were focused on strategy might have more of a tendency to be focused solely on stategy, but these firms got burned by making recommendations without focusing on ease of execution. On the other hand, there were firms that grew of of an implementation background (and potentially interim management background) and moved upstream into more strategy consulting. Although markets started to overlap a bit, structurally I think consulting firms and client were better off by having this type of cross breeding.

All said, if one has not spent any time managing or working in a business role prior to management consulting, I think this can be a weak point that one needs to work on careerwise. But there are strong benefits to management consulting that should not be underestimated either - by working in management consulting, one can get exposed to the internal operations of a lot more firms than one could by working for one firm straight for five to ten years. In five to ten years as a consultant, one may have seen the detailed operations of twenty to forty firms versus two to five as an operating person.

On Guy's point, "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested."

To this, all I can say is that my hypothesis would be that MBAs may tend to attract arrogant people [who overstep their bounds in terms of what they think they've accomplised over non-MBA entrepreneurs]. I don't think the MBA naturally breeds this type of person.

Overall, I think Guy is onto something when he says people should value the difficulty of implementation and value and proximity of market insight. I also think he's onto something when he talks about arrogancy affecting the ability of VCs to do the job effectively. But Guy's characterization overly discriminates against consultants and MBAs. What about the negatives to engineers who only think about technical beauty and miss the market need? What about the salespeople who only sold what the customer already bought and never hunted for a deal?

Updates (12/4/06): Guy here. Charlie here.

What I Didn't Learn From Bjorn Borg I Learned From My Brother and From Startups (The Importance of Sales)

Last month I was bit dismayed to see that one of the great tennis players of all time, Bjorn Borg, was putting up his Wimbledon trophies up for sale to help with financial security for those close to him. Bless Bjorn and his family, but the news was a bit sad for me.

When I was growing up playing tennis, I identified more with John McEnroe, who was a lefty, serve-and-volley type, and phenomenally natural player (true McEnroe had a temper on the court). Borg, on the other hand, was a baseline player, more of a machine and a model of physical perfection, disciplined, and gentleman-like. Borg played with an exaggerated Western grip which facilitated huge, looping forehand swings, and topspin shots that were out of this world.

One of my first tennis racquets was a Bjorn Borg Bancroft racquet. I got it as a reward for selling probably hundreds of candy bars in the Little League. OK - I didn't personally sell more than two of those hundreds of candy bars. My parents and my brother were the salespeople that should be credited for the sales. My brother, who has always been a genuine, people person, was eager to bring happiness to others door-to-door in the form of chocolates and his bright smile.

Prior to working directly in new sales (not existing clients) for a startup, I had a total aversion to salespeople. Salespeople were a bunch of scum suckers, slimeballs, and shysters looking to rip off innocent people. But working in a startup forced me to understand more about the craft, process mechanics, compensation structure and legal docs, management and measurement techniques, and styles of salespeople from a hands-on point of view. In short, I developed a deep appreciation for sales, and I came up with my own style of sales. I basically develop a sales style that is oriented towards helping other people first and then allowing sales to stem naturally from that (as opposed to forcing things unnaturally).

Digressing a bit, at Chicago's b-school (before my sales experiences), I took a new business venture course from a visiting Harvard b-school professor. The Harvard professor taught the class with an heavy emphasis on the entrepreneur having strong sales qualities. I found this to be in stark contrast to the entrepreneurial finance course that I took from a Chicago professor which emphasized a more holistic look at a venture in its approach.

I never really appreciated the importance of deeply understanding sales until somewhat longer into my professional career. Now I live, breathe, and appreciate sales in all of my jobs, even when sales are not my responsibility. Cutting one's teeth in sales has been one of my best professional experiences, and I would especially encourage those seeking entrepreneurial endeavors to try out the profession/functional role at least once. If you can get in a situation where you must both source and close the deals, that's an ideal opportunity to pursue. Not only does understanding sales help one appreciate the "cash is king" mantra in a venture but also it helps one to understand other people better.

