New Role New Skills

A recent LinkedIN post quoted Anand Eswaran, an executive with a very successful career at several huge tech companies. The topic was what a first-time CEO has to unlearn, which was intriguing. The advice is geared toward a CEO stepping into an up and running company. In my last post, I focused on the CEO-challenges of a turnaround or restart. When the board searches for a new CEO to lead a turnaround, they start out looking for an experienced CEO who has done it before, but if the ‘baby is ugly’ they move down the ranks to a talented but inexperienced CEO - the first-timer, who is hungry enough to take the risk of failure in the hope of becoming successful. I think the advice also fits an entrepreneur who has suddenly found they have built a company that is scaling up quickly, hiring people and gaining market traction, and now they have to figure out how to lead the team.

The first suggestion is to “fire the operator.” A first-time CEO probably was a former operator or doer. Throughout their career, success came from hands-on action. In a scaling business, the CEO has to do more leading and less executing. Eswaran’s view is that the role shifts to deciding what is worth doing, and I would add that the next component is to inspire the troops to stay focused on that work.

Eswaran’s recommendation is to become the “Chief Repeating Officer.” The CEO needs to consistently say the same thing over and over. In my experience, repetition is the only way to make a message sink in and become actionable throughout a team. A key requirement for the repeated message is that it has to be short, simple, and meaningful. Long-winded explanations do not work. The best example of this is in the mission statement. One company I joined had three different full-page mission statement posted on three different employee systems. Nobody had a clue what the mission really was. I advocate a very short (10 words or less) statement that everyone can learn, internalize, and repeat. Steve Jobs once said he wanted Apple’s mission statement to be so simple and so ingrained that if you woke up an employee at 3:00am and asked them the mission, they would know it immediately.

The third advice is to “Trade certainty for "I don't know, let's find out.” One of my favorite business authors, David Marquet, talks about CEOs that know everything but tell nothing. What he means is even if you know the answers, stop giving orders and start asking questions that let subordinate figure out the right thing to do. Eswaran is going a step further, and not assuming the CEO knows all the answers. I have often written about black and white versus gray challenges. CEOs live in the gray zone. If the answer was black or white, someone else would have already figured it out before it got to the CEO. That someone else was often the first-time CEO in their prior position, but now they have to let others figure it out and step into the role of dealing with uncertain gray-zone issues. There is a certain strength in having the confidence to say “I don’t know.” However, first-timers often have imposter syndrome, and are reluctant to admit their lack of an answer. The job demands that they overcome all the inhibitions and become comfortable in the gray zone, including admitting when they do not have the answer. They just need to have the curiosity to help figure it out.

Eswaran’s next advice is to “rewire your relationship with speed. Be calmer about being wrong and fiercer about being slow.” This one puzzled me at first, eventually I came to see it as a permission framework for the company. It is an admonishment to the team to act fast, and know that mistakes will happen, and that the CEO is alright with mistakes. I am not totally aligned with that interpretation of the message, but I see an alternative interpretation that is applicable to the CEO’s role. As a first-timer, you are going to make mistakes. You have to realize that your job as the ultimate decider requires you to act, and not be trapped by analysis paralysis. A wise person I worked with used to say “never make a decision before you have to because you may learn more that will support the decision, but never delay making a decision that has to be made.” Be deliberate, but do not waste time avoiding a potential mistake. Another wise person advised to rank decisions by their level of risk and the impact of getting it wrong. If the impact is low, then do not sweat the decision too much. However, if getting it wrong can be catastrophic, take your time and be cautious.

Lastly, Eswaran says to “delegate without abdicating.” The Truman line “the buck stops here” applies to every CEO. The mandate is to delegate to the team and not become the center of the universe where all decisions are made, but that does not mean the CEO relinquishes responsibility for everything that goes on in the company. A CEO has to develop trust in each member of the team, but the rule is ‘trust but verify.’

Whenever I speak with first-time CEOs, they always say they are surprised by how demanding the role is, and how much they have to learn. One CEO harkened back to a line I often quote: “the tyranny of the urgent is the enemy of the good.” When everything seems urgent, there is no time left to devote to the hard work of leading. One last quoute to keep in mind: “everything that got you to where you are will keep you from getting to where you need to be.” The CEO role is different from every other executive position, so you cannot succeed by continuing to do what you used to do. Eswaran’s advice helps to sort through the demands and prioritize the changes required to truly become a CEO.

Turnaround Honesty

A recent LinkedIn post incorrectly attributed a quote to Werner Herzog, but the quote was thought provoking nonetheless. The statement was: 

“The turnaround is the most honest situation in private equity. The building is burning. Everyone can see the flames. There is a strange dignity in this. No pretense. No fantasy. The [person] who walks in knows exactly what [they are facing]. The growth story is a collective hallucination. A room full of intelligent people agreeing on a future that does not exist and calling this agreement a strategy.”

In my last post, I described necessity as the mother of optimism, and how even in the face of overwhelming odds entrepreneurs continue to be optimistic and persevere. What struck me about this quote was the difference between a known turnaround and an unknown startup. My first CEO position was a restart. The company had burned through a lot of high-profile capital and never produced a commercial offering. The tech was promising, and they managed to attract fresh capital to make a go of it, but they needed new leadership. I was hungry for a CEO position, and frankly did not understand the challenges of a restart versus any other type of venture. In the context of the quote, the building was burning, but I was blinded by the opportunity to be a CEO and naively did not see the flames. Surprisingly, the existing long-term investors knew the situation, but the fresh capital was just as blind as I was. We were the ‘intelligent’ people hallucinating and optimistically ‘agreeing on a future that did not exist.’

Eventually you cannot ignore the flames in a burning building, and we came to understand that we were dealing with a very different situation than we anticipated. As the quote says, this is when that strange form of dignity kicked in. The pretense was gone, the fantasy was over, and we could honestly get down to triage and a fact-based tactical plan that might lead to a moment when we would have the luxury of defining a strategy for future success. I often think about it as the Apollo 13 moment when you take inventory of what you have and try to creatively make something out of it that will enable you to survive. The two most important assets at this moment are cash and people. There is a saying in the entrepreneurial community that given a choice between cash, product, and talent, an entrepreneur should pick talent. With the right people, you can create the right product and you will attract the cash. Unfortunately, great talent is scarce and in demand. Great talent can choose where to go, and a burning dumpster-fire of a business is generally not the most attractive choice. Even when you find the talent that recognizes the situation and shares the ‘dignity’ and enthusiasm to turn things around, they generally still want to be paid, so I have found that cash is king.

One of the CEO’s greatest challenges in a turnaround is building an appropriate culture. It is relatively easy to build an enthusiastic positive culture in a growing company where the future appears so bright that everyone has to wear shades. Surprisingly, in businesses living the growth story, employees often do not have a fulsome appreciation of the fragility of the company. They are often not attuned to whether the company is cash flow positive or profitable, so they are not aware that there may be a runway of available cash. At one of the companies I joined, during my first all-hands meeting I made a comment about our operating losses, thinking it was obvious we were not profitable. It was a revelation to most of the audience. Their bubble burst and reality came crashing in. It was not the company they thought they were working for, and for some it became a real problem. In a restart/turnaround there is no pretense or fantasy, and everyone knows exactly what the situation is.

Culture building in a restart or turnaround is a very different challenge. It is more of a Ted Lasso situation where the CEO has to rally everyone to ‘believe.’ We are in it together, and all pretense about titles and job descriptions fade away. We celebrate victories and incremental positive steps, and expect that not everything will go our way. The CEO has to exude confidence that inspires the troops to follow them, but radical candor is an important ingredient to build trust in a turnaround culture. You cannot speak to the team like a politician trying to shine a positive light or spin on everything. You have to calmly acknowledge the good and the bad and be honest with the team while helping them to understand reality. In a turnaround, employees watch management like hawks. Every nuance of behavior is scrutinized. If an executive is grumpy or down, the rumor mill reads disaster. It is vital to deescalate rumors as fast as possible. An open environment where anyone can ask any question can eliminate the opportunity for rumors to spread. Employees are very smart, and they generally know what is going on long before management tells them. Answering difficult questions honestly is the only way to hold the team together. They want to know that you know that they know, and they want the respect that comes from dealing with them honestly.

