It's the economy stupid!

Many CEOs and founders have been focused on the current economic downturn. Some take knee-jerk actions to cut expenses (and layoff employees), some clamp down on all activities, and some ignore reality hoping it will change. Not being old enough to have lived through the Great Depression, except through tales that I've heard, the only analogy I have is the economic aftermath of 9/11. At that time, I was running Transcentive, a stock plan administration software company. And, as you might imagine, stock options and enterprise software were not the top priority on everyone's list as we all struggled to understand the new reality that an attack on our homeland and the ensuing stock market crash and economic turmoil caused.

I've searched for some guidance during this unique patch of our economic history. One of the best, is an article found on CNN Money's web site by Ram Charan, a writer and management guru entitled:

Managing your business in a downturn

As the optimistic entrepreneur that I am, I like to view turmoil as a friend. Turmoil and uncertainty typically are great times to topple the status quo, to empower new market leadership, and to cause customers to look for new solutions.

Ram's article was written with this particular downturn in mind, but I see it as a handy reminder to refer to any time the macro economic conditions turn abruptly south.

Say Hello to Uncle Fred

Some people call it the Uncle Fred factor. A Transition CEO comes into a founder-based business only to find a close friend or member of the family - Uncle Fred. He may be a do-nothing freeloader or a know-it-all who stays on the payroll simply because no one can fire him. Usually his (or her) tenure is dependent entirely on the good will of the founder.

New CEOs who can't accept such a quirky practice will have a really difficult time operating in this kind of environment. Uncle Fred can't do much good, but he sure can do harm. The cycles the new CEO will spend trying to neutralize Uncle Fred or trying to rid the organization of their uncle, will be time that could have been spent more productively elsewhere.

I learned the hard way that Uncle Fred is often a cost of doing business. If you can just keep paying Fred and shuffle him out of the way, that may be fine. Otherwise, if he causes chaos, you may need to take more drastic action. Savvy board members, including venture capitalists (whom I would have thought would be too cheap for this practice), will often advise that Uncle Fred should be treated gently. His departure should be handled gracefully and sensitively, often paved with more than a few dollars and continuing benefits. This, I have found, is a very inexpensive way of dealing with a tricky issue.

Secret Sauce for CEOs

I received the article I've posted below a couple of days ago. I think that many of these ideas are right on target. I'm interested to hear from CEOs/Founders on whether these ideas resound.

The "Secret Sauce" For CEOs

15 September, 2008
By David Wexler

Having worked with a number of highly talented and successful CEO's over the past 30 years, I can with comfort assert that there are many ways for CEOs to successfully lead a business.

That said, there is one thing that I've observed those CEOs who have been most successful over the long term do that I believe is the secret sauce for CEOs who are committed to longer term profitable growth and shareholder value creation, and that is to build a high degree of organizational trust.

I define organizational trust as that intangible aspect of a corporate culture that causes employees throughout the organization to cut the leadership team some slack when leaders err, and to stay the course and stay committed to the organization and its leaders.

How often have we observed situations where a CEO makes a mistake, or a member of the executive team, or leadership at whatever level of the organization, and the knives come out?

Members of the Board, the CEO, peers, and/or employees at all levels of the organization begin to complain. The leader's decisions are questioned. Work is asked to be re-done. Subtle and not so subtle signs of disrespect and borderline insubordination emerge. Relationships chill. Access to people, information, and team forums diminishes. Ultimately, one way or another, the leader or leaders end up having to exit the organization.

Contrast this with some highly publicized mis-steps in companies that may make the wrong call on the market's appetite for a change in product formulation; product features; and/or pricing. These companies are often times able to recover owing to brand image, loyalty, and strong cash flow.

I will argue though that where their leaders survive is due more often than not to the trust and goodwill that they have built with their stakeholders.

How then to build organizational trust? The CEOs whom I've observed be successful at this do the following:

1. Communicate a vision, mission, strategic goals, and most importantly, what your expectations are of employees in achieving success.

2. Meet with and update employees and other stakeholders as to progress, regularly, openly, and honestly. Speak to what is going right, as well as what is going wrong.

3. Maintain an open door providing access to employees; provide forums for obtaining feedback and listen attentively to what employees have to say.

4. Slay sacred cows. In every organization there are long-standing issues that aren't attended to. Most employees know what these are but often times leaders fail to demonstrate courage in dealing with these. It may be a rogue unit head or a poisonous key employee; it may be a skewed compensation program that favors some at the expense of others; it may be a product unit or office location that has long ago ceased to make economic sense. Whatever these are, by addressing them, you send a powerful message to employees and build tremendous organizational trust.