Musings On Surviving The Bends When Moving Between Small and Large Companies

The "bends" refers to decompression sickness and is often associated with divers who surface from a dive too rapidly (e.g., because of an emergency like running out of oxygen) and where the pressure transition of moving from deep to shallow water can be so shocking that it cause gases to bubble out of one's blood - very painful. Though I haven't read up on the facts on how many people die from the bends, for one reason or another I often associate the experience as very traumatic experience with a high probability of casualty (which may not be true). In any case, I spent lunch the other day with a successful entrepreneur that I work with (who raised tens of millions of dollars from top VCs in two ventures), and we shared some stories about our own startup and big company experiences, other friends' experiences, etc. The talk made me reflect upon how people can switch between entrepreneurial ventures and large corporations (both directions) and not get the equivalent of the "bends".

From my vantage point, there seems to be a high probability of people failing to make the transition.

Here are some example sickness conditions that one might find when switching from small company to large company:

• getting frustrated with (perceived) excessive processes
• failing to recognize sensitivities associated with chain of command or organizational structures
• having to hold specialist positions that may not see end-to-end workflow (such as beginning of customer prospecting through contract closing and delivery)
• moving from being a big fish in a small pond to a small fish in a big pond (and the associated reduced scope of control)

For this post, I'm going to ignore the positive aspects of switching between small and large company, and I'll turn to some example sickness conditions that one might find when switching from large company to small company:

• having difficulty operating with no to little human resources (e.g., VPs in big companies where they had people working for them and not knowing what to do when they have to deliver on their own)
• wanting to expand the organization prematurely (e.g., building up large sales teams before product is even close to alpha)
• working with colleagues who may neither have the experience of working with large companies nor speak the same language
• getting accosted by management for failing to realize that a small company may have much smaller margins for error

For myself, I found that imagining how life was going to be on a day-to-day basis before I made the switch had helped quite a bit. For example, before I first left the management consulting field to work for an angel-funded startup, I told the CEO something to the effect that I was mentally prepared to scrub toilets and live life by eating only canned beans. I knew that in a transition from a well-paying management consulting job to a bootstrap - well things were going to feel financially different. On the other hand, when I returned back to becoming a management consultant in a large company, I knew that there would be more processes, organization, etc. to work with. Projecting how life would be back in a large company had helped me to make the transition.

What I suggest is an internal readiness testing of sorts.

To digress a bit, I have seen some folks apply interview testing (or sorts) to see whether a large company person would work out in an small company/entrepreneurial setting. The test might have been to have a candidate for a VP of Sales job develop a sales presentation (or revise the startup's existing sales presentation) and present the deck to the startup management team and board itself.

If the transition can be accomplished successfully, great things can happen. Sometimes business connections and credibility from someone from the big company world can be leveraged quite nicely into a small venture. Soimetimes entrepreneurial attitudes and fresh blood can help with large companies that need a revival. These are just tips of the iceberg in terms of potential benefits.

But transitions can be rocky. The bends exist, and they need to be actively managed before, during, and after a transition. At least, methinks so.

Musings On Jack Of All Trades, Entrepreneurs, and Position Players

Andy has a post over at his blog which highlights how an entrepreneur distinguishes himself from MBAs and venture capitalists, the latter two types of people characterized as those that frequently suffer from a "Jack of All Trades [Master of None] Syndrome". The entrepreneur cited in Andy's blog writes (brackets added by me for clarity):

The reality is that VCs suffer from the same problem that most MBA graduates face: “Jack of All Trades” Syndrome. Put simply, they know a little about a lot but lack real depth when it comes to a particular field. Starting a successful company [as an entrepreneur] involves solving a critical problem for a targeted group of customers. To be able to do that, you have to understand the customer extremely well, and be an expert in their interests, needs and problems.

I don't disagree with the need as an entrepreneur to be focused on the specific problems of targeted customers. What actually struck me as a little funny though was (my perhaps incorrect) perception of a distinction between Jack of All Trades-types and entrepreneurs.

In some ways, many entrepreneurs benefit from having some Jack of All Trades skills. If one is an engineer or software developer, having some innate sales skills or knowledge of the sales process can be invaluable in testing out ideas in the field early on. Having some knowledge about finance is beneficial too, especially if looking for angel or venture money and trying to understand their concerns at a deeper level. Knowledge of marketing also helps in a bootstrap environment as one tries to figure out how to develop that magical, self-referencing customer ecosystem. Having knowledge about how other businesses are run is also very valuable.

