Whether you are a manager, Board member, Advisor, or a parent, you always wrestle with the question of how much rope to give someone when they are making decisions?  Do you keep them on a tight leash, or give them enough to hang themselves?

As a manager, where you own direct responsibility for the outcome, you can justify a tighter leash.  You want to encourage the people on your team to take risks.  Failure is the best way to learn, and most people fail before they succeed.  But, if failure has a big consequence, or your own success depends on the success of the people you manage in this instance, you may want to closely monitor what is going on and keep them on course.  Let the innovations be their idea, but don't let them drive into the ditch.

In a situation where you don't have such direct managerial responsibility, this is a tougher question.  As a Board member or Advisor to a company, you can't jump in an run things, unless you are explicitly asked.  The company needs to stand on its own, and the company's management needs to make the final decisions.  You can give input, make suggestions, and provide strong debate, but you can't overrule the team.  About all I ask for in these instances is that they listen to me (if they don't want to do that, why have you as an advisor?).  If I'm heard, it doesn't matter as much if I'm heeded.  In fact, as a Board member, I prefer that management make their own decisions.  Then they can be held accountable if their decisions are wrong.

If you are an advisor or Board member and act very heavy-handed, you can probably convince management to do things your way.  But, you'd better be right.  If things don't work out when you have 'overruled' management, you can't really hold them accountable.  The dynamic I prefer is to start off trusting management's judgment.  If they do something I don't agree with, and it works out, then I've learned something.  If it doesn't work out, I lose some faith in their judgment.  If it happens a few times, then maybe the company needs new management.

Your approach also haas to be moderated depending on what the stakes are.  If the company is going to go over the cliff and its survival is threatened, then maybe a heavy handed approach is required.  And, replace the management for almost taking the company down with them!  But, most decisions don't have that level of impact.  You need to let the people closest to the situation make the decisions, and then measure them accordingly.

As my kids have grown up, I see parallels with parenting.  Every kid is different than their parents, and they make their own choices about how hard to work in school, pursuing job opportunities, and taking part in extra activities.  You can't make your kids act the way you would.  Just try to get them to listen to you and learn from your experience.  That can be a big enough challenge sometimes!  But, if they make a few mistakes and learn from them, they'll have a stronger foundation on which to succeed in the future.

Thanks to all my readers for taking the time to follow this.  And, thanks particularly to those who comment and contribute to interesting discussions.

But, there are things you get from venture capital beyond the money.  You can add these to your business without a VC investment, but you have to work at it.  Here are some:

• Independent perspective -- As an entrepreneur, you have to drink the Kool-Aid.  You think that what you're building is great, and you look past all the problems to see the possibilities.  But, some of the time, you need a dose of realism.  You need to find a way to hear the outside perspective on your company.  You can achieve that with one or two independent directors on your Board, or an active advisory Board.  Go beyond your friends and current stakeholders.  If you can't attract an industry insider from your segment to work with your company, you may not be good enough at networking, or have a strong enough value proposition, to be successful.  And, that's the kind of 'tough love' feedback you should expect from an independent perspective.
• Deep contact network -- You also need to be able to attract talent who really knows your marketplace.  Most VCs have great contact networks that they have developed over years (or decades).  You need to be a great networker to find this talent for your own company if you aren't getting value-add from a VC.  For some, networking comes naturally.  For most of us, it takes work and attention.  That may mean carving time away from other things to go to an industry event, conference, or meetup.  As an entrepreneur, it's essential.
• Relationships with key customers and partners -- After you have sharpened those networking skills to bring talent into the company, you'll need to make contact with more customers and potential partners.  No company has enough of these.  Business people you add to the company should come with some of these contacts, but there is always the potential for more.  Another value-add you can get from independent directors is access to their contact network.  I like having an independent director that is a recently retired senior executive from one of the big customers or partners in your sector.
• Keeping you honest -- I like people with attention for detail.  At least one Director of your company should be motivated to go over everything you are doing with a fine tooth comb.  They can give you feedback on how to improve and be a sounding board for future moves you are considering.

Whether you are going it alone (without venture investment) or evaluating whether a particular VC really brings something more than money to the table, think about these types of value-adds for your Board.  Your company won't improve with a Board full of your biggest supporters.  Mix in a couple of independent, well-connected, detail lovers.  You'll be glad you did.

But, there are economists who are worried about deflation, and they should be.  Although the idea of prices dropping sounds good, it can have a crippling effect on the economy.  For a short period, deflation is fine.  Everyone likes it when prices drop and their dollar goes further.  But, what if deflation becomes systemic?  What if you knew that prices would drop over the coming year?  Wouldn't you wait to buy things you didn't really need today?  After all, they would cost less in six months.  This mindset brings an economy to its knees.

In the technology sector, prices have dropped while performance has gone up.  This has hollowed out some markets, but it has also expanded them.  When PCs cost thousands of dollars, you'd live with your old one for a while.  There was a pace of change of technology, but it didn't seem as fast as it is today. 

Now, when PCs cost hundreds of dollars (and these are dollars that are worth less), it's not as significant of a purchase.  You know that in a year your PC will be outclassed by the next wave of technology.  But, since the investment isn't as significant, you live with this obsolescence.  Chances are, the PC you buy today is so much faster and better than the one it is replacing, you get your few hundred dollars of utility out of it, despite the fact that it becomes obsolete so fast.