Another element of a turnaround is how the board operates. The expectations of the board are very different in a turnaround situation. In a growth environment, the board expects aggressive plans and outstanding execution and performance. In a turnaround, the board knows the building is burning and behaviors change dramatically. In my experience there are two paths institutional investor board members follow. One path is estrangement, and the other is engagement. Institutional investors have a portfolio of investments and limited time. They need to decide where to spend their time that will have the most positive outcome for their portfolio. For some, once a company becomes a turnaround situation, their calculus tells them to spend their time elsewhere. This estrangement path leaves the CEO and executive team to ‘do their best,’ without a lot of oversight and guidance from the estranged directors. Typically, they still want board communications and meetings, but estranged directors rarely comment of show up. They are nominally still involved, but their actions speak loudly.

The alternative path is engagement. When an investor board member believes that they can help and they are willing to invest their time, they engage with the CEO and execs. In the most positive situations, it is as if the board members come down off their pedestals and join the team. This can be a highly productive path for a turnaround because board members have resources and connections and wisdom that can be very helpful to the executive team. Board members shift from sitting in judgement of performance to actually becoming engaged to help make performance occur. 

I have often said that no company hires a new CEO unless they really need one. There are many positive reasons to hire a new CEO, but often the need is being driven by a loss of confidence in the existing CEO based on the business’s failure to execute. For a candidate, it is important to understand the drivers behind a board seeking a new CEO, and in particular to differentiate between positive factors and negative factors driving the decision. If the hire is driven by a failure to execute, then the board and the candidates should be on high alert to anticipate a burning building turnaround, and if there are flames on the horizon, then pretense and fantasy need to fade away so the right person is hired and everyone has the same expectations.

Necessity is the Mother of Optimism

I just completed an 1,800 mile road trip on Route 66 from Oklahoma City to Santa Monica Pier, while reading Steinbeck’s ‘The Grapes of Wrath.’ 2026 is the centennial anniversary of Route 66, also known as the Mother Road. It begins in Chicago and stretches south and west through Missouri, Kansas, Oklahoma, Texas, New Mexico, Arizona, and finally California. Commissioned in 1926 as one of the first U.S. Highways, but not fully paved until 1938. It was originally a wagon trail, but during the depression and dustbowl it became the primary route for migrants forced off their farms, and seeking a better life in California. Their farms and businesses had been foreclosed, and they had to move off their land and sell nearly everything in order finance their journey and eat. Migration was a necessity, but based upon the promise of work and a new life in California, they were optimistic.

Over the last few years, I have been involved in mentoring start-up entrepreneurs. While their situations are nowhere near that of the dustbowl migrants, I was struck by the parallels. Many individuals have lost their jobs and are facing a challenging job market. Some are stuck in jobs that are not fulfilling or intolerable. They all feel the necessity to move on, but the entrepreneurs are driven by an optimism that tells them they can make their own success. Like the dustbowl migrants, the odds are certainly against them. By some studies, 20% of tech startups fail in the first year and 70% in the second year. Over 40% fail because there is a lack of market need for their offerings, while nearly 30% run out of funding before they become self-sufficient. Despite these dire statistics, like the dustbowl migrants, the necessity to move on drives the optimism that spurs these entrepreneurs to take the risk. Bravo!

When someone loses their job, it can feel like they have been kicked out of the nest, and their choice is to fly or fall. Some dabble in entrepreneurship while they frantically look for a new job. For then, starting a venture feels like a necessity, but it is paired with fear, and not optimism. While failure does not feel like an option, they are not confident in success, and in fact it seems out of reach. For these entrepreneurs, the lack of commitment, and their hesitancy almost certainly dooms their endeavor to failure. Others see their job loss as a sign that the universe is telling them it is time to pursue their dream. The necessity to earn a living gives rise to the optimism that their great idea is the path to success.

The most challenging group are the currently employed dreamers who want to start a business, but are unwilling to let go of their steady paycheck. They have a great idea, but are staring into the abyss of a startup with a high probability of failure, and like Tarzan swinging from vine to vine in the jungle, they will have to let go of the current vine and trust that the next vine will hold their weight. That fear of letting go is holding them back from fulfilling their entrepreneurial dream. When I work with one of these entrepreneurs, to get them over the hump, I often find I am trying to help them paint a future picture by asking open-ended questions such as: Imagine what launching the venture will feel like and the first 180 days? What goals and checkpoints would you set so that you know it is working? How much cushion do you really need to have the comfort to let go of your current job? I often remind them that they are smart and have great skills, and even if it fails, they will still be valuable and employable. The toughest question is how will you feel if you never try?

I focus on helping the entrepreneur to build a conservative and comprehensive financial model of the business, while at the same time constantly guiding them to be very specific about what they are bringing to the market and why someone will pay them for it. Entrepreneurs are creative people, and they bubble with big ideas. A startup requires a big enough idea to build a sustainable business, but narrow enough that the business can have laser focus on what needs to be done to succeed. There is generally not a lot of time or runway to experiment with too many ideas, so the path needs to be clear at the start, but it has to have enough flexibility to be responsive to early market feedback.

Necessity is the mother of invention, and for entrepreneurs it can also be the mother of optimism. No matter how the necessity was manifest, and even in the face of frightening odds, committed entrepreneurs demonstrate their optimism every day.

Inspiration Or Desperation

In the last few years, I have been actively involved in mentoring aspiring start-up entrepreneurs. After a long career with a lot of twists and turns and experiences, mentoring an early-stage CEO gives me the opportunity to share what I know from having been to the movie several times. For most of the CEOs I have worked with this is their first start-up and/or their first time as a CEO. For others, they are on their second or third venture, but still want some help, guidance, and a sounding board. My overall goal as an advisor is to make whatever contribution I can to help the entrepreneurs maintain their inspiration and avoid desperation.

When an entrepreneur takes the leap of faith to launch a new venture, they demonstrate extraordinary inspiration. They have a vision for how they will turn a blank page into a successful business, and most are motivated by something in their life that provided the creative spark to dream up a commercial offering. It is never a decision they take lightly. Every entrepreneur knows that the odds are stacked against them, but they have the courage and belief that they will defy the odds with their inspired idea and their hard work. It is exciting to work with these enthusiastic entrepreneurs. They move very quickly, and they just keep driving forward.

Unfortunately, not all ventures make it. Good ideas for a product are not necessarily sufficiently good ideas upon which to build a company. Sometimes, the product just misses the mark, or the market just is not available or ready to purchase. Other times the problem is in the execution, and the early-stage entrepreneur and team just cannot muster the people, processes, and capital it takes to bring the idea to fruition. These outcomes are sad to see. One of the challenges as an advisor or mentor is to balance honest, negative feedback with positive encouragement. We do not want to burst the entrepreneur’s bubble, but I have certainly been in situations where the handwriting on the wall was pointing to failure. In those moments, the mentor or board’s role is to hold up a mirror and help the CEO to make an objective analysis of the situation. Too often, they find it very difficult to see the need to change course until it is too late.

The scenario that is most troubling is when the entrepreneur is on a positive path executing their vision, but simply running out of capital. This is often the moment when inspiration turns to desperation. They are close enough that they can see success, but they are out of fuel to achieve it. Typically, they have not checked quite enough boxes to attract additional institutional funding, and success is not such a sure thing that investors are lining up to inject the needed funds. As an advisor/mentor, this is the most disappointing outcome as you watch the enthusiasm of an inspired entrepreneur turn to desperation and frustration. Investors are making calculations about risks and likelihood of success, and their calculus has to show a satisfactory return on their investment. Their objective is to avoid throwing good money after ‘bad,’ but the result is that the entrepreneur is facing the end of the runway without enough lift to take off. 

In my experience, one of the most valuable things an advisor can do is guide an entrepreneur to be realistic about revenue potential, cash flow, funding requirements, and the availability of capital. At the risk of being viewed as negative, the advisor has to challenge projections and timing, and question spending and hiring. The advisor has to help the entrepreneur to adequately plan for how much capital will be required, and avoid heading down a runway that is too short to achieve liftoff. One of the most common challenges I have encountered is when an entrepreneur has selected a niche market to serve, and is chasing institutional investment even though the total potential of the business is too small to justify the type of capital they are pursuing. Institutional investors, VCs and PE firms, seek businesses with the potential for very high returns. Not many businesses meet their investment criteria. 

Many first-time entrepreneurs are naive about how institutional venture and private equity investors evaluate businesses and their thresholds for risk and return. My approach is to walk through a thought exercise with the entrepreneur. With their market analysis and projections, we do a back-of-the-envelope projection for the P&L over the next few years. Based on that guesstimate, we do exit-multiple math to see what the company may be worth in a few years. We then compare that valuation to how much capital they expect to need, and we do the math to see if the return would be attractive to a VC. Invariably, somewhere along the way the entrepreneur figures out that their total addressable market is to small, or their expenses are to high, or their sales ramp is too slow, or some other flaw in the way they envision their business will ultimately limit their ability to attract institutional capital. 

