Beautiful Solution - Wrong Problem

In a recent LinkedIn post by Islam Midov, I saw the line “engineering without user context creates beautiful solutions to wrong problems.” It really hit home with a theme I have believed for years. No matter how well the specification is crafted, the people who write the code have to know more about the problem they are solving than will come through in a spec. It is not enough for an engineer to say ‘just tell me what to build,’ and expect a product manager to feed them everything they need to know.

One of the reasons many offshore development projects get into trouble is that the coders blindly follow the spec without any understanding of real users and the actual use case. During the coding effort, there are always moments when the coder has to make decisions about which way to go or how to represent something. If the coders are mercenaries who are disconnected from the actual business, things tend to go awry.

On the other end of the spectrum, when engineers are given a general problem statement and afforded total freedom to innovate and build a solution, if they are not deeply engaged with real users, we often get “beautiful solutions to wrong problems,” or we get ‘engineered’ complex and unusable solutions to the right problems. Unless the customers are engineers, there is frequently a disconnect between how an engineer envisions an ideal user interface and how real non-engineers actually do their jobs. What is easy and straightforward to an engineer may be complex and confusing to a mere mortal user.

Some of the best applications have been created by entrepreneurs who were doing a job and had a vision to introduce an application to do it better. They personally built their first product and imbued it with their deep understanding of how real users would use it to accomplish their jobs. Instead of ‘user led growth,’ this is really ‘user led invention.’ The challenge is how to preserve the user connection when the engineering effort expands beyond the original entrepreneur to a team of professional developers.

I have always been a fan of forcing engineers to come out of their shells to actually interact with customers and prospects. There are several layers of benefits that come out of the process:

• Improved usability is the first benefit. When an engineer understands how a customer uses the app, it is like a lightbulb goes on for the first time. It may not be a scientific approach to usability testing, but I have seen engineers race back to their desks to rework elements of an interface after spending just minutes with a real user. Formally engaging with customers to test usability is a profession with real science behind it, but for most early stage companies, it is beyond their budget. A simple approach is to assign engineers to work the customer service desk for a few shifts or on a routine rotation. When they see the mistakes user make, or hear users present their confusion and challenges, it provides context to make things better.

• Improved application fit is the second order benefit. When engineers interact with customers, they hear the pros and cons of how their application solves the users’ needs. This is an element of ‘product / market fit.’ Beyond usability, application fit reflects how complete the solution is, how it integrates into the user’s organization and computing environment, and how it delivers value to customers. Customers are not shy about what they want an application to do for them, and it is important for engineers to hear it all and have the opportunity to engage and ask questions.

• Expanded long-term vision and ‘future proofing’ the architecture is the highest order benefit. When engineers only understand the problem that is immediately in front of them, they miss the opportunity to leave room for growth. In a simple form, if they build the product for the U.S. market, and hard-code it with English, they limit the potential for a global rollout without significant re-coding. Language, currency, timezone, and date format are all well understood limiters that good engineers know to avoid. The more important elements of future-proofing come from a deeper understanding of how customers see the future, and where they want the platform to expand. The buzz-words for this are ‘product led growth’ which really ought to be called ‘user led growth.’ The concept is to let the users guide where the product goes. When engineers interact with customers and gain an understanding of the customers’ vision of the future, they build that understanding into their architectural choices and everyday coding.

I am a huge advocate for the role of product management, and I believe the product manager has to be the one decider who is ultimately accountable for the success or failure of a product. So having said that, none of what is described above is intended to usurp that authority. In fact, the product manager should be arm-in-arm with the engineers as they interact with customers. The rapid pace of markets today means that product managers do not have the time to labor over every detail and nuance of requirements, let alone specs, so they need to have a mind meld with the engineering team and be able to speak in short sentences while fully communicating. An engineering team that has a deep understanding of the customers’ needs and wants is vital for efficiently creating beautiful solutions to the right problems, instead of solutions that lack product / market fit.

You’re Fired!

“You’re Fired” is a phrase nobody ever wants to hear when it comes to their own employment. However, it has become increasingly common to view it as a sign of a decisive leader when they summarily dismiss a subordinate with these strong words. It is as though we think leaders willing to fire people are somehow great managers, or maybe we respect it as a macho power thing that demonstrates who is in charge. Our current president made it a signature line of his television career, and every day he continues to wield the power to fire like a sword.

On the contrary, in my career, I considered the need to fire someone as a personal failure of my management, and nothing to be proud of. It was bad enough if it was a person I inherited from some other hiring manager, but it was awful if I was firing someone I had hired. I saw it as proof that I did something wrong in the vetting and hiring process. It made me retrace my steps and search for where I went wrong, or what I missed and how I could have seen it in advance.

Of course there were situations where an individual did something egregious that just could not be tolerated, but even then, I wanted to reflect on how I missed the signs that might have led me to anticipate the aberrant behavior. Even when the reason for termination was a result of incompetence or lack of performance, I still viewed it as a reflection of my bad judgement in putting the individual in a position to have failed.

Hiring is a skill and an art form. Great managers take their time to get it right, and getting it right goes beyond selecting the best candidate. It also includes creating a business environment where the candidate can succeed over the long term. As a CEO and corporate leader, the worst offense was when I found the company in a situation where we had to terminate employees in a layoff that was a result of over hiring and missed corporate performance. Employees caught up in a reduction in force (RIF) often let management off the hook too easily. Ever-optimistic CEOs and boards can drive companies to adopt unattainable goals, and then spend  capital to attempt to achieve the targets. Too many businesses go through recurring cycles of hiring and firing as a result of building up expenses to achieve unrealistic goals, and then cutting back when the business fails to meet expectations. One of my favorite quotes is “too much money makes you stupid.” The availability of capital makes it too easy to staff up, even when the business is not really ready. Everything seems rosy until the investment capital dries up and the reality of dwindling funds forces the company to retrench.

As a leader, when you face the reality that the company is over-staffed for its level of business achievement, and you have reached the point where a RIF is necessary, it is vital not to compound the problem by failing to truly face reality. Too often, leaders hang on to their unbridled optimism and only make superficial cuts, expecting a miraculous turnaround. The trap of not cutting deep enough, is that the burn continues and inevitably leads to a second or third demoralizing RIF down the road. A RIF should be a ‘rip the bandaid off’ moment. Cut as deep as possible, and then go a little further, and do it all at once. As a leader, you owe it to the business, the investors, and the remaining employees to act decisively and give the business its best chance to succeed. It is bad enough that you have to say “you’re fired” once. It is truly a failure if you have to say it multiple times with successive RIFs because you were unwilling to accept reality the first time.

The bottom line for all of the ways in which a leader has to deliver the words “you’re fired,” is to realize that it is not a badge of strength or evidence of a good manager or leader. Quite the opposite, it is a reflection of a failure of management and leadership. Nonetheless, when it becomes the right thing to do, strong leaders do it decisively. They take their time to hire, but when they recognize a failure, they fire quickly.

Forgive me for a moment of related political commentary that actually spurred me to write this post. In our current political environment, there have been targeted firings of retribution, mass firings for ‘efficiency’, and firings for expressing independent thought. In no way should this be viewed in a positive light or confused with strong leadership. Hiring an individual with high praise and fanfare, and firing them months later, attacking them as stupid or incompetent, says more about the leader’s bad judgement than it does about the individual. Mass firing departments and teams as a show of strength, and then discovering that they actually made a vital contribution so they have to be re-hired, is a sign of incompetent leadership. Firing qualified individuals for expressing an opinion or voicing a disagreement with a leader is a sign of insecurity, not strength. “You’re Fired” may play well on TV, but it is no way to lead.

