Post Heartbleed – some thoughts

April 11, 2014 – 4:25 pm by System Administrator

The HeartBleed issue has stuck the heart of the internet and extended its scope from just web sites to routers, smart phone operating systems. May be the International Space Station is also a victim. NASA?

OpenSSL was pervasively used, but that only 4 developers apparently worked on it.  It had $200 of donations. That seems pathetic and we deserve what we collectively put in.

I have not trusted developers to do a thorough job of testing the software they write. Even code reviews by skilled peers are not enough. It needs the eye and brains of a sharp tester to find issues with code.

I would advocate the following:-

-  Open Source software solutions to post the details of tests conducted on the software.

- Large well funded corporations and entities that use Open Source software MUST be obligated to contribute.

- Every piece of  software or service must declare software that they did not write themselves. This must be available via an API, like a manifest.

- Any entity or person that uses Open Source solutions must have a mechanism for registering their usage, so customers that depend on such solutions completely understand the risk.

- Startups are especially under risk here.  Personnel turn over frequenlty, documentation is not done well, they have few resources to respond to issues. CTOs – take note. Knowing your stack inside out is very very important.

- We have Emergency Alert Systems for potential disasters that could impact human life. With so much at stake in the Internet Economy, an alert system for software emergencies is clearly needed.

Krish

 

 

CEO Profile – Robert Malooly of Claim-Maps

June 17, 2013 – 5:08 pm by krish

robert_malooly_croppedWe met up with Robert Malooly, CEO of Claim Maps. Claim Maps is based in Olympia, WA and provides software in the workers compensation space.

Krish: Hi Bob, pleasure to meet you. Thanks for taking the time to talk to us and taking the time to drive from Olympia.

Bob: Oh Sure. Pleasure to meet you as well.

Krish: Bob, Can you tell us about some highlights of your career before Claim Maps?

Bob: The reason I got into workers compensation business, which directly led to me starting Claim Maps was that I had worked in the Illinois unemployment insurance program. The program at that time went bankrupt, the state owed the Federal govt $2.5 billion dollars. By default, I wound up handling all the loans and suggested building an actuarial unit to guide the restructuring of the program and put the plan on a sound financial footing. I offered to recruit a fellow from the Society of Actuaries to do the work. When the plan was presented to the Governor, he said it is great, but there is no time to establish actuarial positions, recruit and hire, he asked can you do it yourself? That led me to the actuarial business. In the process we built very very large models of the system and worked with business and labor to get agreement on reforms, rewrote the tax code and made a lot of other changes. It worked.

Sometime after that the Governor asked me if I wanted to be Chairman of the Industrial Commission. They needed someone who was politically neutral to implement a package of legislative reforms. The Commission is the administrative court and regulatory body that handles workers compensation. What was supposed to be a 9 month stint turned out to be 6 years. That was my introduction to the workers comp

After that I was recruited to a startup that was in the insurance analytics business by Aon, a very well-funded operation that came to a rather tragic close due to the death of a key backer in a plane crash. I was then recruited to a second startup in the same space, which then sold to ISO. I then worked for ISO as Director of New Products for workers compensation. They are a huge property and casualty insurance data collection and rating organization. From there, I got recruited into the State of Washington overseeing the Worker’s compensation fund at Department of Labor and Industries, the 8th largest workers’ compensation insurer in the country.

All through my experience above, I used visual explanations to help people understand very complex and difficult problems. The visual approach led to much greater understanding.

Krish: Let me back up there a little bit and ask you to explain Worker’s compensation in simple terms for our readers. Not many people in the tech industry are aware of it.

Bob: Lot of tech people have no idea of it. It is an obligation for employers to carry insurance should any worker get injured on the job. For construction, logging, high hazard jobs, it is an extraordinarily expensive thing to carry and could be equivalent to 50% of an hourly wage in some extraordinarily risky areas.  For tech people, carpal tunnel is probably the biggest exposure, so it is not a big deal. It is about $70b in annual costs to American businesses, $40b of that in direct insurance premiums, the rest in high deductible expenses and self-insurance costs.

Krish: Do all companies need to carry workers compensation insurance?

Bob: It depends on the state. Yes, anything bigger than a sole proprietorship has to carry comp insurance. In some countries, the insurance is not offered by private companies, but offered as state social programs, in Germany for example. In United States, it is mostly private.

Krish: These days, the buzz word in tech is “disruption”. Everyone wants to disrupt traditional methods of doing business that have been in place for last 50 or so years. Given the legacy in worker’s comp, why choose this as an area for a startup?

Bob:  The primary reason is that I understand it very well. I am also well known in this area. I participate in a lot of national organizations and have regulated self-insurance in both Illinois and Washington. I am also familiar with the problems that companies have in workers compensation. It is a problem that really needs a solution. What I have seen in my experience is that a lot of people who are maximizing components of the system do so to the detriment of overall costs for employers and outcomes for injured workers.  A CEO of a large TPA (third party claims administrator) told me he did not care about saving costs for his customers. He only cared about money that would go to his bottom line. As a consequence of that, you wind up with people doing things in the context of their immediate concern, that makes a lot of sense for the individual vendor. It is Herbert Simon, the Nobel Prize winning economist, who called this bounded rationality. That is where people’s thinking is constrained by a narrow boundary. Within that boundary, everything makes sense. But as soon as you step outside of that boundary, you get a completely different perspective and can see waste and bad results everywhere. Claim-Maps has stepped outside the boundary to look at the system as a whole. We see wasted expense and bad results for injured workers. And, we know how to fix it. That is disruption.

Claim Maps is the only way that many employers get a chance to view both ultimate outcome and total costs and can see how to minimize costs and produce best outcome. The way it is now, the data is in small chunks, kind of spread out and each entity is maximizing their own bottom line at the expense of the employer and the injured worker.

Krish: so, this is an area ripe for disruption?

Bob: Yes. If you talk to employers about workers comp, they all hate it. A lot of bad things happen unnecessarily. It is a big big expense for them. When we show our product to claims people and employers, they literally jump out of their chair. They get so excited because it is the first time they have been able to see everything in one place.

Krish: You founded Claim Maps a few years ago. Given your long career with a sprinkling of startup experience in between, I wonder about your drive to create a new company after that long career. Talk to us about that.

Bob: I have turned around a couple of governmental organizations and startups are a lot like turnarounds. You are dealing with huge problems, with a lot of uncertainty that many people would not want to take on. I have successfully dealt with a lot of messy problems in my career, situations where they need someone to turn it around. Running a startup is not all that different from what I have done in my career. Though I was not an expert in actuarial services, I understood the problem well; I was able to recruit graduate students from UChicago and Northwestern to help build the models after I had done the first one.  These kids were so smart that they were insulted if I bought them a simple problem. That’s what a startup is too – you have got a really challenging problem, you have a clear goal you want to get to, but the path is unclear. You have to figure it out, navigate the uncertainty, attract talent to help you and produce value at the end of the day.