Holding up the mirror enables the entrepreneur to see reality for themselves. In some cases, they realize they are chasing a business that will fulfill their dreams, albeit with a more modest growth trajectory that may be a solid lifestyle or family business. In other cases, the entrepreneur pivots and rethinks their path to aim for a brighter star. Frequently, the conclusion is to pursue alternative funding sources rather than venture capital. My objective is to help them find a path that keeps them inspired and avoids heading down a path that will lead to the desperation that comes from running out of runway.

Time For A New CEO?

There are good and also unfortunate circumstances that make it necessary to hire a new CEO for an existing company. As companies transition from the entrepreneur/founder stage through the various stages of growth, there are several inflection points where it is valuable to pause and assess the leadership of the company. Often, the focus is on the executive team reporting to the CEO, and not necessarily the CEO. However, there are moments when it is necessary to assess the CEO’s capabilities and desires, and to determine if a change at the top will unleash corporate growth.

Some founders are self-aware and recognize when the company has grown beyond their capabilities, or when the job has changed enough that it is no longer enjoyable. We can put that in the category of a positive reason for a change. Also on the somewhat positive side, following a merger or acquisition there can only be one CEO, so one of the CEOs will either step down or out, making the ‘surviving’ CEO the new CEO for the new combined company. This is actually an important point to note. When you hire a new senior member to a team, you have a new team, and it will go through all of the formative stages before it settles into a productive operating pattern. Similarly, merging two businesses and selecting one CEO to run it all has the same disruptive effect. The entire company and culture will reshape into a new team, and it will require time and effort to achieve a smooth sailing organization again. 

When the board decides the business is stuck or in trouble or just not executing successfully, that triggers the unfortunate circumstance when it becomes necessary to hire a new CEO. This is never an easy decision, and as board members, it is typically a last resort after other interventions have failed. Often, the organization has collectively been aware of the need for a change long before the board considers action. Most managers hire too fast and fire too slowly, and boards are no different. They generally take time convincing themselves that a change is appropriate, and reaching consensus about the spec for the new CEO. Meanwhile, despite their discomfort with change and the unknown, the employees frequently have a sense of ‘what took you so long’ when the board finally announces that there will be a new CEO. 

From the board’s perspective, hiring too fast occurs when the sole focus is to select a candidate that checks all of the boxes for experience and skills and intelligence, but in the rush to make the change, the board fails to adequately grasp the personality of the organization and ensure a match between the temperament of the CEO candidate and the company. In a recent LinkedIN post, Tony Rehak's advice was that an “incoming CEO's first responsibility is to understand what created the value before deciding what needs to change.” More on the CEO side of that equation later, but it is also excellent advice for the board as well. The board needs to recognize the value in the organization and the culture and select a CEO that will nurture the good and correct the bad in a manner that does not break the company. Boards that are attuned to this often hire a skilled advisor to assess the psychological attributes of the company and the CEO candidates. When I was being hired for one of my CEO positions, I was asked to spend an entire day with such an advisor. They had previously met with numerous key people in the company and on the board, and they probed deeply into my internal thought processes and personality to produce a comprehensive assessment of my fit for the company. Initially, I was a bit offended or put off by the concept, but I grew to appreciate the thorough process and as a board member I have adopted a similar concept as a best practice.

Like the Hippocratic oath doctors take to ‘first, do no harm,’ an incoming CEO needs to follow Tony Rehak’s advice. In my career, I was always the guy hired to replace the existing CEO. Sometimes it was the founder, and other times I was the second or even third CEO hired. Board members all shared their perspectives on what needed to change in the company, but I focused on gaining my own perspective before blindly accepting their guidance. I followed my personal process of always questioning every premise before accepting it. In my experience, no company hires a new external CEO unless they really need one. Something is broken, and the board assumes a new CEO is the fix. The incoming CEO’s first job is to listen and learn and observe so that they can independently figure out what is broken and what is working. They need to turn over every rock and evaluate what is underneath it, before they start blindly making changes. There is an old adage that applies to a new CEO: “we have two ears and one mouth; use them in that proportion.” 

One last note about boards deciding to change CEOs. There are great CEOs who are brilliant at fixing broken businesses and setting them on a positive path, but some businesses are just broken beyond repair. This is particularly the case when the investors have reached the limits of their ability or willingness to invest. The task for an incoming CEO is then similar to Apollo 13 where you have to fix the ship using only what is currently onboard, and typically that is not very much to work with. When the investors have backed away or shut the door on new capital, the paths to success become fairly limited. Several times, I rejected opportunities and told the hiring team that it was my opinion that they did not have a CEO problem, they had a business problem. There was no market, or the market was saturated with no room for a new undifferentiated competitor, or sometimes the product was hopelessly flawed with no runway to fix it. The existing CEO may have helped cause the problem, but the business was too far gone and there was not enough capital to fix the situation. In my opinion, changing CEOs would not achieve the results the board intended without a complete restart and the board making a significant capital investment and providing adequate time to turn the ship around. When a board decides to change CEOs, they also need to assess what it will require to fix the business, and if they have the will to do so. A new CEO alone is rarely enough. Time, or patience is usually the element that is in the shortest supply when investors have reached the decision to hire a new CEO. As a candidate for the job, you need to fully understand what you will be working with and make your own assessment of the likelihood of success.

Industry Versus Operational Experience

Often, when companies consider adding independent directors to their corporate board, the focus is on industry knowledge and rolodex. The thought is that the board member will be positioned to be more helpful for the management team if they are already familiar with the market and business, and may be able to make introductions or open doors for the business. Sometimes, the board goes looking for an industry celebrity who will lend credibility and gloss to the company. I often write about curating the board to make it a competitive weapon, and adding industry expertise could be considered a contributor to the company’s competitiveness. 

On the contrary, for most earlier stage companies, I believe this is a hollow choice. The entire company is populated with people that are in the industry. In particular, the CEO and management team are deeply engaged in the industry. Making the primary focus of a board hire industry knowledge is the wrong emphasis. There is already plenty of industry expertise to go around. In fact, adding an industry ‘expert’ to the board can be counter productive. It is the CEO’s job to lead the company, and an expert on the board can create conflict and confusion among board members and the leadership team. The board’s primary role is to support the CEO and leadership team to build a successful company, not to drive the boat. 

Taking the argument to the extreme, when board members are not well versed in the market and industry, it forces the CEO to ‘teach’ them. Teaching will require the CEO to clearly articulate the business and the strategy. An engaged board will ask clarifying and probing questions that will help the CEO simplify the message. By exercising curiosity, board members will grow their understanding. Bringing their experiences in other businesses to the table will enable board members to express different perspectives that may uncover opportunities.

What early stage companies tend to need the most from the independent seat(s) is operational experience. When the company takes on institutional capital, it inevitably comes with a requirement that the investors get board seats. Investor board members can be great at guiding the company forward, but too often the individuals got to where they are by being great investors, spotting potentially great companies and ideas, and making wise investment decisions. They often ‘grew up’ learning to be great investors, not necessarily hands-on operators. They have excellent pattern recognition skills, and a wealth of experience across a portfolio of companies about choosing strategies and avoiding pitfalls, but not so much experience with the operational challenges of building culture and operating processes. 

It is relatively easy to spot weaknesses in the performance of a company, and investor board members are usually quick to point them out and suggest personnel changes. However, most CEOs are well aware of the weak links on their management team and throughout the organization. The board can provide a nudge to act, but acting requires more than just firing someone. An experienced operator is more likely to grasp the challenges of actually making changes and the need to keep the organization humming through the changes. Adding an experienced operator to the board creates a bridge between the CEO and leadership team’s challenges, and the investor board members nudge to make changes quickly. An experienced operator brings a certain zen calmness to the perceived urgency and rush to judgement that often comes from institutional investor board members. Operators tend to take a more holistic view of the operational challenges and can assist the CEO as a thought partner to navigate the nuances of making changes.

In my personal experiences as a CEO I found my board members who were former (or present) operators to be my partners to work through the issues my institutional board members saw as black and white decisions. As an independent board member, I have often worked with CEOs to thread the needle of change, and to help calm the drumbeat from the institutional board members. The independent can help translate from CEO to investor and vice versa. Experienced operators have their own pattern recognition skills, and actually have empathy for the leadership team because they have walked a mile in their shoes. I have seen investors correctly identify hidden issues, and CEOs resist the input as meddling, and in fact as a CEO I often felt this way. As a board member, I have been able to spot that resistance and help the CEO to overcome their blindspots to better understand the ‘harsh’ reality being presented by investors, while at the same time helping the institutional board members to understand the mindset of the CEO. Stage-appropriate operator experience in an independent board member, in my opinion, is the most valuable attribute to look for when adding a new member to the board. 