Office of Paranoia

Intel has been in the news lately, and I was reminded of the classic quote (and book) from Andy Grove, the past CEO of Intel — “Only the paranoid survive.” Grove speaks about Strategic Inflection Points when businesses face existential change, and how he applied his mantra about paranoia to navigate turbulence and keep Intel in a leadership position. Today feels like one of those moments when there is a confluence of monumental changes occurring. Tariffs and supply chain disruptions are colliding with the explosive rise of AI. At the same time we are witnessing chaotic swings in government policy and norms, and the advent of government intervention and forced investment in key industries. All of it is leading to economic uncertainty for companies big and small.

If ever there was a strategic inflection point, this is one of them. Grove tells us that when a strategic inflection point hits, we have to be prepared to throw out the rule book, but he also acknowledges that these can be moments to win new markets, thrive, and strengthen a business. The critical advice is to pay attention to the ecosystem surrounding your business, and be ever paranoid about which changes have the potential to emerge as inflection points.

I started to think about how to operationalize that paranoia. Threats come from many directions. Some are easy to spot or obviously significant, but others may be subtle or slow moving, so easy to ignore. We need a model to organize the threat vectors and help us think about the threats in a systematic manner. I suggest we categorize threats by source, and determine a strategy for monitoring and anticipating the impact from each vector. Think of the company as the bullseye of a threat target. Each ring of the target represents a threat source, and the further the ring is from the center bullseye the less control the company has.

• Company - Our first source of paranoia should be threats within our own four walls. Things like policy changes, reorganizations, hiring, firing, staff turnover, project delays, and customer issues can all introduce threats. Years ago, Intel released a chip that was intended to be the future of the company, but it had a math flaw that almost sank the company instead. It was a strategic inflection point that originated within the company.

• Competitors - Gathering intelligence about each competitor is critical. Competitors are out to get you, so you have to remain hyper-vigilant about their go to market posture, their product direction, and any changes in their corporate structure, staffing, funding and ownership. Most companies are pretty bad at keeping secrets, so it is not that hard to figure out what your competition is up to. Even when you are clearly on top, fear your competitors and have healthy paranoia about what they are doing to defeat you.

• Disruptors - In most markets, traditional competitors all tend to solve customer problems in similar ways. This is what defines a product category, and buyers become familiar with the feature checklists they expect from each competitor. Disruptors change the game. They rethink the problem and innovate completely new solutions. For example, AI-based chat solutions are disrupting traditional search engines, or how the iPhone completely disrupted the mobile phone industry. Disruptors do not generally spring onto the market fully functional and competitive. They lurk on the periphery of the market while they mature, and then launch with a splash and gain rapid acceptance. Paranoia about disruptors requires curiosity and an open mind. It is easy to dismiss a newcomer as a non-competitor. If you are paranoid, you will listen to their pitch through the lens of a prospect, and be open to their innovative solution, even if it does not fit your mold for how to address the market.

• Tech industry - This is a broad category, but generally being aware of changes and breakthroughs in the industry, and having a healthy paranoia about how they may impact your business is critical. Examples of tectonic changes that bankrupted many companies include the shift from on-premises to cloud computing, the shift from traditional procedural coding to service-based rapid development tools, the shift from perpetual licenses to recurring revenue licenses, the shift to mobile-first apps from hosted applications, and of course, the biggest of all is the rise of AI in every aspect of the tech world.

• Government and Economy - This is the last broad category that has recently become quite unpredictable. As an example of how this category can threaten a business, I recently spoke with a Governance, Risk, and Compliance (GRC) software company that focuses on foreign corrupt practices reporting. The U.S. administration lifted compliance requirements and suddenly this software company’s business evaporated. The same can be said of products for DEI tracking as the emphasis on DEI policies has come under attack. Economic uncertainty and tariff pressures, or elimination of government funding can all create a chilling effect on corporate purchasing that translates into stalled sales cycles. Seemingly remote actions are worthy of paranoia to avoid a crippling adverse strategic inflection point.

So how do we translate awareness of the threat vectors into an operational model? First, we need a strategy for monitoring each vector. I suggest assigning a person or a small team to each ring of the bullseye or vector, and formalizing the process of monitoring and reviewing threats. Schedule formal periodic reviews of what they find. Carve out time during existing meetings to hear the latest finds. The frequency of review may be slower for each concentric circle radiating from the center. For example, internal threats may require weekly review, and can be addressed in routine staff meetings. Competitive threats may fit into monthly meetings. Industry and disruptor items can be reviewed quarterly, and government / economic items may fit into a semi-annual strategy meeting. The important element is to make time for the team to hear and discuss the threats, and to be sufficiently paranoid about them.

The most common tool for presenting threats has been a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), but this does not go far enough to adequately address the need. The three missing components are Time, Probability, and Magnitude. When we see a threat, we need to assess the timing of its impact, the probability of it occurring, and the magnitude of its impact if it occurs. Armed with these additional elements, we can prioritize our need to respond — low probability events that will not happen soon can be prioritized lower than near-term events with high probability. Threats with high existential magnitude require greater attention than low magnitude threats.

We also need to assess the opportunities presented by the events we see on the horizon. We can respond to a threat by running away, or we can respond by reinventing our business to benefit from the threat. Sometimes known as a ‘pivot,’ many companies have responded to threatening changes in the market and emerged much stronger. The mantra should be to obsolete yourself before someone else does it for you. When assessing our potential responses, our analysis needs to include similar elements of Time to respond, Probability of success, and Magnitude of cost and impact on the business.

Putting it all together, we need to designate a person or team to be our “Office of Paranoia” specifically tasked with monitoring the threat vectors. They need to periodically report their findings in a formal manner. Their assessment must answer the ‘so what’ questions that will provide us with Timing, Probability, and Magnitude so we can determine how to respond to the threat. As a team, we need to listen with a paranoid but open mind, and be prepared to act.

Know Your BATNA

BATNA stands for "Best Alternative to a Negotiated Agreement.” It is your fallback acceptable outcome if negotiations fail. It is a concept that Roger Fisher, William Ury, and Bruce Patton introduced in their book 'Getting to Yes: Negotiating Agreement Without Giving In.’ BATNA is generally thought of in commercial negotiations, but it also has applicability to interpersonal and corporate relationships. I have personally experienced it in this manner several times throughout my career, and most recently the concept surfaced in a discussion with an entrepreneur about their relationship with a cofounder.

Think of it as the hill you are willing to die upon. In the extreme, it is a question of whether you are willing to quit your job rather than compromise on a negotiated outcome. When you simply cannot reach agreement, what is your alternative? Life is too short to tolerate untenable situations for very long, so consider your BATNA as the rip cord or exit hatch. Thinking in terms of BATNA can bring clarity to your situation and often it will paint a future picture that is so undesirable that it forces you to reconsider your negotiating position to become more open to compromise just to avoid your BATNA.

The recent scenario that brought this to mind was a founding partnership that was hitting a rough patch. At the inception, the partners agreed upon a division of responsibilities and corporate roles. As the business matured, it emerged that the original division of responsibilities did not truly play to each partner’s strengths, and the division of roles was creating a leadership challenge regarding who was in charge and what decisions could be made independently. I faced an identical situation at the start of my career, when my co-founder and I agreed to operate as a partnership, but for the purposes of creating a corporate structure, one of us took the CEO title and the other became the COO. As the business matured, the titles started to actually mean something, and the “partnership” concept became very stressed. Someone had to be in charge, and that meant the other founder had to cede authority. In my experience, and in the instance of the more recent scenario, the negotiated outcome essentially created a winner and a loser.

Interestingly, the same BATNA may apply to both parties. For the nominal winner, the question is whether they are willing to press the issue even if the outcome means their cofounder may decide to leave the business? For the nominal loser, if their only negotiated choice is to accept a lesser position, are they willing to move forward, or do they feel the need to leave the business? Both parties share the same BATNA - one winner and one loser with the BATNA resulting in a parting of ways.