Krish: The work you did in various organizations seemed like a trial run before Claim Maps…

Bob: I feel like everything I have done has led to this point. Yes it seemed like it was a natural next step. Some of my peers think I am crazy.  But, I know the market for this product very well. We have no problem getting to see decision makers. We are dealing with enterprise sales, which is not fast. So, we want our investors to be patient. There are lots of people in large organizations that can kill a deal. People responsible for the area say they want it, but IT people say no or the budget people veto it.

Krish: Hold on to that. We will come to that in a minute. How did you adjust to the startup world?  What was easy and what was challenging?

Bob: Well the ideas were really easy. I understood the problem very well. I am using techniques that have proved successful in the past to solve these kinds of problems. That aspect is really fun.

The biggest challenge is to get people (customers) to understand.  Claim-Maps is the first of a new class of software; it is different from straight quantitative or predictive analysis. It is goal focused software. Getting the customers to understand that this is an opportunity to see both the big picture and the detail in a way that allows you come away with a very quick and sophisticated understanding of complex events. We haven’t built everything yet. We built the basic structure where we have taken the transaction level pieces of data. We literally have everything that happened for 281,000 claims. Taking that information and allowing one to see at high level, get some understanding of general metrics associated with that and then being able to dive down into the components that are driving those numbers. Usually it is 20% of events driving everything. In workers comp, it is usually 5-6%

Krish: Why is that difficult? Claims adjustors are data driven people. The ability to show historical events and then the ability to drill down, is that a new paradigm for them?

Bob: Yes it is. Absolutely. If you take the volume of work that a claims adjustor contends with, there are about typically 200-300 claims assigned to each adjuster with all kinds of activity with financial decisions, legal decisions and medical decisions all coming together at once. The Claims adjustor is expected to coordinate all of that and they are stuck with reading text and trying to interpret notes for 200-300 claims all at the same time.

Krish: Let me rephrase. If this work was started in a large organization, would they have been able to convince customers easily? Why is this unique to your startup?

Bob:  The people who deal with the claims problem directly understand our product immediately.  It is the challenge of convincing people in the financial and the IT organizations of our customers. Some of them are not empathetic to the problems of the claims adjustors, case managers and supervisors. They also don’t appreciate, in some cases about the hundreds of millions of dollars going out the door unnecessarily and producing bad results. In an enterprise sale like this, we have to get all the components together at once and make them go forward.

Krish: So, the enterprise sales aspect is challenging from startup perspective?

Bob: Sure. We are dealing with Fortune 500 companies. Our first company said they don’t want to work with a startup and even after telling us they liked our solution, they said they preferred to do business with an established company. However, after surveying the market, they could not find anything close and agreed to deal with us.

Krish: Anything else that stuck you as a challenge as a startup?

Bob:  Nothing else really. I was used to hiring talented people, managing budgets and dealing with uncertainty. Biggest challenge is customer awareness and then finding the early adopters.

Krish: What would you recommend potential entrepreneurs? Get some domain expertise before starting a company or just go for it when you are inclined to?

Bob:  Tough question. If you are going to an area where there is lot of tradition, like insurance and if you don’t have credibility with your customers by virtue of your previous experience, they won’t even talk to you. If you are going to something brand new, not bound by tradition and you have an idea, just go for it.

Krish:  So, a partnership/advisory/mentorship between a new entrepreneur and an industry expert won’t work in such traditional areas?

Bob:  If someone had come to me with a proposal for a business like Claim-Maps and asked if I would join in and make a successful enterprise, I would absolutely have done that. If someone had come forward with a potential solution with this problem I had been dealing with, I would have said – Let’s go!

Krish: What is the value proposition of Claim Maps?  As I understand it, Claim Maps provides a visualization solution for workers compensation claims. Is it just a new way of looking at data?

Bob: Let me take an example. We have a Doc Compare tool that is in our roadmap. Let us say two doctors have identical low scores in a scorecard. The recommendation would be to throw both doctors out of your physician network. However, using Claim Maps tools, one would be able to drill down and see that Doctor 1 has been doing unnecessary surgeries, but Doctor 2 had been taking very difficult cases that other physicians had messed up and making progress and getting interesting positive results. Using Claim-Maps, you would elect to keep Doctor2 in the network. Limiting the analysis to just numbers is problematic. Humans are very good at pattern recognition. We don’t give them opportunities to see patterns in complex events in an easy fashion. Workers comp events are tremendously complicated involving lots of financial, medical and legal disputes. The average comp claim in California, for example costs $60k. We don’t give the folks who are responsible for controlling these expenses a decent set of tools to use. That’s what Claim Maps does. We give our users an entirely new set of tools so they don’t need to spend three days reading a claim file. You can see a visual representation and a pattern jumps out at you. You notice something unusual and you can drill down and not have to spend days looking at a claim file.

Krish: Isn’t this an area that lends itself well to machine learning? Let the machine identify patterns and either make decisions or send you alerts?

Bob: We already raise flags alerts based on some business rules and limited analytics. We are going to build a lot of capability in that area. May be long after driverless cars, we will have a system capable of making decisions. Until then, we are going rely on humans. Humans empowered by very effective technology like Claim-Maps to bring the best of machine and human technology to the problem.

Krish: Humans are going to make the decisions. Humans don’t have a lot of time to know what to look for. I see this as a signal to noise ratio problem. Does Claim Maps improve the signal amidst all the data noise in claim data?

Bob: Yes absolutely. As one example, we are going to use some sophisticated analytics to build our matching engine so we can have groups of similar claims compared to. How close is a claim compared to a typical back claim? Are there important differences or trivial differences? We have a cartoonist who designs our icons and I have asked him to design a train wreck icon. There is a pretty good wine called Train wreck (laughter). One of the problems with machine learning is competing algorithms running in the background to analyze data and let’s assume on algorithm says yes and the other says no.  If one is 3 points better saying Yes than one saying No, which one is the machine going to go with? We want to have competing analytics running in the background so that when each tells a different story, a train wreck icon (jokingly) appears in the timeline and alerts an adjustor to look at what the problem really is. Machine learning is wonderful stuff that we are going to spend a lot of money building in, but it usually results in overconfidence on the part of the human doing the building. You are going to think you are better at machine learning than you really are, if you are the human designing learning systems. As an example I have seen this with surgeons, who have been told up until they become a surgeon that they are #1. They were #1 in kindergarten, and #1 all the way through medical school. Then when they do finally become a surgeon, they are shocked when they realize that among surgeons they are just an average surgeon. Claim-Maps is being designed to detect common human reasoning errors, overconfidence is just one of them.