5. Celebrate successes. There will be many along the way, both big and small, and it is important to mark these milestones to achieving success.

6. Credentialize the leadership team by having trusted (by the employees) third parties come in to speak to how the company is helping them to be successful. These can be key customers; key partners; and/or owners.

7. Be considerate and worthy of your employees. All roads to success lead through employee engagement and contributions. Leaders should validate the leaders who report into them since employees most trust their first line supervisor and respect most, leaders who respect their leader.

8. Most importantly, deliver wins. You don't have to win every battle and in fact will miss targets in some quarters and on some strategies. But, you have to win in terms of the overall strategy and be able to show that you are progressing towards delivering on the mission and strategic plan.

Employee engagement surveys often times hide the true picture of the level of organizational trust in a company. I have seen survey scores that indicated all was well, when in fact employee turnover was on the verge of becoming catastrophic and morale was down all over. And, while it is also true that I have yet to find nirvana in any company, and we all as employees will always find something to complain about, we don't need perfection in a company to be successful.

Just a high degree of organizational trust, and that is not only readily attainable, but the secret sauce for successful CEOs.

The former global head of human resources for Alias Systems, David Wexler has had HR and operational leadership roles at companies such as CPP Investment Board, Midland Walwyn, Digital Equipment, and Procter & Gamble. His experience spans lifecycle HR; the people related aspects of mergers, acquisitions, and divestitures, and building winning organizations. You can reach him at david.wexler@hotmail.com.

Mentoring Mentors

Anyone who has ever mentored or is thinking about mentoring a business associate or colleague, might want to follow this link to the CT Innovation Pipeline Accelerator Effective Mentoring Webinar, just posted to their site.

More on Focus - This stuff matters!

In response to my prior post, a friend and business colleague of mine - David Gibson, CEO of XOS in New York, sent me the following quoted excerpts from John Boe's web page. All of which drive home the focus idea.

"The quality of a person's life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor." Vince Lombardi

Walt Disney was arguably one of the most creative dreamers and determined men of the twentieth century. Walt understood the power of commitment and would frequently tell those around him, "When you believe in a thing, believe in it all the way, implicitly and unquestionably."

The ancient Greek warriors were both feared and respected by their enemies. In battle, the Greeks established a well-deserved reputation for their unsurpassed bravery and unshakable commitment to victory. The key to their overwhelming success on the battlefield had far more to do with how the Greek commanders motivated the warriors than it did with issues of tactics or training. The Greeks were master motivators who understood how to use a 'dramatic demonstration' to infuse a spirit of commitment into the heart of every warrior. Once the warriors had been offloaded from their boats onto their enemy's shore, the Greek commanders would shout out their first order, "burn the boats!"

The sight of burning boats removed any notion of retreat from their hearts and any thoughts of surrender from their heads. Imagine the tremendous psychological impact on the soldiers as they watched their boats being set to the torch. As the boats turned to ash and slipped quietly out of sight into the water, each man understood there was no turning back and the only way home was through victory.

"Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative and creation, there is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one's favor all manner of unforeseen incidents, meetings and material assistance which no man could have dreamed would have come his way. Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now." - Johann Wolfgang von Goethe

Entrepreneurs and investors who perpetuate multiple strategies in order to hedge their risks... It's time to burn your boats!

Focus your attention

I often come across early stage ventures that are pursuing three or four different alternative products or strategies. When I inquire how they plan to win at several of these simultaneously, I get the same answers. We are pursuing multiple paths because we are not sure which one will be the winner. Or, Our investors are happy to have a portfolio of opportunities to reduce their risk. This causes me pause. On one hand, certainly in this early stage they are right, its difficult to pick a winner before their products are complete or the market has had a chance to vote. But, can they really afford to be pursuing multiple strategies?

Making tough decisions is always a difficult proposition. But not making them sets you up for much more certain failure. The word decide is made up of the Latin roots de- "off" + cædere "to cut"as in cut off other alternatives.

What entrepreneurs and investors who allow the pursuit of multiple alternatives do not understand is that without cutting off several of their multiple alternatives they are giving management permission to fail. That's right permission to FAIL!

Human nature is such that if you have a "fall back" position, an alternative if your pursuit fails, then you tend not to take success to its limits. Somewhere in the back of the homo sapiens' mind, we keep the glimmer of a trap door alternative to failure. Contrast that with the very powerful survival instinct that each of us carries. In the face of utter failure, we are able to call upon super-human capabilities to make the impossible occur.