Since PC technology moves so fast and has come down in cost so fast, the market has gotten a lot bigger.  Sure, it's ultra-competitive, and margins are thin.  That happens in any large commodity market.  But, it still is a bigger business, and creates bigger industries around it (semiconductors, software, services, Internet applications, etc.).  To Joe's point about tax revenues, I'm willing to bet that the overall tax revenues on the bigger, more commoditized PC business are higher than in the smaller, higher-margin PC business.  Don't forget to count all the forms of taxes -- payroll taxes, sales tax, and corporate income tax.

In general, I think that Internet applications will do the same thing.  We can't and won't suck all the money out of all these industries.  If we do, no one will earn a salary.  And, without salaries, no one will do the work.  Now, there have clearly been missteps that have hollowed out industries quickly, such as the music industry not paying attention to music downloads, causing a whole generation to get used to paying nothing for music.  Or, the newspapers giving away all their content for free without figuring out how they would pay for it.  But, there are also companies like Apple that make a lot of money on downloaded legal music.  And, there are media sites that have a lot of traffic (driving advertising dollars) that sell value-added services (a model that the newspapers could follow for their large online traffic).

So, I don't worry about the acceleration of technology causing deflation and leading to the collapse of our government and economy.  In general, our economy has been propped up by expansion of productivity (the positive way of looking at getting more for less).  In fact, this type of technology innovation is critical for us to get back on track.  We need to continue to press ahead with Internet businesses that have real revenue (no government support required).  We also need to develop a wide range of green energy businesses that lead to products we can build here and export.  This does require some government help in the short-term as the capital markets aren't ready to fund this fast enough, and some basic research for longer-term gains is best funded by the government.

I share Joe's concern about the size of our systemic government debt.  The short-term stimulus part of the debt doesn't worry me.  But, the debts for the coming 5-10 years are terrifying.  We need to find things that the government does not do and drop them, and we need to be realistic about taxing ourselves to pay for what we need.  We can't grow out of a large deficit.  And, inflation won't solve our systemic deficit.  It devalues our old debt, but drives up the interest costs of carrying our new debt.

Economies seem stable with very modest inflation.  When we can keep that under control, we can focus on building new industries that expand and restructure markets, leading to goods we can build and export.  And, technology advancement, including Internet applications, is the key to that.

An early-stage investor knows that the market will change a lot before a new company's product is available.  It's impossible to anticipate what will happen.  So, most investors focus on how you approach things.  How do you react to the suggestion of competitive threats?  Are you overly optimistic?  How customer focused are you?  Do you realistically assess the risks in the plan?

You'll have to do a lot of planning to produce the slides and financials.  You will need to understand the market well, even if you don't do formal market research.  You can learn from customers and other market participants.  You'll have to have a development plan, a sales and marketing plan, and an operational plan.  You don't have to pull them all together into a glossy document with lots of prose, but you better be able to talk about it as if you've written one.

And, once you have funding, you'll need an updated operating plan.  This will keep your team coordinated, make priorities clear, and make sure you have enough money to get it all done!  Don't wait for your investors to ask for a plan.  Produce a plan for yourself, and keep it current as the world around your company changes.

I was fascinated to read Fred Wilson's American Express Blues a few days ago.  You should go there and read it, including the comments.  Fred has a lot of active commenters on his site, which makes an incredible conversation.

Fred describes his experience with Amex.  He, his various funds, and his family have Amex cards.  He's been a 'Member' for 26 years and never had a late payment.  However, one of the funds (Flatiron) paid an Amex bill late.  And, Amex shut off ALL of his cards without notifying him.  Here's my favorite part:

When I called American Express to figure out what was wrong with my cards in the middle of the Flatiron situation, I was told it was their policy to shut down all accounts if there was a late payment on an account. I asked if my 26 year perfect credit with them was material to the situation and I was told it was not. I hung up on them.

The comments on Fred's blog include person after person who has had a similar experience.  After being a good customer for a long time, something happens (which may be the customer's fault), and the response from Amex seemed very drastic.  For a company that tried to position themselves as an elite brand, they aren't treating their customers like the 'Members' they purport them to be. 

Nothing bothers a customer more than being betrayed by a brand that they bought into.  If you are a customer of a premium brand, you want to be treated like a premium customer.  You aren't surprised when the low-end retailer has poor service.  You shop there for the lowest price.  But, if you go to Nordstrom's, you expect fantastic service (and, since Nordstrom is successful, you almost always get it).

I've been betrayed by some brands over the years.  I tend to hold very long grudges against these companies.  The stories are so out of date that they aren't worth retelling here.  And, some of these brands have gone out of business (no surprise).  But, I won't do business with my own 'hate list' of brands in the future.

I decided to write this today after hearing a show on NPR yesterday about the future of the Republican Party.  The story there was the same from the Republicans on the show.  They had lost their way and gone against the fiscal bedrock of their party.  Since they weren't true to their brand, their voters aren't true to them.  I think that fiscal conservatism can and should be a strong force in the country.  But, between not sticking to that and expanding their message beyond it, they alienated a lot of old-time Republicans and failed to attract a lot of new ones.  They need to rebuild their brand, which should be interesting to watch.

For every entrepreneur starting a company, be sure that you can deliver on the implied promises that your brand is making to your customers.  If you do so, your customers will be loyal.  If you betray them, you are dead.