Krish:  Who is using Claim Maps today? What has their response been?

Bob: Right now, our first customer is Marriott. They saw a power point and they wanted it.  After looking at everything else in the market, they asked for a contract and wrote us a cheque. That was 2.5 years ago. However, Marriott has been a blessing and a curse.  Great name, great reputation in the workers comp space.

We are dealing with a Fortune 500 company and it has been challenging. Their IT staff is more concerned keeping their reservation system up than dealing with Claim Maps. That is as it should be, but it slowed our project down considerably. The people who are using the product like it very much. It was rolled out two weeks ago. We have all of the transaction information on 281,000 of their claims in our system and several million medical bills. Our concern is there is new management in this area of the company. Until they settle in, it makes us nervous.

However, I am absolutely convinced that by next summer the development of this product would be to such an extent that people will not be able to stay in the business without it.

Krish:   So, things are proceeding well with Marriott then?

Bob: Yes, we have delivered more than promised and the system is performing very well, actually exceeding our expectations. In spite of the management changes we believe are in for the long haul with us. We also have a bunch of other potential customers. We have the enterprise sales problem. One customer is in middle of changing their claims system and we have to wait 18 months before they can make a decision. Others will be making decisions in the next couple of months.

Krish: Have you gone out and looked at opportunities broadly?

Bob: We are talking to other Fortune 500 companies. One company was changing their TPAs last year and asked us to contact after a year. They asked for a contract to do a paid pilot with their claim data. They are a larger company than Marriott. We are also talking to group self-insurance pools. One such pool is handling claims for 34 school districts in California.  They pride themselves in being an early adopter so they could lead to a great deal more business among California school districts.

Krish: If you had to rethink your strategy for Go to Market, what would you do different compared to a year ago?

Bob: Well, I don’t think that we would have changed our GTM strategy. I would have probably raised a lot more money early. That would have helped put a couple of extra developers on the team. The product will sell itself once we get past a critical set of features. Doc Compare for example. It could be extended to compare anything. A customer in California can’t believe that something like Doc Compare is possible, but we have built 80% of its features already.

Krish: Isn’t running a product dev team different from managing technical projects in your previous experience, such as actuarial services?

Bob: In the subject matter it was different, but in basic function it was the same. You have to define a goal you want to get to in a sufficiently specific way, so people know where they are going, and not so tight that you foreclose additional learning and creativity. So, you may want to pivot a little bit and emphasize one feature over other. What I enjoy most is getting really talented hardworking and honest people in a team focused on a goal. That is a lot of work and worry, but ultimately it is the most fun.

Also, we are not really worried about competitors entering the market.  Competition validates the idea of Claim-Maps. With the team we have got, we think we can run faster than anybody else.

Krish:  Is data formats from different customers an issue?

Bob: Fortunately, we don’t have as many problems as others do in data integration. It is not without its challenges. For the most part, the data coming from legacy systems is surprisingly clean.  Consistency with data definition is also good. Most are 837 transactions, which is a standard. We also get financial information after the bills have been paid and that is very clean as well.

We do have some challenges with the data, but it is nowhere the magnitude the people outside the industry expect.

With Marriott, we even proved to them that they had paid before the claim was filed. This experience also proved that Claim-Maps can show you things that you thought was not possible in your own systems.

Krish:  So can one expect consistency of data between say a Walmart and Marriott?

Bob: yes it is surprisingly consistent

Krish: Bob, What would be your advice for entrepreneurs?

Bob: Here is what I say 1) Be tolerant of uncertainty. 2)  Keep selling all the time even starting from when you just have a PowerPoint. For enterprise sales, talk to a lot of people so that you are in their queue. The queue could be six to twenty four months long. 3) Raise as much money as you can so you can over invest in your product to get past objections.

I would cite an example of Jeff Bezos who applied for Amazon to be granted self-insured status. To be self-insured the state requires a net worth of at least $5m, but at that time Amazon was -$1b. That was a classic example of over investing that made the uncertainty a lot more tolerable. If Jeff had not raised as much money as he did as early as he did, Amazon would have never survived long enough to take over the world of retail.

Krish: What are your goals for 2013?

Bob: Our initial release is done. We want to close 2 more customers and it does not matter as to their size. We need a minimum of 5 customers to be interesting in this space to make raising money to be not a problem. We will need less cash than most companies because our customers are used to paying up front in advance of service delivery. This is insurance and everybody pays in advance in this business.

We are in the middle of an extended Series A right now. We are confident that several of our preferred investors will over subscribe. We may raise this in a tiered pricing structure with the first $400k at a more favorable price than the remaining $600k.

Krish: Bob, it has been a pleasure talking to you. Wish you and Claim Maps all the best in the coming years.

Bob: Thanks. I enjoyed it too. We have some great stuff coming in the roadmap.

 

CEO Profile–Howard Mahran

March 22, 2013 – 9:57 am by krish

Continuing our CEO Profile Series, we feature Howard Mahran in this post. I enjoyed talking to Howard and hope you enjoy reading this post.

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I met Howard Mahran, CEO of Deep Domain, Inc., based in Redmond WA, to get his perspective on startup experiences, Deep Domain and other things.

Mindful of the blustery, stormy weather day I had come in from, Howard greeted me warmly and I was excited to sit down and talk to him. He was beaming and I found out they had just signed 5 new customer deals in the Midwest. Congratulations!

Here is an edited transcript.

Krish: Howard, If you weren’t the CEO of Deep Domain, what would you have been?

Howard: If I weren’t CEO of Deep Domain, I would be CEO of another little startup. Startups are in my blood. I have so many ideas – more than I have time to fulfill. But most likely, be the owner of a little restaurant, coffee-shoppish, that serves ladies during the day and couples at night.

Krish: That sounds interesting. Was there something, many years ago that led you into this path of wanting to be a CEO of startup?

