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Live from BOS2012: “Founding Principles vs. Scaling Principles” with Peter Bauer

"Live" notes from Business of Software 2012 in Boston, October 1-3, 2012. See all my notes from Business of Software 2012 by clicking here. Feel free to use these anywhere, but please credit me if you do.

Founding Principles vs. Scaling Principles, Peter Bauer, CEO, Mimecast

4 Principles that have supported the founding & growth of MimeCast:

  • Building something with Friends
  • Deal constructively with my fears about success
  • Never allow an investor that would change the chemistry
  • Clear intent & logistics
Mimecast, founded in 2003 to look at business information management and email. Story of MimeCast is more a story of Endurance than of Brilliance.

Just closed a new round of $62m funding. Will allow to grow from ~350 people to double that number, and up to 5+ million customers as well as from $70m to hundreds of millions revenue.

It will also test us like we’ve never been tested before, and will draw fearsome competition to the space. Despite the investment, it leaves the management team to be in control of our own destiny and gives us the opportunity to compete together at the next level. We all love the opportunity to wake up in the morning and know we’re working on our own terms and following our own passions.

That’s the first principle: Build something together with friends.

Before starting Mimecast, New Year’s 2001. Thinking about the next phase of life, and a remarkable idea occurred. So I said, “Hey guys, why don’t we all start a business together, and work together as friends!” Everyone said, “Hooray!” and went on drinking.

But I woke up the next morning and the idea stuck with me, and it seemed a good idea to do just that. So over a year later, Mimecast was born. Most of the friends that were there when the idea was discovered now work for the company. And many more friends now work for the company, and have brought their friends along as well.

We pass this spirit along to our customers and our partners.

It’s not a picnic, though. We’re deadly serious about success and making each other successful.

The end result is a culture of friendship, and remains that way today.

The key question for recruiting is “Can this person act and work with us like a friend?”

Building this kind of business requires confidence, and fear undermines that. That brings us to the next principle: Deal constructively with my fears about the implications of success.

From the time we started Mimecast, the fear of not succeeding was always present. Startups are fragile things. But the far more restrictive thing was a fear of success. I can remember my wife asking me what would happen if Mimecast got big, what would happen to the family? This, and the fear of the consequences of prioritizing business tasks over family, were ever present.

This is common: great success is easy to fear. But the reality is success brings many options. The eventual outcome was that success allowed me to move to the US with my family.

Another component of fear of success is that success changes the nature of the business, and the nature of the founder’s role. “Am I a real CEO?” is the question that creeps in. At the time Mimecast was founded, there was a strong sentiment that founder’s can’t scale. Conventional wisdom was that investors wanted to install “proper” executive teams in their companies. This was borne out in some of the term sheets we rejected. But our prime desire was to maintain our own control over the direction of the business.

This even goes beyond the founders as you grow. The whole leadership team needs to understand and not fear success.

The third principle: Never allow an investor to change the chemistry or assert their agenda above that of the company.

Shareholder interests must come a distant second to the interests of the company. Company interests include the company, employees, customers, families, etc. This makes many investors very uncomfortable. But writing the check doesn’t make them right.

Angel investors provided a better way. We built a network of a few dozen angel investors around the UK. They provided a form of patronage for us. It wasn’t for everyone, but we raised over $10m in small increments this way. Each of these angels is now substantially in profit for having supported us while we found our path in an intuitive and responsible way.

The biggest advantage this method of funding gave us was that when we finally brought in bigger VCs, we’d proven we knew how to build a business. We were able to credibly assert the interests of the company above investor interests.

Fourth principle: Clear intent and logistics.

Just participating is not intent.

Real intent creates a power multiplier. You can see this in many sports. It’s surprising how many teams and companies operate without proper intent. Exhibiting potential but really doing very little with it.

So participating isn’t intent, but you do need to participate. The key is to have a purpose. It may take time to formulate an intent, but you need to find it if you can.

For us, sales targets became the language of intent. It gave the sales teams a power multiplier in our business. Sales was working for “their number” and this allowed others to invest energy in helping them achieve that number. Sales was proactive, and the rest of the business became reactive to those goals.

We got to a point a few years ago where the non-revenue-generating functions were actually apologetic to sales for anything they did that took away from resources for sales. It started to reduce our ability to change as we grew, even though it looked successful.

Systematically, we started to talk to the non-sales groups about their sovereign goals and we put marketing & systems goals higher on the agenda. We put strategic programs on the list and discussed the significant impact these could have in the long term.

Then we defined “AIM Factors” (Actionable Intent Matrix) which forced groups to define their intent in a concrete way. That gave our teams an intent-driven focus that could counterbalance against the goals of the sales team.

The AIM Factors defined the “supply chain of success.”

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