Ms. Fix-It

Every week, MDV's partners were looking at embryonic businesses -- and trying to predict which ones might turn into successful, freestanding companies, or maybe even legendary institutions. "We were trying to figure out what was the maximum point of influence for our startups," says Jonathan Feiber, 44, an MDV managing partner. "We decided that the point came in those first few months, when you can still make changes and be flexible. After that, trying to correct the consequences of bad decisions can be fatal."

Following up on that insight, MDV had developed a staff of "venture partners" -- people who focus on helping young portfolio companies, rather than on scouting for new investments. "Other venture-capital firms don't do this, because it's expensive," says Schoendorf, now 46. "But it's a model that we feel we just can't live without." Novitsky seemed to fit the model perfectly, and the firm wasted no time in asking her to come on board as a venture partner.

Cutting-Edge Common Sense

Of the startups that Novitsky has worked with so far, InLeague presents the clearest example both of what a promising young business needs and of what an in-house venture partner can do. Founder David Kahn wanted to make InLeague the leading U.S. payroll-services vendor -- which would mean going after ADP Inc., the longtime industry leader. MDV executives relished his passion, but they wanted to make sure that his growth strategy was focused and realistic.

Kahn believed that ADP was trapped in a basic old-economy dilemma: It couldn't move its business rapidly to the Internet without destroying its long-established (and nicely profitable) ways of calculating, printing, and distributing checks. In fact, ADP had rolled out a Web version of its service in May of last year. But in Kahn's view, too much of ADP's capital was still tied up in operating regional service centers. Moreover, while ADP did a great job of serving big companies, Kahn believed that there was a crack in the market for serving small companies -- those with, say, fewer than 20 employees. His goal: to swoop in and capture lots of customers within that underserved segment of the market.

But could InLeague make money that way? Novitsky was dubious. Profitably selling to and serving lots of small companies would require InLeague to have a huge sales-and-marketing team, as well as a product that would cost little to deliver. InLeague had neither, and Novitsky unequivocally told Kahn as much early in 2000. "That may be where ADP ain't," Kahn remembers Novitsky telling him, "but if you want revenue, you have to scale up in size."

What if InLeague, working with resellers and large benefits-management outfits, were to target slightly larger companies? Novitsky asked. True, some of those companies might be core ADP customers, but they were also more likely than small companies to yield profitable accounts.

That advice represented a paradigm shift for the company. It also offered a startlingly clear example of what Novitsky had learned during her years at startup companies: "There is such a thing as a 'bad' customer," she asserts. As she critiqued the original InLeague strategy, she treated Kahn as a colleague and confidant, saying things in front of him that would be far harder to say if she were just a board member -- the role that venture capitalists traditionally take with portfolio companies.

"When you're building a company, you are desperate to bring in customers and revenue," Novitsky remarks. "Plus, employees are evaluated on how many clients they bring in." Indeed, pursuing such goals can mean the difference between getting the next round of funding and going out of business. But that sense of urgency shouldn't prevent top managers from thinking about which customers are truly worth having.

Knowing how to pick customers is one of Novitsky's most highly prized talents. A few months after arguing that customers with 20 to 250 employees were the right fit for InLeague, she was at it again. Along came an opportunity to land a 500-employee account. "Do we do it or not do it? And if we do it, what about our other customers?" Novitsky asked. Such a big account would take InLeague in a new direction -- one that the company probably wasn't ready for at that point. "If you can't leverage something that you are doing for one client across your entire client base, then you should take another look at it," Novitsky says. (By the end of 2000, InLeague had worked its way up to targeting companies with 20 to 1,000 employees.)

For both InLeague and Novitsky, the toughest part of working together was letting go. In November, InLeague managers talked anxiously about Novitsky's imminent departure from the company's day-to-day operations. They worried that it might be hard to get the chemistry right when someone else filled her role. Even Kahn, who knew from the beginning that Novitsky would leave, acknowledged that he was in denial. He predicted that she wouldn't be able to give up this baby that had learned how to walk with her help: "She'll work here more than she expects."