1. Leadership and the Virtuous Cycle
Or How I Made
40
Quarters in a Row
mark leslie
mleslie@leslieventures.com
650/561-1228

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. The Virtuous Cycle
Exceed Revenue Expectations
Grow the company Exceed Profit Expectations
Increase Stock Price Increase Stock Multiples
Copyright M. Leslie 2008 3

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. 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. 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. 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. 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. 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. 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. 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. The Virtuous Cycle
Exceed Revenue Expectations
Grow the company Exceed Profit Expectations
Increase Stock Price Increase Stock Multiples
Copyright M. Leslie 2008 12

13. Leadership
How the CEO Can Create
and Foster this
Virtuous Cycle?

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. Leadership
Leadership is holistic – Creating
this particular Virtuous Cycle is a
single dimension
Copyright M. Leslie 2008 15

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. 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. 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. 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. 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. 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. 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. 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. Some words to live by:

25. Regret for the things we did can be
tempered by time;
it is regret for the things we did
not do that is inconsolable.
Sidney J. Harris (1917–86)

26. If you want a friend…
…Buy a dog
ROXIE
Copyright: Mark Leslie 2007 26

27. The Virtuous Cycle
Exceed Revenue Expectations
Grow the company Exceed Profit Expectations
Increase Stock Price Increase Stock Multiples
Copyright M. Leslie 2008 27

28. Leadership and the Virtuous Cycle
Or How I Made
40
Quarters in a Row
mark leslie
mleslie@leslieventures.com
650/561-1228