The irresistible pull of the dealmaker CEO
You want to work with them, but should you?
Dealmaker CEOs are popular. They shake hands with confidence. They say just the right things. And, since they are dealmakers, they get VCs to write big checks.
In my late 20s, I was trying to learn what it meant to be a CEO, and I used to try to emulate IP Commerce CEO, Chip Khan’s confidence and swagger. I remember one toaster oven summer day in July, 2007, both of us sweating through linen shirt sleeves and pants, Chip and I were walking on the 16th Street Mall in Denver, and Chip said, “See, the way you get VCs excited is to fill the room with ideas—like air.” He made an expansive gesture with his hands and winked at me. He wasn’t wrong. He was still on a high from raising a big round and would go on to raise over $50 million for IP Commerce before it was broken up in a couple of low-flying acquisitions. What follows is my perspective on how this happened at IP Commerce and how to apply what I learned about desirable CEO traits more generally.
Despite emulating Chip even to the point of growing out my hair, I couldn’t go all in on the dealmaker persona. My mind always brings things back to the product, and at the time, watching Chip, I thought my inability to suspend disbelief was a personal weakness.
Nonetheless, I predicted the end of IP Commerce about halfway through its life. Chip, existing, and future investors saw a bold future, and I couldn’t see past one thing—the product wasn’t great, nor trending towards great. Chip's ability to riff about the future of payments and fill a room with big ideas was legendary, but when you tried to pin him down on product specifics, he was uninterested.
In the more than 40 startups I’ve worked with, the most successful ones were lead by product people rather than by dealmakers. In every case, the dealmakers either couldn’t find product market fit or pushed their companies beyond the capabilities of their engineering teams to the point of doing harm.
Chip’s vision captivated and motivated the engineering team. Developers would join the company ready to change the world by making it easier to payment-enable everything (which Stripe would eventually do). But then, when they joined, they weren’t sure where to direct that energy.
The big vision wasn’t concrete or tangible, so the engineering team looked to product managers (including me) to define it, but we product managers felt trapped between not being sure what Chip wanted and being afraid to make scope limiting decisions. The metaphor that comes to mind is Chip standing at home plate swinging his bat, sending ideas like fly balls all over the field, and product managers running around the outfield trying to catch the ideas and mostly erring.
The result was a product with a million features and no purpose, with a thousand dark avenues of code half explored and left to ruin.
Here’s a concrete example. We were designing a specification called PTLS (word salad standing for “Payment Transaction Layer Switching”). Its job was to standardize the data transmitted by point of sale systems and bank card processing services during payment transactions. Credit cards typically have two separate steps to complete a payment. The first step authorizes the card, making sure that it had funds available, and the second step, traditionally done in the evening after a store closes, settles the transaction. Settlement moves money from the customer’s credit account to the merchant’s bank and skims some money off the top for fees. Some payment systems at the time supported auto-settlement so that the merchants using those systems wouldn’t have to remember to manually initiate the settlement process each day to get their money. I suggested that we could simplify our PTLS specification for everyone and only support auto settlement—we could do this by initiating manual settlement ourselves if the processor didn’t support auto settlement. But since doing this would narrow the surface area of capabilities of PTLS, my idea didn’t fly. By not making this decision we deferred it to the people implementing our specification. Since our specification supported either manual or automated settlement, any software that implemented our specification would have to support both or have an incomplete implementation of the specification.
Other successful gateways of that era like Authorize.net confidently made decisions to limit capabilities to make it easier for developers to digest their specifications, and Stripe ultimately did the same to great effect by having an extremely limited set of features in an html widget that developers could drop into web pages.
Chip wanted PTLS to do it all, but his point of view wasn’t about the best product experience. Since he was had been gathering big name companies under the IP Commerce banner, he wanted to say “yes” to all of them about everything. They liked hearing that their entire feature set would be supported in our new “developer friendly” platform. Telling them we knew better about how to bring payments features to market would have limited our deal making potential.
The incumbent payment processors loved IP Commerce. I haven’t kept up with Chip in recent years, but at the time he was an early thirties force of nature. He sported Axl Rose hair, a Colorado meets yacht club wardrobe, and an East Coast frat boy white hat, and he would laugh while breathing both in and out and smirk in exactly the way you would expect someone named Chip to smirk, then he would lean forward and spit a lil dip into his cup. That’s right, he chewed tobacco. The guy was a Smithsonian exhibition of mid aughts masculinity. His energy and magnetism were a rarity in the golf-buddy and gold-watch-handshakes payments industry where dads with drug abusing teenagers spent 80 percent of their time on the conference circuit. These bored, road warrior dads who automatically answered, “Living the dream” whenever anyone asked how they were doing saw a chance to revisit their youth hanging with Chip who knew how to throw legendary parties. At one weekend event in Vail, Colo, an executive at a major card processor limped into the conference hall one morning whereupon we learned that he had sprained his ankle among the icy rocks jumping into Gore Creek from a hotel hot tub during after-hours, um, corporate networking.
Dealmakers draw power and money to them, and Chip made headlines for IP Commerce. He had the seed of a great idea in the business, but not the willingness or experience to focus our energy into making a great product. And for all the fanfare and money the business garnered, it never focused on an addressable and winnable market. There were too many deals, too many opportunities, and we had enough VC cash to go after them all.
Eventually customers started looking elsewhere for products that better solved their needs, and IP Commerce’s arc ended. I was no longer with the company in these end days but had stayed in touch with some of the people that stuck it out. They insisted that IP Commerce had made good headway, and maybe they were right, but seeing as Stripe succeeded in realizing the developer-friendly payments business that IP Commerce stated as its goal, I can’t help but think that IPC missed the target with its product.
Should you be weary of dealmaker CEOs? Yes, a little bit! They have magnetism. You want to be around them, and they convince you of their vision. But knowing they can do harm to a company by putting the needs of monied investors and whale customers ahead of the product, it’s important to look for some red flags when you agree to work for one. When I interview startup CEOs to determine if Kelsus wants to invest in them or partner with them, I’ll know right away if the CEO has dealmaker magnetism, but I have to probe a little to uncover product expertise.
Have they made products before? Can they talk about the specific features that were sticky? Bluntly, do they care about software and how it works? Can they talk about a hard decision where they focused on a target market knowingly making the product unusable or unattractive for a set of users who weren’t a perfect fit? When they talk about a feature can they stay focused on that feature or does every conversation about the product spin away into stream of consciousness yogababble about the bigger vision?
It feels weird even writing those questions because clearly top tier VC firms have a history of rewarding exactly what I just said to avoid. Elizabeth Holmes and Adam Neumann were great at yogababble. Web3 is entirely yogababble. Shouldn’t a CEO looking to raise huge sums be great at it too? Yes, absolutely. My questions aren’t about making sure that CEOs focus on small, definable products with limited vision. They should have a big big vision—a huge vision, but they should also be able to talk about the specific, product-focused steps they are going to take to bring that vision to market.
I want to hear your stories of A+, yogababble, night shades wearing, model dating, 9-figure raising CEOs. Who have you worked for that could start a movement but couldn’t define the product behind it?
Thanks for being with me another week! From this newsletter, I’ve gotten a few nice intros to fintech startups, and since I started it, we’ve made two investments. I hope to write about both of them as soon as it makes sense. Will you please send any other seed round raising fintechs my way? And if you don’t know any, please tell your friends that do to subscribe!
Thanks,
—Jon Christensen