The recent situation reminded me of the biblical story of Solomon. Two women claimed to be the mother of the same baby. To determine the true mother, Solomon suggested cutting the baby in half; the real mother immediately offered to give up her claim to save the child's life, revealing her identity, and Solomon awarded her the baby. In the corporate setting, the two founders are both claiming to be the better leader, and therefor the CEO role, but to save the company’s life, the true leader has to decide what are they willing to do to reach an outcome. Are they willing to force their promotion, or go along in a lesser role, or do they bow out and leave the company in the hands of the other founder? How honestly committed to what is best for the success of the business is each co-founder, versus how important is it to preserve their own ego.

At the risk of stretching the metaphor too far, in this situation, the board of directors should perform the role of Solomon. A key responsibility of the board is to ensure effective corporate leadership, and when necessary, to hire and fire the CEO. An engaged board will perceive the conflict between the founders and the inefficiency of the leadership of the company. If the founders are not addressing the situation expeditiously, it is up to the board to step in and force the hard decision that has to be made to put the company on a solid footing. Co-founders typically start out as friends, and it is difficult for friends to face the realities of their situation. However, the board is uniquely positioned to exercise impartial governance and drive an outcome that is best for the business.

In situations like this, the relationship between the board and the key executives is a critical factor. Perhaps even more important, the relationships among the non-executive board members, and the effectiveness of the board as a team will become critical. In my experience, the non-executive board members need to have a solid working relationship. Independent of the executive founders, who may also be board members, the non-executive board members will need to work together, and speak with one voice to drive resolution. Individual board members back-channeling and voicing their support to one executive or another can lead to a toxic situation. If there is a chance to avoid the BATNA of one executive leaving the business, then the board has to be seen as a deliberative body and an impartial arbitrator of what is best for the company. If the board concludes that the best outcome is in fact for one executive to leave, then they have to be clear and resolute in that decision.

Strong, efficient, decisive leadership is critical for company success, and corporate culture. When there is strife or conflict or even just visible discord between key executives, the business suffers. Allowing this situation to fester is the equivalent of an ‘own goal.’ If the execs cannot fix the situation, it is up to the board to step up and step in.

Speed and Distance

I recently came across this quote: “If you want to go fast go alone, if you want to go far go together.” I heard it in an insurance commercial, but I made a valiant effort (aka Internet search) to find its original source, only to see it attributed to everyone from Cory Booker to George Washington, Rudyard Kipling to Al Gore, and even Hilary Clinton. The most convincing origin story was that it is an African proverb from Burkino Faso. No matter who said it first, what struck me was how it relates to early stage businesses. 

Businesses grow through several pivotal phases: 

• Start-Up: This is the beginning of a new business, when it is typically under-staffed and under-resourced. Because of the constraints, the entrepreneurs go it alone and “go fast.” Generally, they have a vision, but a scrappy entrepreneur will run toward any paying business that will keep the lights on.

• Build-Up: Once the business starts to gain traction, it is time to add some staff, and build up the functional parts of the business. During Build-Up, the entrepreneur is still the center of the universe, and most of the hiring is for operational or staff roles to just get more things done fast. In other words, the entrepreneur is still basically going it alone and trying to go as fast as they can. The business is adding bulk, but not muscle.

• Grow-Up: When the business achieves real momentum and the unit economics make it clear that it is time to scale, then the business is ready to “go far.” This is a pivotal moment for the entrepreneur. It requires introspection and recognition that they can no longer be the center of the universe. In order to go far, they will need to “go together” with qualified experts and leaders. The business has to add muscle, not just bulk, to break through the constraints of the entrepreneur trying to do it all. To paraphrase Hilary Clinton, it takes a village to successfully grow a business. 

• Level-Up: As a company continues to grow and mature, it will add complexity, and the leadership challenges will expand. Like a snake that outgrows its skin and has to shed it to make room for growth, a growing business will reach moments where it too has to shed its skin to set the stage for growth. In a corporate setting, the leaders that possessed the skills to grow the business to one level, may not be the right leaders to grow the business to the next level. This is another phase of “going far together,” but is is more akin to a relay race. The business went as far as it could with the first team, and now it is time to handoff to a new team to cover even more distance. The CEO and the board have to remain vigilant about the effectiveness of the leadership team including the CEO, and recognize when it is time to level up to go even further.

Start-Up to Level-Up is a journey that starts with ‘Go fast and go alone,’ but in order to ‘go far’ it requires a team that will ‘go together.’ Each step of the journey requires the entrepreneur to be self-aware and honest about the strengths and weaknesses of the business, the leadership team, and the staff. The most important lesson, however, is for the entrepreneur to acknowledge the simple parable: “If you want to go fast go alone, if you want to go far go together.” The entrepreneur has to recognize that their job is to build a team to go the distance, rather than try to go alone.

Daydream or Nightmare

“A vision without a plan is a daydream. A plan without a vision is a nightmare.” I do not recall where I saw this quote, but it got me thinking about the challenge faced by entrepreneurs. I serve as a mentor for eForAll, a terrific national organization that helps under-represented individuals start and grow businesses. Often, when I read prospective candidate’s business pitches, they fall into one of these two categories. They have a vision or a passion, but no plan for how to get going, or they just feel like they want to start a business, but do not have a real vision or business strategy.

The same challenge exists for many later-stage businesses. Even though the company managed to get off the ground and has products or services and clients, there still may not be a plan to truly turn the vision into a sustainable business. This is similar to the challenge presented in Geoffrey Moore’s classic “Crossing The Chasm.”  Starting with a vision, it may be possible to find the early adopters who share a similar vision, but without a plan to scale and build on the vision, the business will find itself stuck in low gear, dreaming of greatness but unable to cross the chasm to a healthy business.

The alternative behavior of a plan without a vision is evident in business plans that are mostly spreadsheet exercises where the entrepreneur makes arithmetic assumptions about growth rates and revenues that show a terrific business, but they forget about the hard work of ensuring product / market fit.  In grad school, a professor called this the ‘Shoe Analogy.’ The entrepreneur’s plan goes something like: “Every year, there are 24 billion pairs of shoes sold. If we can just get 1% of the left feet, we will be a huge success.” The problem is that nobody buys just the left shoe, and the math exercise is not supported by an actual vision for a viable business.

Connecting the vision with a plan is the key to laying a foundation for a sustainable business. Rigorously testing the viability of the vision by formulating a plan and testing it is a critical process. Years ago, I learned a method from a fellow CEO that has served me well in my own companies, and as an advisor and board member for other companies. The method is called a Strategy Staircase, and I have written about it in the past. For purposes of testing a vision and plan, it can be applied as a thought exercise to see if the vision and plan hang together. The elements of the staircase are:

1. An honest, no fluff statement about the current business: revenue, growth, profitability, funding, customers, team, etc. Make sure this is a purely factual description of where you are, with no aspirational optimism. This is the ‘Today’ picture.

2. A timeframe for the analysis. If your runway is twelve months, then see if you can formulate a viable plan for 12 months. If you have more or less time to execute your plan, adjust your test accordingly. A two or three year plan is usually a good timeframe to work with.

3. Create a statement of what success will look like. Be specific about how you want to transform the elements of your current situation during the timeframe of the plan. For example, if today you have a slow growth business that is burning capital, perhaps your six month goal is to increase your growth rate to 15% and move to breakeven. This is the ‘Tomorrow’ vision.

4. Write a headline that defines the general nature of what you will need to be doing in order to move from Today to Tomorrow. Example: Grow our sales skills and improve prospect targeting, or replace our outdated product and launch a new updated version. This is the ‘Headline’

5. Clearly state the prioritized steps you will have to take to climb from where you are ‘Today’ at the bottom of the Staircase to where you want to be ‘Tomorrow’ at the top of the staircase. Each step should be a simple statement of one activity that will result in a measurable outcome that will lead to the next step. Most Staircases have about 10 steps. Force yourself to put the steps in priority order as if you can only do one thing at a time. This is the ‘Plan.’

6. Build a pro-forma business model that realistically follows your Staircase. If your steps include increased investment in sales or marketing or engineering, build that into your financial model. Be realistic (or pessimistic) about the pace of your revenue growth and ability to generate new business or retain existing business. The model should start with your Today situation and lead to your Tomorrow vision in the timeframe of your Staircase.