Howard: Yes, there was one specific event. It happened during my first job. I was actually trained as an imaging scientist in college and I was hired by a small startup in Chicago called Cell Analysis Systems. We developed the world’s first imaging based Flow Cytometer. It could look at chromatin within a single cell, our technology could detect if that single cell had Cancer. I was the geek developer that helped build the technology. At our initial product launch, we signed up for a tradeshow in Orlando to introduce and demonstrate our new technology. It was August, it was over 100* and I was there with our Sales Manager (Wayne) and our Head of Research (Sarah), who happened to be the wife of the founder. Wayne and I started setting up our booth in a very hot conference center. Sarah left us but said she would be back in time for the opening. I didn’t see her again until Thursday! In the middle of setting up our booth, Wayne collapsed. He was hauled off on a stretcher with a heat stroke. It was 3 PM and show was opening at 5 PM. Sarah was to present to the press and I was just there in the background to make sure everything worked. I could not reach her (it was before cell phones). I panicked and called Chicago to beg Jim our CEO to help. He calmly said “Well, it looks like you are going to have to do this yourself. Go get some clothes from the Hotel Store and do the demo.” I bought a Mickey Mouse tie, Mickey Mouse shirt and Mickey Mouse jacket at 5 PM we were five people deep in our booth. I did the demo , I did the selling and I did the schmoozing and realized t was then that I decided to get out in-front-of-the-bench and not work behind it. When the company sold to Beckton-Dickinson, Jim made $10m and I got a $2500 cheque. I was in awe of the extra $2500 I had made after working three years. I wondered – How can I do this again?

Krish: Great story Howard. Now how did/does your personality influence you or guide you in your CEO role? There must be something in your personality that motivates you to be a CEO. What is that?

Howard: There are probably a lot of different traits, but fundamentally being an outgoing person and self-driven. When I grew up, I also moved 14 times before I was 18. I was sort of forced to learn to interact with new folk, sell myself to new people as I was always the new-kid-on-the-block. I was in 4 different high schools. I don’t know how many folks can claim that? All that moving around trained me at an early age – to sell myself. To top it, I had a rebel attitude and kind of fight-the-man attitude that seems to help with the startups. In terms of taking risks and applying my personality to what is a frightening ride many times  requires a lot of steadfastness and blissful stupidity.

I had my own business (selling watches and bike parts) when I was a kid. I was always trying to invent things and got into trouble doing that a few times, but my family supported my entrepreneurial streak and I’m very grateful for their support and encouragement.

Krish: You are in the midst of a funding round for Deep Domain. Talk to us about what you like and don’t like about the fund raising process. Also, how do you keep your focus during this process?

Howard: I am excited about telling our story and I love talking to people who are interested in listening.

I don’t necessarily like asking people for money though. It is not a pleasant experience necessarily. It is a rush when somebody, especially a smaller investor, is willing to invest their hard-earned cash in what we are doing. In general, I don’t like fundraising. It is a necessary evil. I get through it because I like talking to people. The focus part, yes that is the biggest problem. The business has to be run and in small startup you are doing a lot of things like washing the toilet, selling the product and dealing with customers. So I really rely on help, other people to help. I like to delegate where I can. If I can delegate some of the fund raising activities, for instance to Debra our CFO or to others – that really helps a lot. On the other hand, I ask people to push back at me things that I need to be doing. I call that de-delegating so I can focus back on the business – it is easy to get distracted. Having someone outside that you can trust to push you in the right direction and help you stay focused on the important stuff is critical

Krish: Is that what you would advise other CEOs in a similar situation?

Howard: If you have a personality like me – sure. But there are others who are more disciplined. We all have our strengths and weaknesses. It is really dependent on the individual. It is so easy to get consumed by the rush you get from fund raising that you could end up doing it full time and forget about building the business and selling the product. So, it all depends on the environment and your personality. There are also cases I have been in where fund raising is extremely difficult, painful, because your idea is so far ahead of the curve or your message is not clear. When that happens, it’s a good sign that you need to regroup and re-message.

Krish: Is there a good time to do fund raising? Is there a bad time to do it? How do you optimize?

Howard: Iwish there was an easy formula that someone could tell me. The anecdote is to raise money when you don’t need it and when you have the time. That’s very true and less defocussing than when you are challenged to meet payroll or meet a deadline. Fundraising really starts early. You may not be collecting cash, but you are always talking to potential investors and honing on the message, whether you know it or not.

Krish: You are socializing and getting feedback?

Howard: Yes, feedback is important. I can give one anecdotal story. My very first customer bought the product based on a written pitch we sent. We call it our “Father’s Day Hail Mary”. We found they had a bid out for doing some work that was right up our alley and they had come down to final three vendors. They were going to decide which one to go with. The decision was going to be made the week right after Father’s day 2007. We begged if we could submit our proposal too. Mind you, we only had an idea – we hadn’t even incorporated a company yet or written a line of code. We basically rewrote our business plan during the Fathers Day Weekend and sent it off that Sunday evening. We did not expect to hear anything again other than – “Thank you but leave us alone now”. We did not hear anything, but two weeks later we got a call from their legal group asking where they should send the contract. They ended up choosing us for the $100k contract. Pretty cool!

Later on as we began to know them better we made a casual call to the head honcho and asked him if he wouldn’t mind giving us a few names from his Rolodex to help us to find people to raise money from? He asked “Do you want me to give you names or do you want me to invest”? I said – sure, you can invest. He ended up signing up for $1,000,000!. If I were not in fund raising mode, I would never have asked that question and that investment would not have happened. You are always fund raising and you never know when or where it is going to come from.

Krish: Talk to us about your startup career. We believe this is your second or third startup. Is startup like raising a family? Is the second/ third one that much easier? What did you take away from your first one?

Howard: It is just the opposite for me. To use your family analogy: If I had my second kid first – I would only have one kid (laughter). Cell Analysis was a fantastic ride. It was an easy ride for me. I was not responsible for fund raising or other the stress of running a startup day-to-day, but I got involved early. With that experience I said – “Geez, that was easy – I could have a couple more kids!”. It was such a positive experience like my first kid. Then I worked in Biological Detection Systems in Maryland which got sold to Oncore. I was then recruited to a startup in Seattle in Totem Lake called Bainbridge Sciences, which got sold to CR Bard. In 1996, I was working at Bard, when my dad got diagnosed with Prostate Cancer and coincidentally I was working on technology to predict Prostate Cancer tumor stage. He wanted to know what he was supposed to do, specifically. I was on a plane coming back from a demo and while on the flight came to the conclusion that other patients would have the same question. This became the seed for a new company. In 1998 I started a company called CancerFacts.com. We started selling a tool that helped patients make complex treatment decisions for Prostate cancer and grew that to 31 other diseases. We changed the name to Nexcura, worked with American Cancer Society and American Heart Association and eventually sold to Thomson Reuters in 2005. So I want to say Deep Domain was my fifth startup, lot of kids, some adopted. I didn’t conceive all of them. Nexcura was my first from Ground Zero .