Not all operational experience is equal, so it is important to find an individual with relevant experience. If the company is fundamentally a software business, then operational experience leading a software business is a starting point. Next, the business model of the company is important. Is it a company that sells directly or through a channel. Is it selling enterprise solutions B2B or a consumer product. Is it serving a domestic market or an international market. Is it a business or analytical application, or is it a deep technical application. If the independent is not coming with a background in the company’s market or industry, have they demonstrated curiosity and the ability to dive in and learn new markets. For investor board members and the CEO, it is also important to seek an independent with experience operating with institutional investors - someone that has been to this rodeo more than once and understands the pressures the institutional investors feel. Finding operational experience that can be applied and can be helpful is fundamental, and the CEO needs to be comfortable that the potential candidate is able to help, and is not joining as a threat or a drag. 

Some level of industry and market knowledge may well be helpful, but my point is that it should not be the primary criteria for evaluating potential board candidates. As companies grow and mature, the board needs to grow with them, which will mean that curating the board as a competitive weapon may require changes at later stages. Curating the independent position(s) with industry contacts may become very useful as the company matures and potentially seeks an exit, but in the earlier stages, it is much less important.

You Call This Customer Support!

As a consumer, I recently experienced the pain of attempting to get support from several vendors. I am shocked by how bad customer access to support has become. 

Let me start with a positive experience. I had a fitness/health tracker that stopped working. Although they had no live agents, and I could not speak directly with anyone, I was able to chat with the vendor’s online AI support bot. The bot was friendly and efficient, and after a few questions it decided to ship me a new device. No human intervention needed. The new device showed up in a few days—Magic. It turned out that the new device did not initially seem to be tracking my activities accurately, so I reconnected with the friendly AI bot, and in about three minutes it decided to ship me another new device with no requirement to return the prior device. Good news for me as the consumer; not so good for the vendor. I later discovered that a new tracker requires some time and experience to get to know and track my activities, and after a week or two it was performing accurately. The bot failed to recognize the need for a training period and assumed the first replacement was defective, when it was just in a learning phase. I ended up with two devices, and the vendor was out one extra device due to the bot being overzealous in its effort to make me happy. Not great, but the result was a happy customer.

This vendor eliminated human support and managed to be fairly effective at providing a satisfactory customer service experience. However, almost every other vendor on the planet that has eliminated human support or imposed extensive chat-bot roadblocks has failed horribly at maintaining a positive experience. Further, most automated systems are designed to do everything possible to prevent access to a human support person, and when they finally surrender and pass the contact to a human, the call centers are often so understaffed that the additional wait time is maddeningly long.

My most recent horror story was a problem attempting to login to my bank’s portal. The login kept rejecting my credentials, and eventually instructed me to contact support via phone. The call was answered by a bot that insisted on trying to validate the same credentials that had failed on the website, eventually telling me it could not find any accounts associated with me. Imagine my panic that someone had stolen my money and closed my accounts. The bot tried really hard to block access to an agent, but eventually directed the call to a call center. Unfortunately, after 14 minutes on hold, the agent informed me it was the wrong call center and passed me to a different part of the financial institution. After another fifty minutes of waiting (with no offer to preserve my spot in line and call me back), the second agent informed me that all of their systems were “having an issue” and were “undergoing maintenance with no stated completion time” and I should “call back later or tomorrow.” Aside from the panic that triggered regarding my assets, my reaction was anger that I had invested over one hour on hold when they could have put that message on the website, informed the bot, and told me at the start of the call. It would have saved me an hour and would have saved the vendor from requiring an agent to speak with me just to say she could not help me. 

In the interest of reducing call volumes and eliminating human costs, too many companies have gone off the deep-end, resulting in customer service turning into customer disservice. They have turned an opportunity for customer satisfaction and loyalty into an engine of dissatisfaction and churn. The problem is that they view customer service as a cost center and a burden instead of viewing it as an opportunity center. Somehow they think investing less in customer service will not have an impact on customer satisfaction or loyalty. You cannot cut your way to customer satisfaction.

Progressive companies recognize that customer interactions are opportunities. Building an understanding of how customers think, how they work, and what they value provides valuable insight. Interacting with customers opens the door to educate and potentially upsell, or at least reduce churn. The concept of ‘Product Led Growth’ is predicated on customers telling vendors what they want, leading to greater product/market fit and growth. 

The argument that it costs too much to support customers is really just an indictment of the vendor’s goods and services. It says the goods and services are so confusing or so problematic that customers need excessive support and hand-holding, but instead, most vendors focus on the increasing support costs instead of looking at what is causing the support calls. One technology vendor was smart enough to see this feedback loop as an opportunity to improve their products. They created a cultural philosophy that said if a customer has to contact us, it is because of a bug in our offering and we need to solve for how to avoid the call in the future. Every customer inquiry was then baked into either a product change or a tutorial or a help topic or specific training for an AI bot. Their goal was to make customers 100% self-sufficient, and eliminate any need to contact the vendor. They were not trying to minimize the cost of support. Instead, they were trying to maximize the value of their products. Think about how how different that approach is. They invested in customer support as a way to improve their offering, rather than as a burden. They used the feedback to make the products easier to use. At the same time they were building a delighted loyal customer base. The vendor’s support costs went down, but not because they cut services. They declined because they used customer input to deliver products that no longer required as much support.

Most companies have lost sight of just how bad their customer support is. When a support line answers the phone with “due to high volume, wait times may be long…” you are dealing with a company that is more focused on their bottom line than they are on providing excellent service. When you reach a bot that has a limited set of options and traps you in an endless loop while refusing to pass you along to a human agent, it tells you that this vendor is trying to hide from supporting you. They took your money for the goods or services you purchased, but in their calculus, you did not pay enough for them to provide the support you need. In essence, they are saying that they do not value you as a customer beyond your initial purchase.

Rethinking customer support as creating an opportunity instead of a burden should be in the mind of every vendor. In a time when competitive moats are shrinking due to AI-driven rapid competitive development, a vendor’s reputation is increasingly becoming one of the few defensible reasons to remain a customer. Why squander that opportunity by treating customer interactions as a cost? It may be your best path to building a lasting relationship with buyers.

Board Apathy

I have often written about ‘Board Amnesia’ which describes how busy board members seem to forget what was discussed and decided at prior meetings. It usually is a result of sitting on multiple boards, and only focusing on this board when it is time to meet. If the board only meets quarterly, then during the intervening ninety days the company is out of sight and unfortunately out of mind. While the problem largely rests with the individual board members who are experiencing amnesia, the cure is largely in the hands of the CEO. At the conclusion of every meeting, the CEO needs to document the important decisions, and the reasoning underlying them, and send it to every board member. For mild-amnesia, members often remember the decisions, but not the rationale, so it is important to capture the reasoning and remind them. Putting the summary in their hands provides enough of a memory jog for them to come up to speed before the next meeting. For more pronounced board amnesia, the CEO will need to re-send the summary from the prior meeting a second time, as the next meeting is approaching, and will need to make it a point to contact these board members to refresh their memories one-on-one in advance of the next meeting. The last category are the hard-core hit-and-run board members. For them, the board meeting is a performance put on by the company to tell them what is going on with their investment. They seem as though they cannot be bothered to clutter their minds with past decisions and discussions. My recommendation to CEOs that encounter this type of amnesia is to call them out, and find another board member. 

More challenging than Board Amnesia is Board Apathy. This is the situation where the board members cannot be bothered to participate, or demonstrate that they simply do not care to contribute. It commonly surfaces in three situations. The first is following a capital raise where a new investor has taken a substantial lead position. Earlier, smaller investors are still in the cap table and have a contractural right to their board seat, but these investors are ‘along for the ride’ with the new lead, and recognize that they have little influence. If the new lead acts like they own the whole thing, the earlier investors tend to check out and display Board Apathy.

The second scenario is when the company is struggling and has little chance of success. Investor board members realize that they will not get their desired return on investment. They value their time, and choose to spend it on potential winners, not hopeless causes, so they lose interest in participating even though this is a time when the company has to make hard decisions and really needs board guidance. Unfortunately, institutional investors contractually hold their board seats, so even if they have little interest in spending time with the company, they do not relinquish their seat at the table. They just continue to take up space.