By iterating on the Staircase plan and testing it against your business model, you will build a picture of how your vision can become your dream instead of your nightmare. Share the result with your board or business advisor, and ask them to be critical and constructive. Debate the order of the steps and the practicality of achieving each step. The objective is to avoid the daydream and the nightmare by creating a viable plan that will result in achieving your vision. Once you think you have it worked out, the hard work begins. You have to turn your thought exercise into practice in the real world. Hold yourself to your timeline as you execute the steps. Adjust as needed, and re-plot your Staircase and plan if you find the business is not performing as you expected. The key is that you will have a plan and a goal that ultimately result in your vision, so you are on your way to turning your dream into reality and avoiding it becoming a nightmare.

The Board’s View Of The CEO

My last post explored the characteristics of what makes a great board of directors (BOD) and board member, from the CEO’s perspective. I also provided a game plan for how to fix a broken relationship with the BOD. However, there are two sides to every relationship, and as a board member, there are CEO attributes that can make all the difference in building a positive working relationship, so in this post I turn the table and take the board’s view of what makes a great relationship with a CEO.

Great execution and business results clearly go a long way to smoothing over any relationship issues between the BOD and the CEO. Every board member appreciates results without drama, but things do not always go as planned, and when the going gets tough is when the cracks in the relationship typically surface. From my own personal experience, and feedback from other board members, here are a few of the key attributes that shape a positive view of the CEO:

• Honesty tops everyone’s list. The board has to be confident that whatever the CEO reports is in fact true. There are no “small” lies.

• Openness and candor run close second. The board has to be confident that the CEO is providing a clear-eyed factual representation of the business. This is a little bit different from honesty. A CEO can be honest, but not completely open or share the full story. This is about omissions that shade the message. If the board is going to be helpful, they need to know all there is to know about a topic and not feel the CEO is holding back.

• Problem solving and decisiveness. The CEO is the person running the business, and they need to take charge. The board wants to be confident that the CEO has solid reasoning skills and will make tough decisions in a timely manner. When a crisis occurs, the CEO needs to be decisive and not frozen like a deer in the headlights.

• Leadership and gravitas. The BOD values a CEO that acts the part and has the support of their team. It is evident when an executive team is working well, or when it is dysfunctional. The BOD counts on the CEO to ensure the leadership team is aligned.

• Stable. The world and most markets can be chaotic at times. The BOD wants a CEO who is not creating more chaos. We want a steady hand guiding the business forward.

• Firm grasp of the business. The BOD will never be as close to the business as the CEO, and we rely upon the CEO to be on top of everything that is going on in the business. The CEO does not have to precisely know every number and metric and detail, but we at least expect them to have a complete understanding of the state of the business, and to surround themselves with a team of experts who will know every detail.

• Accessible and patient. Board members want to be able to reach the CEO easily, and feel as though the CEO places a high priority on being available to interact with board members. Forming a solid relationship takes more than just quarterly board meetings. Often the call is just to catch up and hear what is going on, but the patience part of this attribute is also important. Board members do not always know or understand the nuances underlying parts of the business. The CEO has to be patient and recognize that part of their job is to educate and explain things to board members and help them to understand the drivers behind various challenges and decisions.

The aggregate of these attributes is a reflection of character, but the bottom line from all of it is trust. Board members want a CEO they can trust to ‘do the the right things’ and ‘do things right.’ Trust is hard to earn and easy to lose. Because the board is not involved in the business every day, we need to trust that the CEO has it under control. We also need to trust that when they need help they are confident enough to ask for it, and that they understand the scope of their authority so that when they cross into a realm where the board needs to be involved, they do not hesitate to call for help.

How Great Is Your Board?

As a CEO and independent board member, I have had some great boards of directors, and I have had a couple terrible boards. Talking with other CEOs, I hear a similar mixed bag reaction. It made me think about the question of what shapes a CEOs opinion about whether their board of directors (BOD) is bad, neutral, good, or great? There is a similar perspective and question among board members about the CEOs they work with, but that is a topic for a future post.

In early-stage technology companies, corporate boards are typically dominated by investors and founders, with the occasional quasi-independent outsider mixed in. I say quasi because the independent is usually sponsored or strongly recommended by the CEO or a specific investor group. They may be independents who are experts in their field and a natural fit, but somebody on the board was probably their champion and holds a bit more sway with them. None of this is necessarily bad, but it is contextual for how the relationship with the CEO evolves.

There are a few catch phrases I hear when CEOs are complaining about their board:

• They don’t understand the business

• They don’t know the market and cannot help with strategy

• All they focus on are metrics and numbers. They don’t understand running a business

• They are a waste of time and board meetings don’t add any value

• They are only worried about their investment, not building something great

On the flip side, when CEOs are praising their board, it is more than just the opposite of the negatives. Positive comments tend to focus on the relationship the CEO has with the individuals and the board as a whole. Board member availability, supportiveness, understanding, and advice (when requested) are all common descriptors. When the interpersonal relationship is positive, many of the negative attributes are overlooked. Even if a particular board member does not understand the market or the business well enough to provide guidance, if they are supportive and available and bring other knowledge to the table, the CEO may still form a positive opinion.

In earlier posts, I wrote about the unique position of the CEO as sandwiched between the executive team and the board. There are many topics that are difficult to discuss with the people that work for you, and similarly, there are topics that are challenging to bring to a board member. The board has the responsibility to hire and fire the CEO, and every CEO wants to project confidence and control when interacting with board members. A common phrase is “don’t bring problems, bring solutions.” However, sometimes the CEO just needs help to work through a puzzle where they do not have a confident answer or solution to present to the board. These are the times that truly define the nature of the CEO / board relationship.

Building rapport with each board member and the board as a whole is one of the most important jobs of the CEO. When the CEO adopts an adversarial role with a board member or the board in general, things never go well. You need to understand what makes them tick, what they can bring to the table, and how they operate. If the board is well curated (see my earlier posts), then you have a pretty good idea of which board members can be most helpful with each topic. Some may have operating experience and can help on policy, while others may have finance or M&A experience, or go-to-market skills. Leverage the board to make it an effective ‘weapon’ to help the CEO and the company succeed.

As a CEO, if you find you are already in a situation where you have a negative perspective toward your board, it is past time to do something about it. In negotiating, there is the concept of a BATNA - the best alternative to a negotiated agreement. It means that when you go into a negotiation, you need to know your ultimate fallback result. When attempting to fix a broken board relationship, the ultimate BATNA is the CEO leaves the business or the company is sold. Therefore the first step is to decide just how bad the situation is, and what is your BATNA to rectify it. You may be OK with the status quo, rather than risk your job, but recognize that a broken relationship with the board is never good for the company, and ultimately the board gets to decide if the CEO is more trouble than they are worth.

Here is my suggestion for how to fix the situation:

1. Step back from the day to day, take a breath, and write down a list of  positives and negatives effecting your opinion. Divide the list into things that occur during board meetings, and things that occur between formal meetings. Be specific about each board member and the board as a whole. Often 1:1 behavior out of the board room is quite different from behavior in the board meeting.

2. Consider your list, and identify what is triggering your opinion and your own behavior. Sometimes, we think we just know how a board member will react to a topic. That triggers us to present in a certain guarded or aggressive way, and we stop listening to how they actually react. This requires a bit of introspection to acknowledge how you may be contributing to the situation.

3. Next, go on a listening tour. Tell the board members that you want to make the board more effective, and ask for their time to help. Meet with each board member in person, preferably in a social setting like a meal. We all default to timed virtual meetings as the norm, but an in-person meeting conveys your seriousness and opens the door to a more comfortable and open-ended conversation where neither party is racing to get to their next meeting. It is a big commitment, but it is worth it.