With Nexcura, we started and expanded with the .com bubble, but survived the implosion. The real ride was in the beginning, when the currency was all based on website eyeballs. At one Board meeting, one member recommended that we stop selling our product and instead just build community. If we sold something, then folks would be able to “peg” a valuation on us. We (the Board) actually resisted selling a product to avoid pegging our value. Looking back, that was the silliest thing! It took us three years to get the first dollar in sales. However, American Heart Association bought our tool (paid $500k per year), as well as others, but after a few years realized they were embedding the tool in their web sites, but providing us all with all the traffic. We then shifted to a broader permission based marketing model.

Krish: Business Intelligence for Healthcare is certainly hot. Why is it hot? What is Deep Domain doing to capitalize on this trend?

Howard: Good question. BI in Healthcare is underserved today. Firstly, Information (data) is required to treat patients better and manage chronic illness. Physicians forget about patients they have treated once they leave the exam room. In order to better serve patients, healthcare providers need to be proactive. You need data to be proactive. Secondly, inefficiencies are everywhere in hospital systems. Analyzing various data points and finding the source of the inefficiencies is critical to improving operations, patient satisfaction and costs. And thirdly pay for performance is increasing – pay for performance awards that providers give for keeping patients, such as diabetics healthy. The goal is to turn our current sick care system into a true healthcare system.

Deep Domain allows physicians to ask and be able to get answers rapidly. Our reports do not require trained Analysts to generate them. One customer had to run a report recently after a drug company informed them of glass contamination in a statin batch. All the patients who were taking that drug in the last 3 months had to be notified. Using Deep Domain, they were able to do it in under 15 minutes, instead of the typical 1-2 days or longer. There are other ways to do the same thing, but our way provides the answers, faster, cheaper and in real time. Another example from Community Health Clinics is to find patients who have not had fluoride treatment in the last 3 months that have had a primary care visit.

Deep Domain is not about convincing customers that inefficiencies exist. Our job is to help our customers see all the moving parts, see the bottlenecks, and see the metrics every day (on monitors in their hallways, for example). We found, for example, that patients had to wait an inordinately long time on Tuesdays to be admitted into the emergency room after coming off the ambulance. Using our software, our client was able to see this bottleneck, identify the problem causing it and measure the affect of changing their workflow. The bottleneck was resolved.

Krish: What is your specialization background (Sales/Marketing/Tech etc.)? Were you ever required to lead a different function? How did you pull it off?

Howard: Over my career, I have moved from being a scientist to mainly doing Product Management / Sales and business development. I can’t be easily put in a slot. I am always talking and selling. I am sure I can never get a real job anywhere! If I want to work, I have to do my own thing. I have never entered a big company through the front door; it has always been through an acquisition

Krish: If you were to predict something that would not be found in this planet in the next 20 years, what would that be? – Doctors is not a good answer.

Howard: We will always need doctors in some form or another. It’s cell phones, TVs and other devices we use today that will disappear. There will be major changes in healthcare. We see some changes happening now. There has to be changes if we want a first class healthcare system.

Krish: What are your goals for Deep Domain in 2013? How is it going so far?

Howard: (jokingly) To live till 2014. Seriously – We want to achieve real breakout growth in 2013. Our v3 product has gotten great response so far. We want to greatly expand our customer footprint and manage the growth phase well. In terms of innovations, we will be releasing an online store to sell and share reports.

Buzzer Round

a. Favorite Recent Movie: Argo

b. Favorite Food: Pork chops and potato

c. Favorite Hospital: I Take the Fifth

d. Best Startup Moment: First Sale in Deep Domain

e. What will Howard be doing in 10 years? : Not Deep Domain (laugh). I hope to be helping other entrepreneurs and be giving back.

Krish: Any parting advice in this interview for budding and current entrepreneurs?

Howard: Have fortitude. Don’t give up. Stick to it. Listen to others. You are not as smart as you think. You need help. Let others fill in.

Krish: Thanks Howard for spending the hour with me. I wish you good luck.

Startup Boards–Part 3

February 26, 2013 – 5:49 pm by krish

In this final part of our 3 part series on startup boards, we ask and answer 2 questions 1) How do CEOs annoy Directors?  2) How often do Board reviews happen?

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This chart is quite interesting. Majority of directors don’t seem to be in the loop as issues develop and feel they could have made an impact had they known earlier. Our suggestion is that CEOs find many opportunities to cultivate a close working relationship with their directors, so sharing bad news can happen naturally. Having a consistent and frequent communication with the board is really critical and will come of immense use when help is needed, such as signing on a customer or help with the next fund raising round. As CEOs, never discount the power of communication.

Another aspect that we probed into was regarding reviews of boards – by CEOs and by other board members. Members of the Board have typically not worked with each other before and it is not natural to formally review others in such relationships. 

CEOs responded to this question as to how often they review value add of Board members. 14% have never done it. 41% have done it once or twice. 41% have done it occasionally and 5% have done it regularly.  We recommend that CEOs do this review consistently and often.

When directors were asked if they ever felt that a fellow board member needed to be removed, over 50% said they have felt once or twice about doing so and 18% believe that there is always someone with the wrong fit. Having peer evaluation of board members would go a long way in a cohesive board ensuring the maximum value for the startup.

It has been a pleasure to bring this information to you and we reiterate our gratitude to over 112 participants that took the survey.

Regards

How do Board members detract?

February 14, 2013 – 3:57 pm by krish

In preparation for our upcoming symposium on Boards, we conducted a survey of CEOs, Board Directors, and Advisors. We had an overwhelming response to our survey from 112 participants. In our 10 question survey, half were common to CEOs and Directors and rest were tailored. This is second in our posts on that subject

We asked both groups about how board members detract from the company’s mission. Not all relationships are perfect and we hypothesized we would develop some actionable data by asking about discord. Here is what we found:-

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Our explanation: CEOs have deeper insight and understanding of a company’s operations. They are genuinely excited to share these details but other board members quickly lose patience (especially true if the details are regarding technology or product features).

Putting personal gain ahead of company did not seem like an issue and many had not witnessed it.

There is also a genuine tolerance for directors who ask for a lot of information, especially in 1:1 settings.

Hope you find this useful. Feel free to post your comments below.

CEO Profile – David Lischner of Valant

February 12, 2013 – 10:02 pm by krish

We spoke to David Lischner, CEO of Valant Medical (www.valant.com).  Valant provides a SaaS solution for practice management for psychiatrists and behavioral health professionals. Valant has been an Atlas portfolio company for many years now.

The interview was held in Valant offices in downtown Seattle. Here is the transcript:

DLIValant CEO: David Lischner

Krish: David, Can you give us a synopsis of your career? Was Valant your first startup?