The third situation is when a company decides it is time to go to market to sell the business. This is typically not a time when the company makes plans to change strategy or direction or make significant long-term investments. The business is basically on a glide-slope toward the sale, so there is little strategic contribution the board can make. Once an investment banker has been selected and the process kicks off, most of the board interaction is limited to hearing progress reports on the sale process, and checking in to make sure the business continues to execute. The investor board members are already moving on to their next investment. Board apathy is manifest in missed meetings. Even though the board meetings were scheduled well in advance, suddenly a different board meeting pops up and takes precedence over the earlier commitment. It is a clear message that “I will commit to your meeting unless something more interesting comes along.” It also says “you are on your own.” However, implicit in the message is “don’t screw anything up that will impact the deal.”

Board Apathy seems unavoidable, but really unfortunate. In a healthy environment, the board and the CEO are partners working together to achieve success. They are a team, but when apathy creeps in, it is as if one of the members of the team just stopped playing, even though they still want the trophy if the team wins. As an independent board member and chair, I am particularly disappointed when I see this behavior. I see my role, and that of my fellow board members as running alongside the CEO all the way to the finish line. Having been in the CEO position multiple times as we moved through corporate sale processes, I know the challenges that arise during the process, and the value of having an engaged board to help work through them. I also know the sense of abandonment when board members suddenly bail on meetings and clearly lose interest.

From a practical perspective, things do not always go as planned. Just because a company is on the path toward a sale of the business does not necessarily mean the business will be sold, or just because things are bleak and the company looks headed for failure, there may still be a pivot or blue-bird deal that provides a runway to the future. Board members who check out with Board Apathy are failing to help the CEO and the company to prepare for, and grab onto a potential next opportunity. They are doing a disservice to the shareholders by not running the race to the end.

Question The Premise

I was asked to give a commencement speech to an MBA class, and it made me think back about all the decision points in my career, and what guided me that I could share with these students at the start of their careers. I landed on an operating principle that evolved for me over time. Early in my career, I was pretty naive, and there were a lot of things I knew I did not know, and even more things I did not even realize were holes in my knowledge. I cofounded a software company while I was still in graduate school, and we barely knew enough to make a go of it. We relied on guidance from a couple of professors, and the kindness of our accountants and lawyers to help us muddle through.

Eventually, we sold the business to a small public company, and I ended up in a somewhat senior-level role working for an experienced entrepreneur who had also sold his business to the same company. About that time, I started to develop the operating principle I shared with the graduates. Coming from a tiny venture-backed company into a small, but established, public company, I was suddenly faced with all sorts of policies and procedures and rules that were totally foreign to me. I constantly heard “we do it this way,” or if I asked a question about some procedure, the answer was “that is just the way we have always done it.” A lot of things seemed set in stone, even though the market and the tech industry were changing very rapidly at the time. 

Our tiny startup company was attractive to the much larger company because we were part of the new wave of tech, and the older company said it wanted to adopt what we were doing to help it shift its business. The reality was ‘the way things had always been done’ carried a lot of inertia. Like a giant cruise ship, the business resisted changing direction. I found myself constantly asking why the business did things the way it did. Fortunately, I was working for another ‘outsider’ whose business was acquired for similar reasons. My questions were at least heard, and we could commiserate about the slow moving bureaucracy of the larger business.

What I was learning was that ‘the way we have always done things’ is not a good enough reason to continue to do the same. One of my favorite examples that lasted for decades until someone questioned the premise, was the way the army staffed a cannon. There were always four people assigned to staff a cannon. One person cleaned the barrel, one loaded the projectile, and one fired the cannon. For decades, nobody asked why there were four people? Finally, someone questioned the practice and researched the history of ‘the way we do it.’ The answer was simple: The role of the fourth person was to hold the reigns of the horses. Times evolved to eliminate the use of horses, but ‘the way we do it’ had not evolved to eliminate the fourth person. It took someone to question the premise in order to bring about an obvious change.

I began to develop a practice of questioning the premise whenever someone told me ‘how things worked.’ The concept of always questioning the premise grew into a deep rooted principle for me. It opened my entrepreneurial thinking to be more creative about looking at markets and products and thinking about ways to disrupt the status quo. It led me to become much more skeptical of projections and forecasts, which helped me to become more analytical. Questioning the premise means holding others accountable to fully support their positions, rather than blindly taking their word for it. Questioning the premise does not mean becoming a jerk or just a skeptic. You can question the premise in a positive manner, and actually use the process to foster deeper understanding or brainstorm alternatives. Questioning the premise is often an exercise of curiosity. It can start by saying “help me understand…” One lesson I learned was that starting with “why?” Typically fosters defensiveness, but active listening and asking for clarity or depth drives engagement.

From a personal career perspective, it fostered introspection. Questioning my own choices helped me avoid career traps, and gave me the confidence to question any premise that is standing in the way of achieving my goals. What I told these graduates was not to let anyone, including themselves, put them in a box as their careers progressed. Question the premise of the box. When someone explains the limits that define the box, question why the limits exist, and do not simply accept ‘this is how we do it’ as a valid answer.

Ouroboros

Let me start by acknowledging that I am not an AI geek, nor a sophisticated Wall Street analyst, and I have not gone very deep into the ocean of financial machinations underlying the AI boom. But, with just a surface view, something looks rotten. I vividly remember the 2008 financial crisis, and based upon what little I understood of the underlying causes of that crisis, the AI boom looks really similar. I am also old enough to have been in the tech industry during the .com bubble in 2000, and once again, I see many similarities in the AI boom. Putting it all together, I am experiencing conflicting emotions of being frightened about the potential for financial catastrophe, while at the same time, excited for what the AI future will bring.

Let’s start with the positives. The .com era drove fantastic positive changes for everyone. Google catalogued global information and made it easily accessible to all. Amazon created the worlds largest retailer and made goods available overnight. Email became ubiquitous and made it possible to correspond with everyone at nearly no cost. Social media united the world and created communities for everyone. Against the backdrop of the .com era, cloud computing and pocket computers (AKA phones) became commonplace. Great things happened during that era, but the dark underbelly was lined with greed and some really bad ideas that eventually led to the .com bubble bursting with dramatic negative financial impact. Everyone could see the huge potential of the internet and all the innovative applications that were coming to market. There was such a rush to invest and hook your wagon to the next rising star that otherwise intelligent people made really stupid investments. At the peak, we were investing in ‘eyeballs.’ Even if a company lost money attracting every new visitor to their site, the business looked investible if it consistently grew the number of visitors. Losses did not matter, only eyeballs. The race was on to rise to the top and dominate new business segments, and capital was unlimited in the quest for scale, until it wasn’t. 

In the mortgage crisis, financial engineers invented ways to monetize stacking risk on top of risk on top of risk. Low interest rates fueled a massive boom in housing, and predatory lenders created sub-prime mortgages that trapped home buyers with escalating rates they could not afford. The financial industry bundled individual mortgages into investment products and sold them globally. Credit rating agencies mistakenly gave top-tier "safe" ratings to bonds backed by risky subprime loans, and insurers created Credit Default Swaps to mimic insurance contracts to backstop the loan packages. It all collapsed when the original loans defaulted and we realized that it was a house of cards layering risk on top of risk on top of an initial unfounded proposition that borrowers could actually afford the homes they were buying.

I titled this post ‘Ouroboros,’ which is an ancient symbol depicting a snake or dragon eating its own tail. The current AI-driven data center boom looks like ouroboros to me. Great things will come from the rise of AI, and there is no doubt that it will generate real economic value. It is no wonder that like the .com boom, everyone wants to jump on board. There is also little doubt that not every entrant into the space will succeed. In the .com era, if you added ‘.com’ to your business name, your value increased and investors came knocking. Similarly, today if you add AI to your platform or your URL, your appeal goes up, or conversely, if you do not claim AI, you are not investable. AI has become the new ‘eyeballs’ for investors. Companies are being driven to incorporate AI into their applications with little care for the impact on margins, which ultimately will come back to bite investors. 

The bigger ouroboros issue is the financial engineering taking place on the platform side of the AI explosion. Think of all those application vendors like the home buyers. They are driving demand for AI processing, but may not be in a position to pay the bill as the cost expands. However, the AI platform vendors see infinite growth ahead. The billions of dollars being invested is staggering. But, it seems we are double and triple counting, just as in the mortgage crisis. It starts with the AI developers —Open AI, Anthropic, Microsoft, Google, etc. They project massive future revenues, and are willing to sign long-term contracts committing to pay the data centers for the computing power to serve their projected customer demand. This is the first count, committing future projected revenues to secure computing power. Next, the companies that agree to create the data centers to provide the future computing capacity (Oracle, CoreWeave, etc.) take their signed and committed revenue streams to the financial markets as collateral to borrow the money to buy the processors for the data centers. They also commit to long-term contracts for the leases and all the infrastructure for the data centers. This is the second and third count of the future revenue the AI developers pledged. 