4. Open each meeting by asking the board member what they think of the board and their interaction with you — listen before you speak. Be clear that you are not specifically asking for a performance review; you are asking about your relationship. Acknowledge that there are challenges with the interactions (if possible do not make it a personal attack on the member’s behavior), and ask the board member to share their thoughts and suggestions for what can be done about it. Ask them what they are getting from you that they do not need, and what they are not getting from you that they want. One of my companies was in the habit of producing massive detailed board books, and delivering them the day before the meeting. The meetings were being derailed by members finding minutia throughout the book and consuming valuable board time drilling into operational details that were not board-worthy. The message from the listening tour was to dramatically shrink the book to just what really mattered, and get the book out several days earlier. It changed the entire character of the board meetings by focusing attention on the important topics without distractions. Make sure this a listening tour, not a confrontation, and assume you both want a positive outcome.

5. Repeat step 3 with every board member. Gather their comments and look for patterns and themes. You may prompt a response by telling a member that in an earlier meeting someone else suggested X, what is their opinion? Compare the collective feedback to your original list to find points of agreement.

6. Construct a plan to address the issues. Be specific about what you want from each member and from the board as a whole. Also be specific about your contribution to the problems and define what you intend to do about it.

7. Your plan may need to include a request to reconstitute the board with new or added members, or you may need to tell a member to step up or step off because they are not adding enough value. When financial investors such as VCs and PE firms have contractual rights to hold seats, you may need a conversation with the managing partner if you are convinced that the partner on your board is the problem. I have seen this situation play out twice, and it went surprisingly well. Everybody wants the company to succeed. A warning, keep your BATNA in mind, The result may be that the board decides you are the problem, so be prepared.

Just as a team matures through stages of forming - storming - norming - performing, boards do the same. The company deserves a highly performing board, and it is the CEO’s responsibility to make it so. You cannot just throw up your hands and say ‘my board sucks,’ you owe it to the team and the company to fix it, no matter how hard that may seem.

Ideology Is The Enemy of Intelligence

I was listening to a podcast recently, and someone commented that “ideology is the enemy of intelligence.’ It was in reference to the CIA, but it struck me as an apt mantra for a growing business. Our mission, vision, and values, combined with our product and go to market approach is our way of describing our ideology. Particularly in an early stage business, the founder has a vision and constructs a company to build the product or service that will deliver that vision. The vision is  generally informed by experience, such as solving a problem the founder encountered in their past. Nonetheless, the leap of faith the entrepreneur takes is based on their belief that enough other people have encountered the same market void and are willing to spend money to address their need. The entrepreneur’s vision for solving the problem becomes their ideology. At their core, they believe they know the right path.

Intelligence is comprised of actual market data, customer and prospect feedback, competitive information and the like. The market is teaming with data, and every company needs to develop a framework to absorb it and then separate the signal from the noise. The problem arises when the ideology causes us to ignore or drown out the true signal from the market. Selective listening, or only measuring the data points that reinforce our ideology is a sure path to lead a business astray. Too often, we celebrate data that confirms our ideology, and make excuses for data points that contradict or undermine our ideology.

In sales we see ‘happy ears’ behavior when a sales person only hears buying signs and ignores cautionary signals. The result is that they are surprised when the buyer chooses a competitor’s solution. They were filtering out the intelligence that may have provided them a path to success. In customer management, we love the feel-good metrics of usage stats and engagement, but we miss the true warning signs of discontent. We have all been ‘surprised’ by the big account that ‘loves us,’ but suddenly churns. We missed the signals that the account was not perceiving enough value to continue the relationship. Lastly, perhaps the most difficult example is the product team that believes in their vision for how the product should work and how customers should use it, but ignores the customer and market intelligence that is signaling that the product does not have adequate market fit, or does not solve the problem the way customers want to work. In other words, ‘the dogs won’t eat the food.’

All of these are examples of confirmation bias. We believe in our business and our ideology, and we avoid conflicting data. We seek data that confirms our beliefs. When we see data points that do not fit our ideology, we start explaining them away, but instead we should heed the old sales saying ‘if you are explaining, you are losing.’ We need to recognize the facts for what they are. When our ideology is the enemy of intelligence, our business suffers. The mantra should be ‘measure what matters, and believe the results.’ Better to have the intelligence and be in a position to make informed decisions and adjustments than to be blindsided by ideology and have adjustments made for you.

The best advice for an ideologue is to go looking for trouble. If we acknowledge our ideological bias, then we can challenge ourselves to find the outlying data points. Adopt a healthy dose of paranoia and do not let conflicting data go unexplored. I have written in the past about CEO optimism and the need to balance cheerleading with reality. As an overly optimistic CEO, I recognized that I needed to have trusted realists by my side, and I had to listen to them. We would debate the meaning and implications of the data, but the facts were the facts, and we had to be brutally honest about the information. Do not let ideology be the enemy of intelligence. Listen to the data.

Pick An Aisle And Shelf

I was recently coaching a CEO whose product has tons of innovative and unique features and capabilities to offer. Unfortunately, sales are stalled and the business is not moving forward. They are stuck in a doom loop of selecting an ideal customer profile (ICP) then realizing that the buyer is only interested in a subset of the company’s capabilities, so they pick a different ICP in hope of finding a home for their broader set of capabilities, only to find that they still have a mismatch. They have a clear vision of why and how all of their capabilities fit together to deliver a great solution, the problem is aligning it with a clear ICP so they can focus their go to market efforts. It feels like a chicken or egg dilemma - capabilities first or ICP first. You could describe it as a Product / Market fit problem, but it is more an issue of a unique solution trying to convince an existing market to try something new.

What they are really dealing with is the need to select a specific ICP and then package their offering in a manner that helps their ICP understand the value proposition that makes it a compelling purchase. The challenge is that they have defined a solution that is sufficiently different from the competition that buyers do not have a classification system to grasp the offering and define evaluation criteria. Buyers have pre-conceived concepts of the solutions they are looking to purchase. Often it is in the form of an RFP (request for proposal) that has a checklist of features and needs. It is as if they are entering the store and they know what aisle and shelf to find all of the products that can meet their needs. Making a choice is only a matter of comparing similar features and selecting the best fit. The problem is that this vendor’s solution does not neatly fit on an existing shelf in an existing aisle. It is solving the problem differently and in a manner that encompasses multiple related problems that are typically each solved by point solutions that are found on various aisles and shelves.

The original Apple iPhone faced a similar challenge. It was a mash up of a phone, a camera, a browser, a pager, an address book, a calendar, and several other applications. We knew where to buy each of these separate items, but the iPhone was a new class of device. The solution for Apple was in the name. They called it a phone, so it went in the phone aisle, but on a new shelf. They did not try to sell it as a camera or a pager or any of its other functions, but they incorporated all of the additional capabilities into their competitive pitch for why this was the ideal phone. The irony of the Apple example is that the phone features turned out to be table stakes. Making phone calls is a generic capability that is identical for all vendors, and nobody buys a device because it is better at making phone calls. The genius was that Apple redefined what a phone is, and helped us all realize our definition was too narrow. Traditional phone manufacturers could not compete with Apple’s broader definition.

For the CEO I have been helping, and for most mere mortals, we do not have the market power of Apple to redefine a category overnight. However there are lessons to be learned and applied:

• First, select an existing well understood and valuable aisle and shelf. By picking the aisle and shelf, you are also selecting an existing ICP who is already coming to the store to make a purchase. You want to be found when they start looking for a solution.

• Next, make sure that the new offering has standard competitive capabilities that meet the basic requirements of the selected aisle and shelf. You have to get past the initial screening, so it is important to do the basics. In the Apple example, buyers had to be able to make phone calls in order for the new device to be considered when a buyer wanted a new phone.

• Position the new capabilities to differentiate the offering, and focus on the benefits that are uniquely possible because of the broader solution. This is not a features conversation. The buyer has a list of required features based on how all of the other vendors approach the problem, but their checklist does not have line items to compare your new features to other products. However, the buyer will understand new use cases and the benefits of a better solution - benefits, not features. Apple showed us why having a phone with integrated camera, email, and text made the phone more valuable. They did not try to sell us on every feature of the camera or the email or text.