David: No. My first startup was the group behavioral health practice (Evidence Based Treatment Centers of Seattle) . EBTCS was the first startup, even though I had a solo practice, because we decided to grow it quickly. It grew from 5 founders to 25 clinicians. Along the way in EBTCS, I had the idea of doing Valant.

Krish: What about before EBTCS? Any entrepreneurial  ideas?

David: When I started in Medical School, I never expected to start a technology company. No plan to start any business. Considered it from time to time, but that was not the way my life was going. It was when I was involved in EBTCS that the instinct to start a company took hold. I started taking my ideas seriously and the idea of Valant came along the way.

Krish: Was it one moment that inspired you to start a company?

David: The drive was always there and it got rekindled when I started the practice. Years of thinking about what the next thing would be.  Me and my brother talked about Valant for over a year and finally started in 2005. The original idea was a virtual office for a small clinical practice with web enabled services. A lot of what we did was medical billing. We did mostly services for practice management. In 2007, we pivoted and became a software company, in addition to also providing services.

Krish: Take us through some of the early days of starting Valant. What were some of the challenges you faced? How did you overcome them?

David: Early days are a bit of a blur. Getting customers is the biggest challenge. Once you get customers, figuring out how to make them happy. Next – figuring out how to be profitable.

Earlier on, we had the wrong business model and it was hard to sell. The idea of whole new way of running one’s practice with software tools combined a big concept and a small concept and was a hard sell. We ended up selling to customers that were hard to service and not profitable.

At a personal level, I was working two full time jobs.  Pushing the rock over and over again up the hill without a breakthrough was the hard part. We realized a year into it that we had to change and pivoted two years from the original start. We raised fees, shrunk the business and went from 20 to 9 customers. Six months after that we decided to focus exclusively on software. From that moment, can’t say things have been easy, but definitely headed in the right direction. Hardest decision was to raise the fees.

Krish: What was the inspiration for the product itself?

David: There were a couple of experiences. I had pharma reps, sales reps come and keep knocking on my door in practice. But no one showed up to improve my practice efficiency. I also had a couple of people working for me. I used to encrypt my own notes in Word. Had no idea if that was the right way to do, but did not want to have paper charts. I thought there had to be a better way. At one point, I lost the 2 people that worked for me. That exacerbated my situation. I went and looked for solutions out there, but really found nothing. That’s where the impetus for Valant came from.

Krish: What was the difference between starting the group practice and the software practice?

David: Patients are plenty, but customers are not. Challenges were very different. Practice was local. Scaling issues were different. EBTCS is a lifestyle business. Mission and business objectives were very different.

Krish: What do you think is the most difficult phase of a startup and why?

  1. Is it forming the team?
  2. Is it raising capital?
  3. Is it making sense of the market opportunity?

David: c. A super angel once showed me a graph that had a “trough of disillusionment”. You are in this transition and you know something is not working. You have fantasies of getting out, but you need to keep going. Raising capital is hard work. Customers are hard work. Building a team is hard work.

Krish: Take us through a typical day for David Lischner

David: I get in early enough to manage my email and then in meetings all day. Meetings for Leadership, product team, partners, customers and depending on what’s going on with other stakeholders – investors, legal etc.  In between these meetings, I have to make decisions. At least a few decisions need to be made every day. Things that don’t get decided in the office get decided after my 5 year old goes to sleep. There is usually one overriding priority or theme for a week (financing, product, team etc). It helps me give structure to what I am doing. It will be my touchstone and I return to that often. I need to keep reminding myself of that theme. There are always priorities behind that theme. Even if everything else gets sacrificed, I know I still got something done and that keeps the organization going.

 Krish: Do you socialize the theme with your team?

 David: Depends, if I think it would be useful to the team. The team always knows what its priorities are. There is standups everyday – leadership standups and each team has its own standup. It comes from Rockefeller method, but we don’t strictly follow it. It keeps everyone in lock step. It is extra time but keeps us all efficient. There is lot of friction and tension in the standup but very little misunderstanding after that, which makes for an efficient team.

Krish: 20 hr days or 14 hr days or…

David: All over the map. When I am travelling, it makes for longer days. With a 5 year old, it gives me more structure when I am in town.

Krish: One classic conundrum for startups is that you can’t go out and sell too much until you have built a product that can scale and be reliable. To build scale and be reliable, you need money. How do you manage this scenario?

David: We have raised money. We were fortunate to have a gifted founding technologist in my brother. He was productive by himself as a team. That enabled us to punch above our weight for a long time. When we needed to, we did get outside financing. We are very capital efficient and do amazing things with limited resources. Financing has been crucial. We have been doubling our sales, revenue and customer base but that does not mean we are not re-factoring or improving the product constantly.

Krish:   You are lucky to have a gifted technologist. What advice do you give for startups that don’t have that situation?

David: I would say to a domain expert to make sure they have a strong technology partner if you can’t find a tech co-founder.  Make sure that the technology partner has the same level of intensity and commitment as a co-founder would have.

Krish: Can you share any seminal moments in your startup experience?

David: There was some time where sales outstripped product. We had 300 or so customers at that time. We had a multi system failure; we thought we had decent redundancy for the scale of our business. It resulted in data loss and we convened all hands on deck with everyone working hard to fix things and manually restoring data. What we thought was an existential threat, somehow we survived. We lost just 1 customer, who had just started that month. That scared us, inspired us to reprioritize, make big investments in redundancy, monitoring, alerting, disaster recovery and failover until we were able to sleep at night. We were quite aggressive in communicating with our customers. Our organization responded in a way that kind of shaped us forever and that is a moment we can refer to and made us stronger. It is corny, but nobody blamed anyone and we all took responsibility for it and every single person in the org did their best to improve things. Our customers saw that. We knew we messed up and we had failed. They trusted we were going to fix things and never let that happen again. We are much stronger due to this. It is a kind of touchstone in the organization as to how we treated each other and how we handled adversity. It made the organization more resilient.

Krish: What are some of the key trends that you see emerging in Healthcare IT?

David: Mobile is obvious one. Mobile is a way of extending care beyond the office. Mobile implies tools for patient and tools for communication and tools for capturing useful data, wherever the patient is. The start is capturing outcome data outside of the appointment.  In behavioral health care, what is missing in the field is capturing any outcomes. Once you capture the data, what do you do with it? There are opportunities for extending it by the provider and use in the face to face interaction. Outcomes based care is a trend in healthcare and I think technology enables it.

Krish: Give me an example– Are you talking about monitoring patient behavior outside the appointment? Are you building technology for that?