The house of cards is dependent upon the AI developers actually generating the revenues they project, and that is dependent upon the AI-driven applications succeeding (remember the .coms), and all of the other AI consumers growing their demand dramatically. Similar to the credit default swaps, the market needs a backstop to insure the risk. Nvidia to the rescue. Nvidia makes the processors that the industry needs to do the magical computing behind AI. All of those data centers being built to service the AI demand are creating a massive demand for Nvidia processors, which means Nvidia has a massive backlog and huge future revenue projections. Nvidia needs the AI developers to succeed, and they need the data centers to keep growing and opening new centers. Here is where the snake eats its tail. Nvidia has leveraged its huge backlog and bright financial future to invest in or backstop the AI developers, and Nvidia has invested in and made debt and lease agreements with the data center builders. In other words, Nvidia is committing its financial future to support the companies and contracts upon which that future is predicated. If the AI developers do not grow as forecast, they will not fulfill their obligations to the data center builders, who will not fulfill their obligations to Nvidia, which will not be able to fulfill its obligations to support the AI developers. Hence the snake will have eaten its tail.

I have grossly over simplified this financial morass, and I very well may have it all wrong, but something smells fishy when all of these players cross-invest in each other and make giant long-term commitments all predicated on the same forecasted expansion of AI revenues. The technology landscape is changing at a record pace, and if there is a blip in the AI path, it seems like the house of cards could come tumbling down in a spectacular manner, just like the financial crisis and the .com bubble bursting. What if some bright engineers invents a better chip or an AI model that dramatically undercuts the revenue potential of the current players? While I am excited by the innovations and the potential that the AI revolution is creating, my issue is with the financial engineering and greed that seems to be creating an ugly underbelly for the industry. 

Cultural Change Agent

I recently spoke with the CEO of a company that was acquired by a larger company. He was asked to join the acquirer’s executive team. The smaller company was fast moving with a culture that did not require a lot of approvals and permissions. They celebrated successes and did not fixate on mistakes or failures. The larger acquirer is slower moving and highly bureaucratic. Every decision requires layers of approvals and the culture overall is risk averse. The former CEO was struggling to chart a course in the new environment.

When you have been the CEO, it is hard to become ‘just’ a member of an executive team. You are used to defining the culture and setting the pace, but once you are acquired and join an existing company, the CEO of the acquirer established the culture, and it can be challenging to find your footing. In this particular situation, the acquirer CEO was aware of the situation with his company, and asked his new executive team member to help introduce change. 

There is a lot of inertia in company cultures. In a hierarchical, bureaucratic organization, there are people in roles that see their job as requiring them to be part of approval processes, or as protectors of the business from rash decisions. Their whole world is built around slowing things down or enforcing rules and standards. Eliminating review steps or sign-offs is tantamount to eliminating a portion of their job, so there is natural built-in resistance to change.

A hierarchical environment, where decisions or approvals only occur at the top of the hierarchy creates a culture that diminishes the roles for individuals lower in the hierarchy. They are relieved from making decisions or taking ownership and accountability for the decisions. It creates an environment where people wait to be given permission to act, and adopt a ‘tell me what to do’ mentality. Often they are held accountable for results, but not permitted input into how to achieve them, so they are trapped in a losing proposition of accountability without authority.

None of this engenders a hard-charging, fast-paced culture, and it all contributes to the sluggishness the former CEO was encountering. The question is how can he be a change agent without stepping on the CEO’s toes, or those of other execs who are part of the hierarchy? We agreed that being a jerk about it will not do anyone any good, so it is important to adopt tools that will bend the culture in the right direction, but not break the company.

The starting place is to have a heart-to-heart discussion with the CEO to establish the parameters of change they can mutually agree upon. Introducing change will inevitably create some pushback that the CEO will have to deal with, so it is vitally important that the CEO is supportive of the changes, but it is equally important to establish a non-confrontational mechanism for the CEO to provide feedback if/when he perceives that the changes have crossed a line. I am an advocate of adopting tools and a language to create a safe space for the two to openly discuss what is going on.

The next step is for the CEO to communicate the initiative to the rest of the executive team and the company at large. Everyone needs to recognize the objectives, be aligned with the goals, and acknowledge that the company has a problem that needs fixing. In this instance, the more junior members of the team are eager for change, while the more senior members are not so sure.

This company has a culture of lots of meetings to discuss ideas, but nothing is decided until or unless it goes up the chain for approval. Meetings are informational, and idea generating, but light on decision making or defining action items and commitments. There is a whole language of commitments, but the most important element is to ask the question “by when?” If there is no commitment to action by a date, there is no commitment to get the task done. Improving meeting hygiene can go a long way to accelerating actions. 

One of my favorite authors is David Marquet, a retired submarine captain. He describes an Intent Based Leadership model that moves decision making down the corporate hierarchy. The premise is that the people on the front-line know what is actually happening and what to do about it. The objective is to move decision making to knowledge, instead of trying to move knowledge up the hierarchy to decision makers. Each step up the hierarchy takes time and dilutes the knowledge. Like whisper down the lane, the information morphs as it is transmitted. The engineer tells their supervisor that they can complete a task in two days. The supervisor, to be safe, tells the manager it will take three days. The manager cautiously tells the director it will take a week, and the director tells the executive it could take up to a month. The executive looks at a month and decides it is not worth doing, and cancels the project. It happens in engineering and sales and marketing and all across the board. If instead, the engineer and their supervisor had authority to make the decision, the task would be completed and the business would move forward.

This type of change does not happen overnight. You cannot just flip a switch and let everybody do whatever they want. The people in more senior positions are there for a reason, and they too have knowledge and experience and they probably see a bigger picture. Before they can or will relinquish decision making authority, they have to establish trust that the front line has competence to make decisions, and they have to establish clear guardrails about what authority rests in the hands of the people lower on the hierarchy. But conceptually, moving decision making closer to knowledge is the goal if the objective is to accelerate action. Marquet defines a step by step process that starts simply with “tell me what you see, and I will tell you what to do,” and progresses to “tell me what you think we should do” so the manager can gauge the junior persons understanding of the circumstance before any action takes place. Ultimately, it moves to “tell me what you intend to do,” and finally “tell me what you did and how it went.” The idea is to build the decision making muscle and trust throughout the organization.

Coupling the concepts of shifting an informational meeting culture to action and commitment driven meetings, while at the same time introducing the progression of driving decision making lower in the organization will bend the cultural dynamic. The guidance for the former CEO to become the change agent is to first gain alignment at the top about the changes that need to happen, and then drive authority closer to the individuals with first-hand knowledge.

In a post by Steve Schloss, of Edison Partners, he described a similar situation. In his example it was a new CEO who found that his drive to increase the pace of the company actually created a cultural relief valve. The team had been waiting for someone to identify the complacency, and they experienced the changes as something they'd been missing. Company cultures sometimes become calcified and change can be a welcome accelerant instead of a painful transition.

Mindless Optimism or Rational Despair

Bret Stephens from the New York Times published the following quote: “Mindless optimism is the only antidote to rational despair.” He made the quote in a political context, but it reminded me of a comment from someone else who described a dedicated salesperson as someone who, in the face of countless ‘no’s’ winging past their ears, trudges forward looking for a ‘yes.’ 

Launching a new business is one of the hardest things anyone can do. The success rate is terrible, and the odds are stacked against you. Early stage entrepreneurs face numerous peaks and valleys of optimism and despair. They start with a bright idea, or at least an idea that they think is bright, and it often feels like the inertia of the entire world is resisting their success. 

I have been involved with mentoring early-stage entrepreneurs for years, and I continue to be blown away by their courage and commitment to getting their businesses off the ground. As a mentor, advisor, board member, it is often challenging to know just how much reality to inject into the conversation when an entrepreneur describes their optimistic plans, or how much optimism to expound when the entrepreneur falls into the trough of despair. That is why the quote from Stephens hit home with me.

It is not a simple binary choice between mindless optimism and rational despair. Entrepreneurs need a healthy balance to keep trudging forward. I see the role of advisor as providing brutal honesty blended with a heavy dose of encouragement. When things are bleak, we help the entrepreneur to problem solve, and when things are all sunshine, we help them to prepare for rain. My general operating philosophy is to always question the premise behind the optimism or the despair. Whenever anyone tells me there is only one possible outcome or path forward, my lifelong response is to question the premise, and often it has spurred creativity or opportunities that were otherwise overlooked.