When you identify an existing aisle and shelf it enables you to know who is shopping and what they are looking for. Whether you surveyed your competitive field and decided to pick the aisle and shelf where known competitors are found, or whether you selected a target ICP and decided to be present where that ICP goes shopping, either answer leads to the same place. Stake out some turf on the aisle and shelf where your ICP expects to find solutions, and declare that you are a part of that competitive category. Then, differentiate your offering by demonstrating the unique benefits that can only be achieved with your unique combination of capabilities. The more you can differentiate your offering in a sea of similar products and services, the easier it is for a buyer to purchase from you. Over time, competitive products drift toward commodities. In the arms race to add features and cover deficiencies, products all start to look alike and act alike. The list of standard features grows, and the only differences are subtle or at the edges. When all of the products look alike, the buyer’s journey becomes protracted because they get lost trying to discover the rationale for selecting one vendor and product over another. When markets get to this point, the strongest competitors become ‘do nothing,’ or ‘whoever has the lowest price.’ That is what the phone market looked like before Apple launched the iPhone.

A vendor with a new and unique offering has to rise above the noise. The hard way is to attempt to define an entirely new category of solution and convince potential buyers to pay attention. I contend, the better path is to breakthrough in a familiar category with a revolutionary approach. Notice, I said revolutionary, not evolutionary. This is not 1+ marketing where you present one new feature or one new custom color. If your approach is truly a radical departure from the pack, then the goal is to stand on the shoulders of existing solutions and grab your shelf space in the most prominent position by clearly demonstrating the benefits of your new approach.

Hire Slowly - Fire Fast

When we decide to open a new position, we are eager to get it filled as quickly as possible. If the opening is the result of someone leaving the company, we are typically in an even greater hurry to fill the role.  Whether we are backfilling a position that was vacated when someone left, or we are expanding our team, we diligently post the position and dive into the hiring process.  In a recent post, I wrote about the need to take a breath from time to time. This is one of those moments.

Everyone has made ‘bad hires’ at some point in their career. The person seemed to match the requirements,  their temperament seemed to align with the company culture, and the references seemed enthusiastic, but something went wrong. In the aftermath, it is important to try to figure out exactly where the process failed. This is a moment to reflect on the “should have, could have, would have” questions to help improve the hiring process next time. Often, when we look back, there were holes in our job specification, or subtle warning signs about the candidate that we overlooked in our zeal to fill the role. We have to be able to recognize the signs and be willing to act on them. Even if it is in the final stages of the hiring process, do not be afraid to pull the plug on a candidate if something feels off.

One of my favorite books on managing employees is ‘Topgrading’ by Brad Smart. The premise is that we can divide employees into A, B, or C rankings. We would move heaven and earth to hire and/or retain an A. We want to retain B’s, but our goal is to move them to become A’s. Lastly, C’s need to move up or out. An A player is the best person you can hire in a specific job, for a specific company, for a specific salary, and working for a specific manager. All of those specifics make it clear that the best person in the world is not necessarily available as an A for every position in every company. For example, a high school basketball coach would love to have LeBron James on the team, but LeBron would not play for a high school, he will not play for free, and he will not play for a high school coach, so even though he is a great player, he would not be an A candidate for a high school team. When you define an A with all of the specifics, it narrows the field. Smart suggests that everyone can be an A player in some role, but it just might not be one they want. Someone may be better suited to a smaller job that has fewer responsibilities and pays less, but where they can in fact be an A. Their ego often tells them they would rather turn down the offer or leave the company than take the smaller role. The book is a challenging read, but full of great guidance.

The dilemma, however, is that as the team grows, it inevitably moves toward being average. When you only have a few employees, they can all be special and great. But, on average, larger teams are average. If we score employees on a 1 - 10 scale, where 10 is the best, as the team grows, we will likely end up with a team that averages 5. There will be some super stars and some duds, and a lot of people in the middle. The problem for a hiring manager is how to spot a candidate that will be above a 5, while the odds are you will find a lot of candidates that are 5 or lower. This is particularly challenging when we think about replacing an existing employee. If the current employee is a middle of the road 5, performing as a solid B with little chance that they will move up to be an A, then replacing them in search of an A is pretty scary. You could easily do worse. This is what leads managers to the “warm body syndrome.” They have a warm body in the role, doing some of the job well, so isn’t that better than having an empty seat and taking the risk that we hire a dud to fill it?

My advice is always to strive to fill every seat with A players. Do not be afraid to seek the best and the brightest, and never fall victim to the warm body syndrome. Assume that every hire will improve your average and lead to further success. Easier said than done, but the key is to focus on becoming a great hiring machine. As a friend of mine used to say “you have to kiss a lot of frogs before one turns out to be a prince or princess.” The hiring process takes time. Hence, the need to take a breath before diving into the frenzy to fill a position. Consider all of the characteristics that will make a successful hire. Experience and track record are important, but so is cultural fit and enthusiasm for the job and the company. Look at each of the elements that define who can be an A player for your company, and use them as a candidate screen. It takes a village to make a great hire, so engage others in the selection process, but do so with purpose. There is little value in having the same interview conducted over and over by different participants in the process. Each participant should be tasked with specific criteria to evaluate the candidates. Curate your hiring team to have different points of view. I suggest crossing department lines and organizational levels. Give each participant a formal scorecard to rate the candidates on consistent and meaningful criteria. Pay attention to the soft measures. If a participant has a “feeling” about a candidate, take it seriously and create a path to explore it further. We often undervalue the cultural fit element of hiring, but that is typically where an otherwise qualified candidate will eventually fail. Above all else, do not be rushed. If the candidate wants the job, they will follow your process and appreciate your thoroughness. If they have other offers, so be it. Better to lose a candidate than be rushed to make a bad hire.

Lastly, pay attention to hiring managers’ track record of making good hires or duds. If a manager is consistently hiring and then firing, the problem may be with the manager. Something about their process, or their leadership is resulting in the repeating pattern. They probably need some help. A-quality managers tend to be very good at hiring A-level talent and nurturing them to become great contributors. Invest in your A players.

Look at Acquisitions From All Angles

I was recently coaching a CEO through a complicated analysis of a potential acquisition. An acquisition should make a company more valuable, but it introduces risk and a host of other variables. The calculus involves a broad range of constituents that need to be considered. In addition to all of the financial and legal diligence, it gave me the idea to construct a roadmap, or checklist of softer items to evaluate prior to pulling the trigger on an acquisition.

The first order problem is the decision to move forward or not. From a deal structure perspective, this is pretty well understood territory. There are many good references for diligence checklists, and models to understand the financial implications of an acquisition. However, it is nearly impossible to cover all of potential variables and gotchas in an acquisition. The buyer has to determine what they know with certainty vs what they have been told, what they suspect but need to confirm, and what the likely traps or points of failure are. The unknowns all contribute risk to the deal.

Historic financial performance of the target is fairly easy to interpret, but past performance is not always a great indicator of future performance under new ownership. The seller did not build their business to fit hand-in-glove with the buyer’s business, so there will be rough edges and overlaps that need to be be smoothed out or eliminated. Acquirers look for “synergies,” which is a euphemism for cost savings. The buyer needs to consider the soft side of removing these edges, and how it will impact future performance. Assuming some of the seller’s employees will be reassigned or eliminated as a result of the ‘smoothing,’ what will be the impact on the culture and retention of the remaining employees? Are the effected employees cultural leaders with influence beyond their functional roles, and is there a risk that their exit will destabilize the remaining employee base? It is important to consider the flight risks and the cultural impacts of the synergies.