To digress a bit, a couple of months ago a venture partner indicated that my Jack of All Trades appetite was that of a classic entrepreneur. As context, his firm was about to draw a second round of institutional money (so the firm was little bit beyond startup), and he was contemplating having me run business development. An interesting question that came up was what was my appetite was for being a position player (a person that can fill a specific role exclusively, e.g., VP of Business Development, VP of Marketing, VP of Sales). In essence, this person was saying that Jack of All Trades-types were fine for early ventures, but as the company moved out of startup mode that it needed specialists.

All said, I believe that many entrepreneurs can benefit by being a Jack of Some Trades and a master of something. Note that the utility player in the baseball world is practically extinct (but then so is the 80s Rock Drummer). And while I made a case for utility players in entrepreneurial settings, there is a strong case for the utility-types being replaced by position players down the road as a venture gets more mature. Don't overvalue or overdiscount the Jack.

My Former Employer/Startup Acquired (The Fluid Nature of Startups)

Intalio (a company funded by 3i, Cargill, Woodside Fund, SAP Ventures, et. al.) has acquired my former employer, FiveSight Technologies, a manufacturer of one of the highest (if not the highest) quality business process execution language (BPEL) engines the world has ever seen. eWeek reports on it here. Congrats to the team of companies as they enter a new era. Maciej Szefler, formerly chief architect for FiveSight, takes over as chief architect for Intalio. FiveSight had some of the smartest guys (excluding myself) in the world working for it, and I thought I would take a moment to congratulate them, in particular founders, Paul Brown, Maciej Szefler, and Justin Guinney. I'd also like to thank the three of them for letting me join the team.

I thought I'd take a moment to reflect upon one aspect of FiveSight in its life as a startup. Perhaps it will shed some light on the fluid nature of the startup environment.

I joined FiveSight at the end of 2000 (close to concurrent with its seed round of funding) before we had offices, and I was the first non-programmer (aka business guy) to join the company. The company had a concentration in automating business processes using low-level, highly technical infrastructure and had a few clients exclusively in the healthcare space. The product that was sold was in the integration space, sort of like a toolkit, and it was *not* the product that was sold as part of FiveSight to Intalio. The standards around BPEL were not that well-formed around the time we were in that original business. We raised corporate venture capital (pre-BPEL) through Union Pacific Corporation (NYSE:UNP) and got some big name clients with our first product, such as Nomura and Hitachi in Japan, and Harley-Davidson. Probably the accomplishment of which I am most proud at FiveSight was locating a prospect (by cold calling them from a magazine article), selling our first enterprise deal into an industry sector where we had no references, and then negotiating and facilitating the venture funding with Paul. It is very hard to line up deals when you have no customer references, no brand name to speak of, no venture capital or big financial backer, and when you need to compete against brand name, larger firms.

To make a long story very short, the first product that we got out the door, served as FiveSight's experience and drove a lot of the intellectual property that went into the BPEL engine now owned by Intalio. When we started the journey, we did not know we would wind up with a new product. But we listened to customers and the market. We also did not know how the proprietary versus open source playing field was going to pan out. FiveSight managed to focus on the shifting landscape. We went with proprietary until it made sense. While doing all of the basic blocking and tackling associated with near-term sales and startups, we also had to focus on the larger picture as to how the industry was shifting.

I left FiveSight at the end of 2004 due to a relocation from Chicago to Dallas (as my wife finished her PhD). To this day it is still hard to keep someone part of core management if they are not within HQ.

Open source is here, and with FiveSight, Intalio is even more at the forefront of a class of products provided via that means. Technology aside, Intalio got some of the smartest guys I have ever worked with. They are and will continue to be legendary.

Disclosure: I am an investor in Intalio and formerly part of the management team of FiveSight.

Update (12/8/05): Paul has some additional experiences to share here. Paul, thanks for the kind words.

Small Businesses And Lawyers

Anita Campbell has an interesting post that covers small business owners' net satisfaction with lawyers. She writes:

Don’t just take my word for it that business owners have confidence in their attorneys. A recent survey by the National Federation of Independent Businesses (NFIB) found that small business owners in the United States rely on their lawyers for help — and generally seem satisfied with the help they get.