One approach I frequently employ as an advisor is to focus on a different timeframe or horizon than the one on which the entrepreneur is fixated. When the optimism or despair is driven by short-term thinking, I try to open the aperture to consider the implications for the longer-term.  Conversely, when the fixation is on the longer-term, I tend to narrow the view to evaluate the short-term drivers that lead to the longer-term. Shifting the focus often unlocks creative alternative paths forward.

A tool I learned years ago is to clearly identify the facts that define the current state of affairs, and then articulate the desired situation at a point in time in the future. Once the two ’bookends’ are clear, then agree on a series of steps that have to take place in order to get from ‘now’ to ‘then.’ Next, assign a target date or timeframe to each step. Think of the picture as a staircase where each step is a meaningful milestone along a path to the goal. Several things are often revealed in this analysis:

• The most common revelation is that the sum of the timeframes for each step will far exceed the original timeframe for the ultimate goal. The entrepreneur has an ambition to achieve a grand goal (mindless optimism) in two years, but when we look at the steps to get there, it becomes clear that it will take much longer, or require considerably accelerated achievements in the near-term. In this example, bringing the long-term goal back to the near-term, and questioning the premise about what it will take to get to the goal results in a dose of realism that can unlock creativity to accelerate or alter the path forward.

• When the entrepreneur is in a trough of despair about the current situation, shifting the focus to the small steps required to achieve the ultimate goal can create perspective. It may be that the cause of the current despair is really only a speed-bump and not a brick wall, and the entrepreneur just needs to lift their sights to see beyond the bump in the road. Alternatively, the despair may be coming from the scale of the challenge ahead to reach the ultimate goal. The staircase approach helps to break it down into small steps. ‘The longest journey starts with the first step’ or ‘the way to eat an elephant is one bite at a time.’ Questioning the premise that the current crisis warrants despair can help to bend the thinking to see past the roadblock. 

This staircase, and other techniques to keep the focus on future outcomes are powerful tools to offset the near-term binary choice of mindless optimism or rational despair. The most important contribution from an external advisor, mentor, or board member is to assist the entrepreneur to be realistic and creative, and to open the discussion to explore alternative paths and outcomes that temper the mindless optimism or the despair.

The Great C's - CTO

My last post was about my view of a great Chief Revenue Officer (CRO). This time my focus is on the Chief Technology Officer (CTO). Once again, I have to say I have worked with a few really great ones, and a few not so great. My entire career has been in the tech world, so when I think about the CTO position, it is through the lens of businesses that were dependent upon tech as their primary product. The role of CTO in a company that does not sell its tech is quite different, and not what is described in this post.

Tech founders are often the original inventors of their products. Many early stage entrepreneur CEOs have a technology background, but as their companies grow, most of them quickly realize that their skills are not suited to the CEO position, so they seek to hire or partner with a CEO who is more business operations minded. Although my educational background was far removed from computer sciences and engineering, in my career, I grew up in the engineering and product management world before making the leap to the CEO position. In the stone ages, I learned to write code, but all of those skills atrophied long before I moved into management. What I retained was an appreciation for the challenges of building technology, an ability to almost understand what engineers told me, and after leading a number of engineering teams and product launches, I developed a pretty good B.S. meter that enabled me to read between the lines of what engineers and technical teams were saying. All of that background colors my definition of a great CTO, and may differ from how others view the role.

Leading a bunch of engineers is hard. In my experience, the stereotype of engineers being anti-social and uncommunicative hermits is completely false. The engineers on the great teams I have worked with were highly competitive with each other, and very social with their teammates. They routinely challenged each other’s technical skills to see who could write the most efficient or elegant code, or solve hard problems with the fewest steps. They would hangout together and eat together. They shared fanatical interests, and once you found some common ground they would light up and become incredibly interesting to speak with. I was once out for drinks with a team of engineers who built products to thwart hackers. In other words they were just like hackers, but they were the good guys. Engineer #1 bet Engineer #2 that within 24 hours he could penetrate Engineer #2’s personal computer at his home and leave a specific message in a specific folder. The trash-talk was like listening to two athletes challenging each other on the field. For a CTO to succeed in this type of alpha environment, the baseline requirement is to be a standout technologist. That seems pretty obvious, but I chose the term ‘standout’ for a reason. Game respects Game. For a CTO to get the best out of a team, they have to standout and be able to inspire and demand great engineering. They must have the technical skills and knowledge to earn the team’s respect, and the leadership skills to motivate the team to deliver great products.

Engineering teams often see the world as ‘us’ against ‘them.' All of ‘those people’ in sales and marketing and admin are ‘them.’ The engineering team wants a leader who understands their needs and can bridge the gap between ‘us’ and ‘them.’ That means the CTO has to be adept at providing context to translate market and customer needs to engineers, and the skills to explain technical challenges to non-engineers. A great CTO can synthesizes mundane business requirements into projects that maintain engineering enthusiasm and curiosity. Bored engineers create boring and often flawed results, and if they are talented, they do not stick around for long in boring roles. A great CTO figures out how to retain and motivate great engineers while delivering the mundane business requirements.

Curiosity is an important trait for a great CTO. They are always learning and exploring new technologies and dreaming about how to reinvent or expand the product offering. As a CEO, I relied upon the CTO to introduce me to the possible and urge me to take bold steps with our products. The key attribute for me was that the CTO had to be grounded with a deep appreciation for our business, our markets, and our customers. Cool new tech was not enough. It had to be presented in a manner that tied to benefits for our customers and our business, and it had to be achievable within the realities of our financial capacity. That meant that a great CTO had to also be a great business person. One of the best I worked with recognized this need and at some point in their career went back for a Masters in Business Administration.

In a high-performing business, the executive team operates like a fine tuned machine where all of the gears mesh and turn together. A great CTO is a member of that team, and a leader for the entire business. Engineering projects have schedules and commitments. Nobody likes to be derailed from their plan, but in the software world, bugs pop up, customers demand attention, and prospects announce that they will buy “if only the product can do this one new thing.” A great CTO looks for ways to help drive the business in the short-term, but they are also the stewards of balancing ‘the tyranny of the urgent’ with the longer-term good of the company. Delivering products on time and within budget is a hallmark of a well run tech group. The company depends upon predictable delivery of product updates and new capabilities, and expects them to be of the highest quality. Creating an efficient team that addresses the immediate urgent matters and sticks to the plans for scheduled projects requires a constant juggling act that great CTOs do well. Not so great CTOs alienate their executive peers by being insensitive to real-time business needs in favor of solving long-term projects, or consistently failing to deliver as promised.

A great CTO is an excellent public speaker and able to translate technical brilliance into great understandable presentations. Prospects and customers love to meet and hear from the CTO, and a great CTO will be in high demand by the sales team. They are also called upon to present to the board of directors and potential investors, and they have to instill confidence in each audience. They must be able to support and defend technical decisions on the basis of business and financial implications as well as technical rational. 

In the businesses I led, the CTO was truly the chief technologist. We generally did not have a Chief Information Officer (CIO), so the CTO oversaw our business technology infrastructure in addition to our product line. To do that well, the CTO had to become aware and immersed in how the company operated. They needed to have a pragmatic view of infrastructure and tools. Great CTOs introduced productivity tools to the entire company, guided the company through security certifications, and ensured optimal licensing for enterprise platforms, while basically making sure the business operated smoothly on our computing platforms. 

One area of controversy is whether the CTO should be responsible for product management or not. I have been on both sides of this argument. In general, I consider product management to be a strategic function, potentially as an executive role reporting to the CEO. I believe a great product manager is a CEO in training. However, more typically, it is considered a strategic marketing function that may report to the Chief Marketing Officer (CMO). or it is defined to be strictly a product function that will report to the CTO. The really great CTOs I have worked with have earned the right to be responsible for strategic product management. They have embraced the business vision and internalized all aspects of the business so that they are able to define, build, and launch the products that will be the lifeblood of the business. There are no excuses and no places to hide if you own all aspects of the product, and great CTOs rise to the occasion. Not so great CTOs bring their ego to the table and too often build what they want or what they think the market wants without a lot of real insight, and their products typically miss the mark. Where to place product management is a tricky decision for a CEO and not to be taken lightly. Just because a CTO candidate asks for product responsibility does not mean it should be given.

Bottom line, great CTOs build great products and lead vibrant technical organizations. As only a quasi-technical CEO, I relied heavily upon my CTOs. The great ones stood out and were a key to driving business success. Finding the right mix of capabilities to complement the CEO and the entire executive team is a challenge, but fundamentally worth the effort.