There are always different ways to structure an acquisition, and each approach will impact various constituents differently. The mix of cash up front, earn out, equity, debt, and timing will lead to different sensitivities. Buyers want to put the risks on the seller, and the seller wants to put the risks on the buyer, so it is a balancing act. If the seller has institutional investors, the buyer ought to be aware of the investor’s fund dynamics. Are they at the end of their fund lifecycle and looking to get out, or is this an under performing asset? Are they open to rolling their investment into the acquirer’s equity stack, or do they want a clean break? I am not a fan of earn outs, particularly as a seller. I view earn outs as a recognition that the two sides do not really agree on price, so they are kicking the can down the road. My frequent quote has been “an earn out is setting up a later fight.” However, as a buyer I recognize that it is a powerful tool to de-risk a deal. It basically means the buyer is unconvinced of the value the seller is claiming, so the seller gets to prove it by performing. The problem is that the buyer will make changes once they own the company, so the business trajectory will not remain the same. Typically the argument will be “you screwed up my company, so we could not earn the earn out.” My advice is to be VERY clear about the buyer’s intentions, the terms of the earn out, and the measures of success, and keep the duration short.

Often, buyers consider the needs of the seller’s employees, but under value the implications for their own employees. Successful acquisitions will typically result in a blending of executives and employees from both companies. There will be overlaps, and there will be winners and losers on both teams. The process will be unsettling for the acquirer’s employees as well as the seller’s. I have a firm rule that the acquirer has to answer four key questions on day-one for every one of the seller’s employees, and any effected employees of the buyer:

1. What is my job in the new company? Job descriptions are ideal, but at a minimum a clear statement of duties going forward is required.

2. Who will I report to? There cannot be any ambiguity of reporting structure. The direct manager is the most important influence on employee retention, so it is vital to set this relationship on the right footing from the start.

3. What is my compensation package? This is a comprehensive topic that includes base pay, variable pay and bonus opportunities, as well as benefits, equity compensation, and vacation or PTO policies.

4. What do I need to do to succeed? Employees need to understand their performance metrics and measures, and they have to believe they are attainable.

One of the most important constituencies is the customer base. The seller’s customers are likely to be unsettled, and if any of them were shaky to begin with, churn can become a huge issue. The seller’s leaders need to be active participants to calm down the base, and the buyer has to allocate senior resources to meet the customers and welcome them. Welcoming means listening, not just talking. Customers want to have a voice and a home with the buyer. Listening will uncover underlying satisfaction issues, and should focus on understanding the value the customers perceive in staying with the new company. It will highlight areas the product team needs to preserve or enhance going forward. This is particularly important if the acquirer intends to retire and replace the seller’s existing product. It is easy to think your product is superior so customers will love it, when in fact there may be some key capability your team overlooked.

The same care needs to be applied to the buyer’s customer base. Often the intention of the acquisition is to broaden the buyer’s product line or capabilities. However, existing customers may see it as deemphasizing the current product and react negatively, or look for a replacement vendor that offers more of a pure-play, where their needs are the only focus for the vendor. Churn is the absolute enemy of acquisitions, so it is paramount to focus on the customers of both companies to ensure the revenue stream is uninterrupted.

There are many other considerations, but the last one I want to address is the need to look into the value of the buyer’s business in the future. Assuming the buyer will either go to market to be acquired, or to raise incremental capital in the future. How will this acquisition impact the timing and the potential universe of future investors? Will it make the company a more desirable target, or will it complicate the future investment landscape? How long will it take to prove value from the acquisition, and is that within the investment horizon of the current owners? Institutional fund dynamics play a role in this decision process. If current investors want to get out in the next couple of years, but the acquisition will result in a short-term downturn while the company builds for a future upturn, will it play out in the timeframe of the current investors? This is particularly true if the acquisition will adversely impact near-term profitability, growth, and churn. It may actually lower the value of the buyer before it raises the value. Current investors may prefer a steady growth path to realize their exit value sooner, and therefore will view the deal unfavorably, or impose performance metrics that change the operating equation post-acquisition. All of the existing investors may not be in it for the long haul.

The bottom line is that the CEO, executive team, and the board need to be aware of all of the implications of an acquisition, and avoid focusing solely on the financial and diligence elements of the transaction. To apply a military analogy, there is the action (doing the deal), the reaction (post-deal fallout), and counter action (what has to happen to make sure things go as planned). As Colin Powell said, “you break it, you own it.”

Take A Breath

I volunteer as a mentor with eForAll, a terrific organization that supports aspiring entrepreneurs to launch mainstream businesses. I was recently on a call to meet a potential mentee who is striving to start a landscape business. He told me that he currently is a one-man company, and he has so many customers for lawn mowing that he cannot devote any time to anything else. He also said that his lawn mower is too small, but he cannot afford a larger commercial mower, and he cannot afford to hire anyone because he does not have equipment for them to operate. He needs a loan to expand his business, but he does not have time to secure one. He is a perfect example of the tyranny of the urgent being the enemy of the important. We talked about his need to take a breath and plot a course forward that will work for him, rather than just staying on the treadmill he is on and remaining frustrated.

The concept of taking a breath is something I often speak with CEOs about. Particularly in early stage companies, the founder/CEO tends to do everything, and as the business gets going they are rapidly consumed with the treadmill of day to day demands, and fall victim to the tyranny of the urgent. Moving from the massively hard task of launching a business to the herculean task of building a sustainable business requires a major change in CEO behavior. The first step is to take a breath and recognize the situation. The CEO needs a moment to reset and plot a path forward. Unfortunately, many entrepreneurs are so caught up in the moment and the crushing workload that they fail to consciously take a breath.

The same scenario happens in more mature businesses with experienced executive teams. Each executive is consumed with their own daily tyranny of the urgent, but collectively, the CEO and the executive team need to periodically take a breath. My approach is to schedule routine quarterly executive offsite meetings. Typically spread over at least two days so that there is evening social time to unwind together. Meetings have formal agendas and meaningful strategic topics to discuss and debate, but the key is to look a little further into the future to see what is coming instead of constantly being buffeted by unseen forces. The ability to look further into the future, or deeper into what is going on, creates the space to anticipate and course correct without falling victim to the tyranny of the present daily activities. A side benefit is it forces the executive team to disconnect from immediate issues, and rely upon their teams to hold down the fort. That means they have to have a competent team behind them, and at times the retreat will serve to highlight weaknesses in the next level team.

A wise manager I once worked for had an interesting saying — ‘always be decisive and make timely decisions,  but never make a decision until you have to, because you may learn more. The key is to know when you have to decide.’ It was his way to say ‘don’t procrastinate, but also don’t shoot from the hip without thinking about all of the angles.’ It was also his way of creating a pause to take a breath and make a well conceived good decision, not just any decision. In a fast paced, growth environment, everyone feels urgency, and they put that urgency on the shoulders of the CEO and leaders to make rapid decisions. The mantra to ‘take a breath’ is a way to slow time and make sure the urgency does not lead to carelessness or a treadmill situation.

The Staff Is Smarter Than You Think

CEOs and executive teams handle a lot of information, and some of it is pretty confidential or proprietary. There is always a question of how open to be with the staff versus how much to compartmentalize and keep secret. The level of openness is a style issue that starts at the top, and becomes deeply rooted in the culture of the company.

Small businesses are often quite transparent. However, as organizations grow, information becomes more compartmentalized and sharing drifts toward a ‘need to know’ model. As we move from a few colleagues that we know well and trust implicitly, to a staff of individuals who are in it for a paycheck, we tend to pull back on transparency. After all, you really do not know who is going to do what with your sensitive information. The dilemma is that the more you keep secrets, the less your team is likely to become engaged. By putting up barriers, you are actually driving team members to be disconnected, and you are fostering that 9 to 5 mentality.

Corporate info falls into a number of broad categories, and it can be helpful to think about how you want to treat information about each category in advance. Here are a few topics to consider:

• Financial information. Specifically, ongoing financial performance, cash flow, capitalization and ownership. Many companies share basic P&L data with the team as a form of scorecard. Cash flow is a little more sensitive as it may lead people to focus on the runway instead of the lift off. Capitalization and investment are often the subject of public press announcements — ‘we just raised $X million from YYY Partners,’ but individual investors and option grants tend to be much more sensitive.