Having worked with (and negotiated against) numerous lawyers, I have to say that good lawyers are precious.

That said, and while I have not dissected the study, there are some additional considerations that I see as applicable to startup businesses because legal bills may not be cheap (just as the lawyers chant out, "an ounce of prevention is worth ..."):

1. Try to get smart on when you really need a lawyer ("do you know a real business/personal risk when you see one?") - Easier said than done, but I have seen some early organizations rack up tens of thousands of dollars in legal fees before coming out of the gates with anything but a stack of legal documents (not even the sales pipeline, marketing pitch documents, or product concept). Keep your eyes open for warning signs. Sometimes it takes time to coach your lawyer to help you maximize entrepreneurial opportunity while mitigating risks appropriate for where you are at companywise. Lawyers are about minimizing risks. Entrepreneurs are about maximizing opportunity. Work on getting the balance right very quickly.
2. Try orienting your lawyer around deal flow - All businesses have risks. Small businesses cannot afford Fortune 50 company-style legal protection. At least they can't afford this up-front. Consider orienting your lawyer around a staggered plan. For example, for your first big deal, you may want extra review of certain areas of deal documents. Once things are rolling, you can come back and put in more complete deal document review and legal document portfolio creation. The total nominal cost out may be more in the long run, but the cash out flow will better match the cash in flow.
3. Entrepreneurs that do not manage their lawyers closely in the early stages of a relationship may be setting themselves up for a shock - Anecdotally, I have seen "first bill from a lawyer" shock many entrepreneurs and kill the trust relationship on both sides. Given the professional services relationship, one would think that this would work itself out and get structured right from the beginning. That said, I think entrepreneurs get too comfortable letting lawyers worry about all the risks. In the end, entrepreneurs end up failing to watch the relationship closely up-front, and bridges can get burned.

Jerk Manager Or Lessons From The Spanish Prisoner? (Long Post)

I thought I would relate a case I had in a startup situation where I had felt that I had reached the lowest point in my personal and professional life. I was really choked up, and it was probably the first time I have ever had something mental shut me down physically. But I think this case also reflects some aspects creativeness and caution that are bred into people working for startups.

I was contacted by an individual in Caracas, Venezuela. We'll call him Mr. P. Mr. P. purportedly has a background in the enterprise software market and connections into the financial services space, a sector very ripe for my company's product. Through pure chance, I happen to talk with one of our sales directors who actually has worked with Mr. P in the past. The past experience with Mr. P was positive. The prior company (in the same market space) got a number of high-level meetings with customer prospects and a mini-roadshow in Venezuela. One deal actually came though and was signed. Trick, however, was that Mr. P wanted his sales commission up-front (i.e., before receipt of first payment from customer). To make a long story short, the key person that signed the deal at prospective customer changed jobs, and the vendor lost the deal. Mr. P., part of a population where the economy is under terrible duress, no longer had the money to pay back the vendor. Our current sales director still speaks very highly of Mr. P.

So I decide to move forward. What does that mean? Well in a startup situation, and especially in cases where you do not have the Board's blessing to pursue international speculation, you either need to get cash up-front or do a commission-only based deal. Went with later approach here. Additionally, I did not agree to pay for any expenses. Let's get things rolling first.

I start to have a number of phone conferences with prospective partners (e.g., IBM distributors) and customer prospects. Mr. P. prepares some good presentations for us, and I verify some of the phone calls, discussions, and exchanges with people I know, people who have done business in Latin America. I even use informal networking to get connected to folks at IBM who manage the Latin America operations, tell me things about doing business there, and can verify that the people I am talking with as IBM distributors are actually IBM distributors. Early on, I also get introduced to a Mr. V. who is supposed to be able to broker additional connections, but on my first call, I wasn't so sure about the fit.

A few weeks into the various calls (I never traveled to Venezuela btw), Mr. P. starts to indicate to me that he needs an advance of money. The highballing starts to come on strong. He has set up conference calls, cannot pay for food to eat, traveled to different parts of Latin America, etc., and I have not sent a single cent to him. I consult with our director of sales. Compressing things a bit, I am still cautious, so I roll out phase 2 of my "jerk manager" approach. I tell him that I cannot advance any money, but that I will send up to $750 in three pieces (perhaps not the exact amounts), and that each piece is tied to a milestone: e.g., phone conference with customer (both business and technical contacts), verification of pilot install of software, and signed order form (of a qualified, credit-checked customer) for training. He say "great". OK.