The Great C's - CRO

A few posts ago, I wrote about what makes a great Chief Financial Officer (CFO), and why some of them are truly the unsung heroes. I received some comments about other ‘Chief’ roles, and in the interest of balance I decided to share my thoughts on the Chief Revenue Officer (CRO) and Chief Technology Officer (CTO) in this and the next post. As I thought about these posts, I realized that not many CEOs rise up from the CFO position, so it is unusual for the CEO’s skills to overlap or eclipse the CFO’s skills. This is important because it makes the CFO a complementary fit and natural partner for the CEO. However, when it comes to the other ‘chief’ roles, it is more likely that the CEO once held those positions, so finding an individual that complements the CEO or is an ideal candidate will vary significantly from one CEO to the next. 

Additionally, accounting and finance are rigorous disciplines with a lot of consistency across very diverse businesses and industries. Not to minimize the need to find the CFO with the best fit, but many of the skills are fungible across companies, so a great CFO in one company could be a great CFO in a completely different company in a completely different industry. The same is not necessarily true for the CTO and CRO, so a great CRO or CTO for one CEO in a specific business may not be as successful for a different CEO in a completely different business. All that being said, there are traits and characteristics that I have valued in each position throughout my career, and I have had the honor to work with some exceptional individuals in each role. So, lets start with what makes a great CRO. 

Revenue makes the wheels of a business turn, so having the right leadership driving revenue is critical. Many CEOs come up through the revenue generating ranks, and have strong opinions about how to lead the revenue organization. For this post, I will keep it fairly generic.

A great CRO has brains, heart, dedicated commitment, creativity, and strong analytical skills. The range of responsibilities for a CRO can vary widely. In the narrowest definition, the CRO is a new-logo sales leader tasked with bringing in more business. In a broader definition, the CRO may be responsible for all revenue generating activities, including existing customer revenue generation through services engagements and/or renewals and upsell. An even broader, but common definition of the role will include marketing activities, particularly lead generation. In my view, sales and marketing are distinct disciplines, so I tend to draw a line between the two. Marketing owns the communications that generate or create the opportunity for leads, but sales owns development of the leads.

The ideal CRO for me takes responsibility for all corporate revenue. That may sound simplistic, but it means the CRO owns or influences every dollar of revenue, and their metrics are all inclusive. I do not want a CRO who is so focused on new-logo bookings that they miss the revenue impact of churn or customer upsell, or fail to see the revenues from services or other activities. They need to be invested in the top-line total revenue, and lead all streams of revenue throughout the business, even if the organization generating the revenue is not directly within their corporate reporting structure, as is often the case for the services team.

Selling requires a combination of analytic skills, people skills, creativity, technical skills, perceptiveness, perseverance, discipline, and luck. A great CRO has all of these traits, and brings them together to create a predictable revenue engine. If we know what revenue to expect, then we can manage the business accordingly, but when revenue is poorly forecast, the ripple effect throughout the company is devastating. Over promise in the forecast and the company will over spend without the revenue to support the expenses. Under promise, and the company will under spend, slowing the engine that supports the revenue. Consistency and predictability are hallmarks of a great CRO. To get there, they need strong analytic skills and a proven methodology to advance leads to closed deals. Teaching and growing a disciplined professional sales team is a requirement for a great CRO. Great CROs are also great leaders. They inspire the troops and build confidence with a ‘we can do this’ mentality. Sales is the most measurable activity, and the CRO has to instill a culture of accountability. Great CROs do not look for excuses (the product, the market, the competitor, the economy, etc.), they look for solutions, applying creativity and perseverance to achieve their revenue commitments.

I like working with smart people, and I expect them to be analytical and use that understanding to predict and improve the path forward. I want a CRO who dives into the numbers and is skilled at building forecasts that are based on facts and data and process, not hopes and prayers. If an individual is uncomfortable with spreadsheets, they will not be a successful CRO for me. At the same time, I want them to have ‘healthy optimism,’ and not let past failures cause them to be timid in their reach for success. They have to believe. Just because we had a bad quarter last year, does not mean we will necessarily have a bad quarter this year. They should rely upon the data and analysis to create caution, but inject judgement and look for what has changed and how we can erase the implications of past performance.

Most sales people are comfortable presenting in a prospect meeting, but the CRO will be presenting to the board of directors, and that takes the challenge up several notches. Boards quickly see through BS, and most boards are numbers focused and expect the CRO to support claims and forecasts with solid analysis and data. A great CRO is able to instill confidence in the board, and demonstrate that they have the revenue engine firmly under control.

Above all else, a great CRO has character. It is too easy to create a ‘sleazy’ sales environment that will sell people things they do not need or want, or over-sell a product’s capabilities or the team’s ability to get the work done by the client’s deadline. The CRO sets the tone for the entire revenue team, and they have to have character and demand it of their team. As the CEO, I want to be able to rely upon the honesty and character of the CRO, and be confident that they are representing our company brilliantly and leading an ethical and honest revenue team. I have often quoted Steve Jobs mandate - “never embarrass the firm.”

There are many great sales people, but few great CROs. Finding the one that matches the company, the CEO, and the board is a challenge, but when the right person comes along great things happen.

Tack or Pivot

If you watch a sailboat, it rarely goes in a straight line for very long. It tacks from side to side as it pursues a course. The destination does not change, but the path to get there is complicated and influenced by invisible forces like wind and currents. Similarly, companies face market forces and make course corrections all the time. However, we reserve the term ‘pivot’ for when the destination changes, or the course correction is significant. Early stage businesses tended to pivot more frequently than later stage business, but we are in a very tumultuous time with AI disrupting many business strategies. Pivoting is not just for early stage businesses anymore. Now, more than ever, CEOs of companies in all stages of business need to be cognizant of changing business conditions and the need to make significant course corrections. Products are rapidly becoming obsolete, and the moats that protected entrenched competitors are quickly being drained as the barbarians storm the gates.

CEOs often struggle to acknowledge the need for a pivot. While they can see the handwriting on the wall, they often persevere with unbridled optimism to pursue the path the company is currently following. There is a certain ‘never give up / never give in’ mindset that keeps some CEOs barreling down a doomed path. For others, the reticence to pivot is spurred by a reluctance or embarrassment to acknowledge that they may have led the company astray and now want to change direction. In many cases, the CEO simply is uncomfortable telling the board how they actually feel about the business and recommending a pivot. However, the First Law of Holes as cited by Will Rogers is “If you find yourself in a hole, stop digging.’ 

It takes courage to recognize that your company is in a hole, and to do something about it. A high-functioning board will not only welcome the candor, they expect it. Unfortunately, not all boards are ‘high-functioning.’ Often, institutional investors made their investment based upon a thesis or business strategy, so telling them the business is headed for the rocks is tantamount to telling them that their thesis was flawed. For the investor-board member who promoted the investment to their partners and investment committee, a pivot can be problematic, and unfortunately they often let that be known to the CEO in a manner that discourages the CEO from acting on their instincts. However, viewed differently, the investment thesis was a concept or hypothesis while the actual business is the laboratory to prove or disprove the thesis. Investor board members need to stay focused on the business outcome and success, not how closely the business hews to the original concept.

In a recent LinkedIN post, Gregory Fine observed that pivots are not a failure of leadership. They are the actual job of leadership. Just as the captain of a sailboat has to know when to tack and how to optimize the course to the destination, business leaders are expected to do the same, even when it means recognizing that the ship is headed to the wrong destination and a completely new course is required. 

The board of directors should encourage thoughtful continual evaluation of the strategy of the business. Their role is not to simply sit in judgement of the CEO. Rather, their role is to work with the CEO to bend the course of the business toward success. They need to be the CEO’s partner, and that may take the form of identifying blind spots, or assisting the CEO to formulate a more perfect strategy, even if it requires a pivot. The board should ask the hard questions, but they also need to be prepared to hear honest answers that may be disturbing. A CEO should never feel afraid or intimidated to tell the board that the business is headed in the wrong direction and needs to pivot. It is more embarrassing to be the person that stayed the course and ran the company into a brick wall. 

An important element for the CEO is to be thoughtful about the market conditions, and present a view of where the company should be headed and what the pivot looks like. They should bring a solution or recommendation to the board, not simply present a problem. In an effective board scenario, the board and the CEO will work together to evaluate the proposed new direction and the steps to initiate the pivot. The CEO needs to know when to ‘stop digging,’ and the board needs to be ready to provide a hand to help get the company out of the hole.