David: We already have platform to capture outcomes data through patient questionnaire. That is different than automated monitoring. That is likely the next step. But, this is a huge first step. Patients and providers need to be bought in. A lot of consumer facing health technology has not taken off due to little provider involvement. Patients tend to largely trust and do what providers ask them to do, a lot. So, patients will use the tools if providers have a stake and providers see it as a tool that will help measure and improve outcomes.  This has not yet had an impact in practice of behavior healthcare, but will soon. The captured outcomes data from the patient ends up in the clinical note narrative and by doing so, the patient is more engaged and helping out in the task of documentation and this relieves the burden of inputting  data for the provider. This is a way everyone wins. Patients are engaged, submitting outcomes data and clinician has easy way of getting that outcomes data and by tracking that data over time, can drive improvements in outcomes. There is plenty of evidence that just measuring outcomes will improve the quality of care. That is a huge first step.

Beyond that, care opportunities, clinical decision support and Analytics will be the next wave for providers

Krish: There is a common misconception that clinicians do not like to measure outcomes.

David: There is resistance in some circles. The main thing keeping behavioral health care providers from measuring outcomes is that it is burdensome across the board.  If you can create a system for capturing it and if that relieves the administrative burden, they welcome it.  The buzzword in behavioral health care is measurement based care or outcome based care.

Krish: How is Valant doing? What are big priorities for you in 2013?

David: Very well. We doubled customer base in 2012. Did over $1m in sales last quarter, doubled the team. We successfully entered the large practice market. For 2013, we want to continue progress in large practice market, continue steady growth in small practice market. We are also intentionally entering the solo therapist market.  That will be the long tail for our business.  For product , we have the platform called Mobile Notes (on any device or browser). We will also build features that will appeal to large practice customers.

Krish: Some buzzer round questions

David:

  1. Favorite Recent Movie: Long time since I saw one, but wife liked Argo
  2. Favorite Food: Mediterranean
  3. Favorite Vacation Spot: Hawaii
  4. Favorite Sport: Soccer
  5. Favorite App: NY Times

Krish: Thanks David for the interview and sharing your story, startup experiences and your insight on the industry. Good luck to the Valant team in attaining your goals for 2013.

 

Start up Boards

February 8, 2013 – 3:37 pm by krish

In preparation for our upcoming symposium on Boards, we conducted a survey of CEOs, Board Directors, and Advisors. We had an overwhelming response to our survey from 112 participants. In our 10 question survey, half were common to CEOs and Directors and rest were tailored. Over the next few weeks, we will share some highlights of the results.

This week, we share our findings on Director attributes. We asked respondents to rank important attributes of a Board Director.

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As you see, there is general agreement between the two groups as to the important attributes:-

  • general business acumen
  • interest in the company
  • startup acumen

We observed a wide variance on importance of industry connections and on follow up, we found that most CEOs had never had a discussion to leverage industry connections. Industry connections are deemed to be “great if you can get it”.

Stay tuned for another insightful chart next week.

New Twitter Handle

February 2, 2013 – 2:27 pm by krish

We are now tweeting at @AtlasAcc. Our old handle was @AtlasStartups. Please follow the new handle.

Observations from Azure TechStars Demo Day

January 22, 2013 – 6:47 pm by krish

I had the pleasure of attending the much publicized Demo day for the Azure TechStars program. It was held at the Microsoft Executive Briefing Center. The atmosphere was certainly exciting and filled with energy as the Who’s Who of Seattle’s investing community rubbed shoulders with the entrepreneurs. Personally, it was nostalgic for me to be in McKinley after almost 2 years. Lots of press, investors and attendees.

TechStars runs this program and Microsoft sponsors it. Microsoft should be commended for such sponsorships. I had attended the previous program with Kinect and got to see very innovative products being built on top of Kinect then. I have seen a few companies emerge from the Kinect program and grow well in the last year.  GestSure is one such company.

I was expecting to hear a little bit of how each of these startups were leveraging Windows Azure technology. I wanted some validation that Windows Azure was doing well in the marketplace and hear some cool Windows Azure features that the Techstars companies took advantage of. Let it be said that I hope the next Azure Accelerator program highlights Azure in meaningful ways.

I will not provide a run down of every company, but highlight companies that I found interesting during the show.

Off the bat, Realty Mogul’s Jilliene put on a great presentation. I have invested in a few REITs before and agree with Jilliene that REIT investing is not customized. The  RealtyMogul platform enables accredited investors to invest in commercial real estate or residential loans in a crowd funding model. While I am not sure that real estate investing needs disruption, the availability of a marketplace definitely perks up interest in this area. Commercial real estate companies that need to reach beyond their investor networks can now tap into this platform and accelerate their deals. With the US real estate market turning a corner in H2 2012, this offering holds promise.

Socedo – another powerful presentation. Lead generation is always challenging and methods range from adhoc to sophisticated. Aseem hopes to leverage online presence and activity of professionals and end users to generate sales leads for you.  Leads are generated based on search parameters that you enter (or from your CRM source) and delivered to you overnight in their dashboard. I like this general idea. However, I think Socedo has to reach many online sources to get effective leads. They do Twitter today. Professionals are present in many online communities and to find and rank them is an interesting challenge. At some point, I think we will use Socedo for some of our projects and see how effective the results are.

After a few presentations, I was amazed by the professionalism of the pitches.

The other company that caught my attention is Mobilligy. Getting  bill payments mobile is super important and I had wondered why the existing systems from banks and brokerages had not extended bill payment to their mobile apps. Looks like Mobilligy has taken advantage of that gap. In addition to bill payment. Mobilligy is hoping that cash flow starved users would take advantage of loans for bill extensions.

Other companies that presented are keebitz, embarke, staq, bagsup, appetas, fanzo. None of them mentioned valuations, which I found unusual. I would find it useful if an update of the previous class was given.

Overall, three very interesting hours, courtesy of Microsoft and TechStars. Looking forward to the next one.

Krish

Building Your Board

May 2, 2010 – 11:46 pm by RM Crill

Building your board is one of the few proactive steps you can take to build valuation that doesn’t necessarily directly involve your product or service (unlike sales or product development).  Investors will recognize your appreciation of oversight and will be influenced by these directors spending their valuable time for stock-based compensation.

Advisors vs Directors

Most entrepreneurs are keen to build out advisory boards, signing members on an opportunistic basis only.  While there is a place for adding advisors who, from time to time, become known to you and sound valuable, that’s no way to build your advisory board.