We almost complete through the second milestone, but have some issues with the Java virtual machine implementation in the IBM AS/400 environment.

Then something happens out of the blue. Mr. P's son has been in a motorcycle accident. He will lose his arm if he does not get surgery. Mr. P. does not want to take his son to a public hospital, but wants to take him to a private one. Please advance the rest of the $750. Offline, I call the special crimes division of the FBI to see if they've ever heard of this one before. No guidance there. But they do have four full-time people manning the customer services lines to handle the Nigerian email scam. FBI says to me that they can't make any recommendations here, but that it sounds like I'm doing all of the forward and backward chacking I can.

In the end I try to console Mr. P., but I also indicate that it is not my money to advance. It is shareholders' money. I ask to let me speak to the doctor and the hospital. I say that I am not comfortable advancing money to him directly, but will pay the hospital directly, using some of my own money. He says OK. To make a long story short again, I get one of my friends that can help with the language to connect me to the hospital. I go through a number of different departments, and finally get so caught up with transfers, that I spare my friend the rest of his time with helping me out pro-bono. I ask Mr. P. why I cannot reach the person at the hospital, he says to call Dr. V.

In the midst of all this is where the low point happens. Mr. P. calls me out of the blue. He is sobbing. He tells me that he had to take his son to the public hospital for immediate surgery or the arm would be lost, but it turns out that his son has died.

It is even hard for me to recall how I felt at that moment, but I felt directly responsible for the death of his son. I had not advanced money to take him to the private hospital. While I had moved quickly to verify circumstances, it seemed as if I was not rapid enough. My mind and body shut down for 24 hours.

A few days later, Mr. P. tells me not to worry, that he will be gone for about a week to bury his son.

My mind starts to work again eventually. Hmm. V is a name I've heard before. Where have I heard that name? Let me scan my address book. There's a Mr. V. that is a business development person. But what's this? Dr. V (the scheduled surgeon for Mr. P's son) has the same telephone number as Mr. V. Now V is a common name, but this seems odd. I eventually try to mention this to Mr. P. He has no explanation other than in his distraught mental state he must have confused things.

Mr. P. and I never seemed to trust one another after that series of incidents. Our business ended, and the company shareholders were out $250 and about 2 weeks of my time in paid salary. To this day, I do not know whether Mr. P's son had died. Mr. P. let me know that it was not my fault though. One of my close friends told me that I need to see the movie, "The Spanish Prisoner". Probably both Mr. P. and my friend are right.

Interesting Article Pointing Out Why Corporate Ventures (Versus Startups) May Have Higher Mortality Rates

Accenture's Outlook Journal has a somewhat older article (vintage 1999-2000) describing the benefits of "fast ventures", a strategy to bring a new eCommerce company to market fast using new company and new equity structures.

I have been involved with a number of internal venture and new business initiatives within large corporations (not generally eCommerce though) and resonate with some of the pressures cited in this article that must be compensated for or actively managed (I cannot speak factually on the comparative findings on incubation and return timeframes). The passage that caught my interest from the article is as follows:

One research review by Patricia G. Greene and Candida G. Brush, "The Corporate Venture Champion: A Resource-Based Approach to the Role and Process" (Entrepreneurship Theory and Practice, Spring 1999), suggests that compared with entrepreneurial startups, corporate ventures require a much longer incubation period before commercialization and take twice as long to reap a profit.

It's unclear why this is the case, but experience suggests five answers.

First, corporate executives tend to have a much smaller universe of ideas to choose from than does the typical venture capitalist. Second, they may have less objectivity about which ideas should succeed; this may be due to internal politics or hardened views about their particular industry. Third, internal initiatives are limited by the company's own capabilities, which may fall far short of best- of-breed.

Fourth, getting the green light for an internal venture typically requires layers of approval that sacrifice swiftness for a certainty that is rarely attainable in today's fast-moving markets. Staffing allocation, annual budgeting and political power struggles all conspire to limit a company's ability to innovate.