• Human Resource information. This is a sensitive area fraught with personal data. The subtopics to consider are hiring and firing decisions. When and how do you want to share information about personnel changes, especially when it involves reductions in force? Every employee worries about their job, and any disturbance in the (work)force creates anxiety. This is the area where the CEO and exec team need to be at the top of their game. Past honesty in communicating HR decisions will build credibility and trust for when things get bad.

• Product information. New products and features are exciting and people like to talk about them. However, in a fast-paced competitive market, leaking foreknowledge of your product plans can provide your competitor with the opportunity to counter your attack. You need a clear strategy for managing internal and external information flow about product breakthroughs. The team needs to internalize what is at stake, and you need a trust environment with clear communication of authority and consequences for violating the confidentiality rules.

• Go to market information. The biggest topic here is typically sales pipeline information. Who gets to know about pending opportunities, and who gets to know about the forecast for the future? On the marketing side, metrics and lead flow may be informative about future performance, and as such may be confidential. How widely do you want to share this data?

• Customer information. Often, what a customer is doing and how they are deploying your product is considered confidential by the customer. Certainly, their data is their data and it needs to be respected. Beyond the confines of a single customer, consider how broadly you want to share customer lists, and customer health data. Pending or anticipated churn is often a sensitive topic that the exec team needs to have a plan for managing.

These are all examples of categories of information the CEO needs to consider when deciding how open an organization will be. In my experience, the greater the degree of transparency, the more engaged the staff will become, and the more trust you will build. It takes a village to be successful, and creating a shared trust and understanding of the facts of the business will help to create that village. Moving the needle from employment being ‘just a job’ toward ‘we are all in this together’ will go a long way to creating a resilient organization that can withstand the stresses of a growing competitive business. The staff is probably more mature and smarter than you think, and if you engage them they may surprise you.

One last note. Never underestimate the power of the corporate grapevine and rumor mill. Employees watch their leaders like hawks, and they perceive every nuance of behavior: is the door closed more often, are there more meetings, do the execs looked stressed, are voices louder or harsher than usual? Every element of executive behavior is a tell. Employees gather and disseminate information at the speed of light. On numerous occasions in my past, the executive team agonized about keeping a secret or how to share bad news, only to discover that everyone already knew it. The problem is that nature abhors a vacuum, so in the absence of a clear message from management, the grapevine will fill the void with its own interpretation of reality, and that is rarely positive. Bad news can quickly spin out of control while management is discussing and debating how to share the facts with the team. See my earlier post about the Ladder of Inference. Crisis management is an important part of the CEO’s role, and clear communication is a critical element of getting it right.

Everyone Needs A Friend

Being a CEO can be a lonely position sandwiched between the board of directors and the employees. Even though you are at the top of the corporate hierarchy and surrounded by your executive team and staff, it is an isolated role. You can build lasting and meaningful friendships with your team, but there is always a power dynamic where you, as the CEO, are the ultimate decider-in-chief, and you hold their careers in your hands. Business will always trump friendship, and the CEO is the one that may have to make the hard decisions about corporate direction, or whether or not to remove a teammate/friend from their position. To quote the great Stan Lee, creator of Spider Man, “With great power comes great responsibility.” This power dynamic creates a natural constraint on the flow of information.

A similar power dynamic exists between the board of directors and the CEO. The CEO and board must form a positive working relationship, but a fundamental role of the board is to hire and fire the CEO. Similar to the dynamic between the CEO and employees, the relationship between board members and the CEO has an underlying constraint on information flow that causes the CEO to be guarded about sharing uncertainty or showing vulnerability with board members.

Being sandwiched between employees and the board while carrying responsibility for all aspects of the business is what results in the CEO position being a lonely role. Regardless of experience level or business acumen, every CEO can benefit from a true business ‘friend.’ There are several ways to fill the role, but the requirements are pretty basic:

• The ‘friend’ has to be solely devoted to the success of the CEO. No ulterior motives or conflicts of interest.

• The friend has to be intellectually engaged in the CEO’s business and able to grasp the challenges the CEO is facing.

• The friend has to be able to subordinate their own ego and exclusively focus on the CEO’s needs.

• The friend has to be honest and able to hold up a mirror to the CEO, even if it is to show a painful truth.

In my past CEO positions, I have solved this need in different ways. One of my favorite approaches is to join a small, devoted peer group of fellow CEOs. I tried different types of groups, and found that the most helpful for me had the following specific characteristics:

• There was a facilitator who ran the group and imposed a structure on the meetings.

• Participants were required to prepare in advance and commit to be present for all meetings.

• Participants were all in similar, but non-competitive businesses. In my case, they had to be technology CEOs.

• Participants all had similar funding models. Mixing public company CEOs with private company CEOs does not work well. Blending self-funded CEOs with venture or PE backed CEOs also does not work well.

• Participants needed to be from similar sized companies at similar stages of maturity with similar growth objectives and similar experience levels. We had to be able to help each other, and feel like we all had something to contribute.

• Participants needed to have similar governance structures with a board of directors populated by institutional investors

I have tried CEO groups that did not follow these requirements, and it never went well. My craziest example was a group comprised of a sole-proprietor sod farmer, a friend-funded gravel pit owner, a PE backed healthcare company, and me - CEO of a VC backed software startup. Despite our best efforts, none of us could be very helpful to each other, and it turned into a waste of time. However, when I found a group that aligned with the requirements, it was life-changing.

An alternative to joining a CEO group is to find a CEO coach or mentor. A lot of people who make it to the CEO role have pretty big egos, and the idea of needing a coach may seem like admitting a flaw or deficiency. Our ego gets in the way of accepting help. The truth is even great sports champions all have coaches, so why not CEOs? A coach does not have to be able to do your job better than you, they only have to see how you can do your job better, and guide you to evolve to a better version of yourself. The most important rule for engaging a coach is that the CEO has to be the one who wants it, and they have to be the one to pick the coach. The coach can only serve the CEO. Too often, when the board thinks the CEO needs some help, they push for a coach, but problems arise if the coach is unclear about whether they work for the board or the CEO. It only works if the coach/CEO relationship is totally confidential, as if it is an attorney/client privileged relationship. No reporting to the board. The CEO has to be comfortable being vulnerable with the coach to acknowledge challenges and shortcomings without fear that the coach will rat them out to the board. In my experiences being a coach, it is vital for the CEO to understand that my sole objective is to help them become more successful.

Whether the answer is a coach or a peer group, the CEO has to take it seriously and commit the time and effort to do the work. Time is precious, and getting together with your coach or peer group has to be productive. It is not just a friendly shoulder to lean upon, although sometimes just venting an issue can be helpful. I am an advocate of making the sessions with a coach or a peer group structured. The CEO should prepare a brief and each meeting should review progress on past issues and address current challenges. Accountability is important, and that is where the coach or the peer group facilitator comes in.

In the situation where the board is uncertain about the CEO, they have a fairly blunt instrument to address the issue. Either they invest in the CEO to help them improve, or they fire the CEO and hope to find a better one. If the choice is not obvious, then the first step should be to help the CEO improve because replacing the CEO is a risky and painful decision. Investing in the CEO will either make the choice more apparent, or it will result in a better CEO. Coaches and peer groups cost money, and it is easy to question the expense or postpone the investment ‘until things are more stable.’ A common half-measure is to ask a board member to step in and ‘help’ the CEO, but that power dynamic thing will always get in the way. If the CEO is worthy of saving, then choosing to avoid the cost of an external independent coach or peer group misses the point. Investing to grow a better CEO is basically a self-funding investment that will deliver a high rate of return on investment.

The bottom line is every CEO can benefit from a trusted advisor or peer group, and every board ought to encourage the CEO to make the investment.