Step back from the madness of big names and well-connected people and come up with a plan.  What would your ideal advisory board look like?  Every business is different here, but, good advisory boards generally include people with various industry connections for help with revenue generation and/or deep product knowledge.  For example,  one of our portfolio companies, DigitalScirocco, runs an on-line auction for content.  The CEO brought in Michael Wellman who is arguably the top researcher in computational market mechanisms for e-commerce to architect their platform.

The expectations for advisors versus directors are lighter; less contact time and no fiduciary duty.  It’s not unusual to have zero contact with an advisor for months.  This isn’t the case with your directors and it’s one of the potential flaws with building an advisory board.

Many entrepreneurs add advisors each time they see an interesting name.  Typically, that person helps with a key introduction or an immediate issue and then fades away, but their compensation continues.  If you have an advisory board, commit that you’ll look at it quarterly and determine if each person is still earning their compensation.  Don’t be afraid to terminate someone who’s no longer involved.

Your directors, on the other hand, are responsible for your strategic direction and have numerous specific responsibilities as well.  These likely include determining executive compensation, approval of the budget, approval of funding rounds and, of course, approving any M&A.  They have a fiduciary responsibility to all the shareholders to ensure that the company’s activities are in the best interest of all the shareholders.

Composition

A manageable advisory board is under ten members.  There’s no minimum as many companies do quite well without one.  If you sell into markets that are quite different (for example, Digital Map Products an Atlas company, sells to local government, search engines, and land developers), you might find that getting some representation from each of these industries help you position your offering in each segment.

You may also find you want an advisory board of customers (the Customer Advisory Board), which is a great way to keep you engaged with what your market needs and validate your product roadmap (as well as sell more to your existing customers).  Again, under ten people should be manageable.  This group does not typically comingle with your regular advisory board.

Your board of directors will probably consist of 3-5 people.  We always state that the board will contain up to five members to allow you time to recruit.  That’s usually the CEO, one rep for the common, one for preferred, and two outsiders.

Think strategically about your board.  You need someone with connections to money, a technology or product expert, and someone who knows your customer or market.  One or more of these people probably know enough about corporate governance (and your lawyer will help as well).  I say this because too often I see boards filled by investors who know corporate governance and nothing more.  Frankly, that’s the easy part.  Helping you take a product or service to market (and not just because someone’s smart – but because they know this market or this product) is much more valuable.

Investors will ask for several board seats and you may feel that you need to comply.  Often, you’ll do what’s needed for the money but know this: people who buy their board seats will often be your weakest directors.  There are many exceptions to this and I’ve worked with some great directors who were venture capitalists or super angels.  Overall, however, people with big checkbooks often lack enough practical experience to do more harm than good.  The typical, unfortunate, case is the venture partner who either had one big hit or who came up through finance or banking to become a VC.  Large investors may ask for several board seats, but in the negotiation to limit that to one and fill the other seats with people who can really help.  People who never owned a P&L, brought a product to market, or have other operating expertise are dangerous to you and your board.  Being smart, good-looking, and well-educated works to assess investments but doesn’t work in running a company.

Compensation

Until recently, I’ve never seen cash compensation for a start-up board or someone on the board of advisors.  Well, the rule’s been broken but only once so I can still say that compensation is stock only.

The amount of stock varies by the maturity of the business.  Typically, you can expect to give your advisors about 1/10th to ½ of a percent, typically vested over 36 or so months.  There is no cliff because you may part ways after only a few months and it wouldn’t be right to leave them with nothing.  Directors can expect about ½ to 2% vested over that same time.  There are exceptions for highly involved directors.  Also, we’ve occasionally given commissions to advisors who bring in deals.

Activities

You should get your advisors together about annually in person, maybe once again or so over the phone. You generally won’t get anything directly out of these meetings but it’s a good way to keep them current and it’s healthy for them to meet each other.  Otherwise, your activity with advisors is typically one-on-one and as needed by you.  In rare occasions (this is how I provide my advisory work), you may have an advisor you meet regularly but that would make sense only if there’s a broad relationship over many areas.

Your advisors are typically there to open doors for you and to explain how an industry works.  They should lend credibility to your business because of their position within their industry.  They expect you’ll use that credibility and you can talk with them about how to make best use of them as well as their reputation.  Advisors can also be used to mentor new executives on your team who may be in an executive role for the first time.

Your directors will meet between monthly to quarterly in person with additional meetings based on events like financings or large transactions.  You should take advantage of these meetings to bring in others from the team for occasional reporting.  Many CEOs spend very little time with any directors outside of these meetings.  While that’s not necessarily problematic, you should be sure that you’re forming a close relationship with at least one director.  When management is excused from the board meeting (yes, Mr. FounderCEO, that’s you), the company will benefit by having one person in the room with deep knowledge of internal issues.

Time Commitment

Advisors should expect to attend a half-day meeting annually and then help out about an hour or so, on average, monthly.  There can certainly be dark periods followed by periods of heightened activity.

Director meetings typically last a half-day and are often (should be) preceded by dinner to help the board get to know one another.  Additionally, directors get involved in reading the company’s financial and other reports in advance and will engage in helping you with issues like writing a term sheet or reviewing a contract.  Overall, directors spend about 2-10 hours a month with the company.

Are They Adding Value?

Every now and then (at least annually), step back and assess your board.  Sure, they’re at the meetings and they don’t say anything stupid, but are they adding value?   Make a list of times each director initiated a program that added value.  Make a list of times each director took an unpopular stance the proved to be helpful.

Most directors will avoid giving the appearance that they’re not smart enough or don’t know enough about the business.  Most will not take risks in the board room.  Worse than that, many will spend time telling you to sell more or explore programs that you know you cannot afford.

There are some wonderful directors who will have the courage to be wrong in the board room and who will make a difference that you can point to.   Those are the keepers.  The rest (most) who go along with the flow aren’t really helping you.  You may not be in a position to act on these but you should at least be aware.

D&O Insurance

Most early-stage companies don’t buy this costly insurance.  But outside directors will often require it.  We usually see the purchase delayed until the company is shipping product.

D&O is needed because directors (and officers) can be personally liable (or at least sued) for issues from sexual harassment to defective products.  In general, a personal umbrella policy won’t cover someone’s work as a corporate director.

With or without D&O insurance, sign a mutual indemnification agreement. Your attorney has a standard one.  This agreement will state that no director will sue the company or another director and that the company agrees to stand in front of any director who is sued (by anyone – shareholder, customer, employee).  This is an effective prophylactic against many shareholder suits because they can’t damage the directors without harming their investment.  Note that no insurance or indemnification will protect a director who committed fraud or was grossly negligent.

Also, if you get D&O, be sure to cover employment practices.  This is often optional and overlooked but the most likely cause of a suit will be related to an employment issue such as wrongful termination or harassment.