Fifth, and perhaps most important, corporate initiatives suffer because managers are seldom personally on the line. To paraphrase Samuel Johnson, nothing so concentrates a manager's mind as the prospect of an IPO in just three months.

In a corporate environment, a fast venture can minimize or eliminate these impediments. New-venture teams tend to make decisions motivated less by career advancement or company politics than by the opportunity for personal and financial gain, creating powerful incentives for success.

Union Square Ventures Turns Website Into Blog

Fred Wilson posts that Union Square Ventures has turned its front webpage into a blog. Although Infectious Greed has some mixed feelings on the subject as to putting a blog on the front page, I think it's a great thing for small organizations. Aside from blog hype, etc., I suspect most people click by the blah, blah, blah on the front pages of many small org. websites anyway, especially venture capital websites. Why not make information on the main page fresh like a newsletter? So long as people can find out what you are about and who you are in one-click, I say just optimize the web flow to the audience. What will be interesting to see will be how Fred Wilson divides his posts between the firm's blog and his personal blog. The division will probably be far from representative of a typical corporate blogger, but I see it as a small test case of a prominent blogger moving to an organizational blog. We haven't seen many cases like this as to whether the shift can be successful. For Fred, it may be business as usual (as I suspect it will be), but who knows. For one thing, cross-posting in Web 2.0 is a pain in the neck. That's going to have some impact I'm sure on either the author or reader base. Make sure to check out Brad Burham's rationale for the switch to a blog.

Does Your Start-up Or Small Business Need A COO?

Ran across this 2004 article in Entrepreneur.com by Asheesh Advani that poses the question as to whether your start-up or small company needs a COO. Of course I'm going to be somewhat biased on this question since my past three assignments have been in an operations role. From the article:

At my company, the COO (what we call vice president of corporate development) is in charge of managing business relationships with key suppliers and ensuring that our products and services meet standards of quality and cost effectiveness. He frees up my time so I can focus on investor relations, business planning, media outreach, and major sales and marketing efforts. How would having a COO help you?

The job description of a COO varies by company, but in almost all cases, it doesn't include sales, marketing or external public relations duties. Typically, the responsibilities of the head of operations are comprised of quality control, order fulfillment, employee/HR matters, and managing internal systems and business processes.

Now in two of my past three "operations" assignments, I will say that business development, sales, and anchor account management have been major functions of the job in addition to handling backoffice functions (e.g., legal, finance). I agree with the article that such a span is probably more the exception than the rule though for an operations person. Many companies are probably better off splitting the outward-facing and inward-facing functions if only to prevent task swapping (e.g., seeking a lower-level resource for inward-facing functions if controllable costs not highly leveraged). In partial defense of my past functions, however, I will say that some companies can benefit a great deal when those in business development functions have better than average facility with legal, finance, and product management issues.

Update (9/29/05): Zoli Erdos has some additional thoughts and personal experiences here in a more focused context of a start-up contemplating VC funding. Zoli makes some interesting points about distinguishing real business reasons for having CXO/VP/President roles and the needs to structure things properly with a (potential) VC in the picture. Regardless of VC money, most parties that want to win want clear accountability and metrics to keep a company on track - no convoluted organizational structures or incentive structures. To take this on a bit of a tangent, I will say that I had about 4-5 sets of business cards in one venture. First I was Director of Operations and Strategic Intiatives (the concept being that I filled a sweeper position to unclog whatever bottleneck [other than R&D] that the company needed to move forward). Then I happened to close a large enterprise deal and secure corporate venture capital financing (from targeted cold calling based on a magazine article related to a company in the integration space). Was able to choose whatever title I wanted from there having earned my stripes as a non-founder. I didn't care, I could have been called Assistant Toilet Scrubber if it helped to build shareholder value. From there, I became VP of Operations. Then VP of Finance and Business Development (a weird one, OK). Then finally stayed as VP of Business Development roughly coincident with trade sale of certain intellectual properties. Bottom line: still wore many hats in a start-up. Title and role got narrower over time as drew down money. I will briefly say that title can have some real impacts as to how one treated by customer prospects, partners, prospective VCs, wild dog negotiators, etc. outside of the firm. Some of the title and role changes tried to deal with that partially, especially as the tactical focus of the business shifted over time. Maybe more on this for another post.