Mark Leslie - Leadership and The Virtuous Cycle

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Mark Leslie - Leadership and The Virtuous Cycle

  1. 1. Leadership and the Virtuous CycleOr How I Made 40 Quarters in a Row mark leslie mleslie@leslieventures.com 650/561-1228
  2. 2. Veritas Software – 1990 - 2001 $95K  $1.5 Billion Revenue 12  6,000 employees 0  $20 Billion Market Cap Startup  Fortune 1000 --In 11 years Copyright M. Leslie 2
  3. 3. The Virtuous Cycle Exceed Revenue ExpectationsGrow the company Exceed Profit Expectations Increase Stock Price Increase Stock Multiples Copyright M. Leslie 2008 3
  4. 4. The Virtuous Cycle Exceed 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► Buildan industry reputation for sales success and for paying well  Attract and retain the best talent in the business Copyright M. Leslie 2008 4
  5. 5. 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 Copyright M. Leslie 2008 5
  6. 6. 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 Copyright M. Leslie 2008 6
  7. 7. 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 Copyright M. Leslie 2008 7
  8. 8. 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 Copyright M. Leslie 2008 8
  9. 9. 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 Copyright M. Leslie 2008 9
  10. 10. The Virtuous Cycle – Higher Stock Prices 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 Copyright M. Leslie 2008 10
  11. 11. The Virtuous Cycle – Higher Stock Prices 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 Self KEEP 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 Copyright M. Leslie 2008 11
  12. 12. The Virtuous Cycle Exceed Revenue ExpectationsGrow the company Exceed Profit Expectations Increase Stock Price Increase Stock Multiples Copyright M. Leslie 2008 12
  13. 13. LeadershipHow the CEO Can Create and Foster this Virtuous Cycle?
  14. 14. ML Definition of Leadership► Creating the environment, where…► You can attract the best and the brightest► Who can exercise autonomy and judgment,► Whilefurthering the mission of the organization,► Andget a sense of personal achievement and satisfaction over and above financial rewards Copyright M. Leslie 2008 14
  15. 15. LeadershipLeadership is holistic – Creatingthis particular Virtuous Cycle is asingle dimension Copyright M. Leslie 2008 15
  16. 16. 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! Copyright M. Leslie 2008 16
  17. 17. 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” Copyright M. Leslie 2008 17
  18. 18. 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! Copyright M. Leslie 2008 18
  19. 19. 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%) Copyright M. Leslie 2008 19
  20. 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 Copyright M. Leslie 2008 20
  21. 21. A Little Review - Do the Math► Startwith 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… Copyright M. Leslie 2008 21
  22. 22. 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) Copyright M. Leslie 2008 22
  23. 23. 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… Copyright M. Leslie 2008 23
  24. 24. Some words to live by:
  25. 25. Regret for the things we did can betempered by time; it is regret for the things we did not do that is inconsolable. Sidney J. Harris (1917–86)
  26. 26. If you want a friend… …Buy a dog ROXIE Copyright: Mark Leslie 2007 26
  27. 27. The Virtuous Cycle Exceed Revenue ExpectationsGrow the company Exceed Profit Expectations Increase Stock Price Increase Stock Multiples Copyright M. Leslie 2008 27
  28. 28. Leadership and the Virtuous CycleOr How I Made 40 Quarters in a Row mark leslie mleslie@leslieventures.com 650/561-1228

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