If you study enough start-up ventures that had everything to lose by failing, you find a long list of very successful entrepreneurs who accomplished the impossible. Again, contrast that with many corporate ventures where the person leading the charge had a cushy job to fall back upon if their intrapreneurial venture failed. Is it any surprise that entrepreneurs create many more important ventures than corporations who have many times their resources are able to create from within these large entities with gracious safety nets?

Entrepreneurs who are pursuing multiple paths take note. Cut off your alternatives and your chance of success will increase! And investors who advise their early stage management teams to retain a portfolio of opportunities should instead capture their portfolio safety from multiple investments rather than diluting the focus of any individual management team!

What's your GHIN?

We've all heard of private or venture capital companies doing due diligence on the companies in which they are interested in investing. And we probably are convinced that these financial firms are careful enough to do due diligence on the principals of the company. But did you ever think they would check out your golf handicap? Guess what? They do!

I recently found a private equity company as part of their diligence looking up the handicap (and finding out how often they play) of the principals of the company. This could be both interesting and damaging. What if you posted scores for the past two weeks, playing 4 or 5 times a week. Are they going to think about your office attendance? And what if your handicap is a 4? Are they going to believe that you are just a casual golfer?

I doubt that anyone makes a make or break decision based upon how good a golfer one of the principals is. However, it is easy for them to look you up on GHIN.com. All they need to know is your name and your state. If you have a posted GHIN account anyone can see it.

Golfers beware! :)

Dividing the Founders' Pie

It seems that this problem is quite pervasive. Smart, driven, innovative founders, invent something great. Several of them join together to form the entity necessary to bring it to commercial success. Then, thinking nothing stands between them and their fortunes, they ineptly stumble, fall and sometimes even disintegrate.

What occurred in this all too frequent scenario, is that the founders realizing that success and the rewards that come along with that, were unable to agree among themselves how they each had and would contribute to the success of the company - or how to divide up the founders' pie.

I've recently encountered two such situations, where founders asked me to be the "King Solomon" and divide up their "baby". In both situations I refused - no outsider is capable of accomplishing such a tricky maneuver. In my opinion, unless this is handled appropriately, the rest of the entrepreneurial journey is probably not going to be pretty, if it happens at all.

Divisions like this should be done early - before there is even a glimmer of hope of the success yet to follow. It has to be done when everyone is digging in, doing whatever it takes, and following that founder dream. It has to be organic. It has to be unanimous. It has to be final. And, it has to be over.

So when I was asked to participate in these two situations, I answered the only way I could. Divide it up evenly?

Does this make sense? Did everyone contribute at the same level? Wasn't it one person's idea and the others were brought along to "support" the idea. Isn't there one person who early on gave up everything else to pursue this invention? Is this fair?

My experience is that questions like this are only asked when there already are hard feelings among the founders. It means that they put off this important decision, for good (or bad) reasons and now with that glimmer of success peaking out, they decided this was an important concern.

Without reading minds of the founders, I bet they each feel that they contributed in some special way to getting the company where it is. I bet they each believe they had more impact than they had. I also bet they are not going to be happy with anything less than an equal share.

My "everyone is equal" suggestion may in fact not be entirely equitable. But it is aimed at a more important conclusion that I know is true... spending time dividing up the pie is precious time (and energy) wasted not pursuing the real goal - your own success. Getting this out of the way is critical to any future opportunities.

I've seen important promising opportunities fail by getting mired in this specific issue. They literally could not get past it and they failed. And, perhaps more importantly, I've seen first hand, companies divide the pie up evenly - with the founding partners clearly NOT contributing equally or being equally capable - in one case for 25 years - and develop extraordinary shareholder wealth. Is this a coincidence? I think not. Focusing intensely on the issues that matter - product success - is what startups are all about.

He who spends his time dividing up an all-too-small pie, will end up eating less than one who focuses only upon increasing the size of the pie.

Illinois ITA CEO Summit

I had the privilege of presenting last week to the Illinois Information Technology Association's CEO Summit. My presentation focused on Lessons Learned, especially when it comes to picking and focusing your business model. I've included my PowerPoint presentation here. I'd love to hear your comments.

| View | Upload your own

Why is it so hard to focus?

Early stage businesses are risky. Investors know that. Entrepreneurs are notorious risk takers. Statistically, most new businesses fail. But the ones that succeed often disrupt the status quo, challenging traditional industry leaders, and creating substantial value for their stakeholders. With the benefits of winning so high, American entrepreneurship is alive and well and fueling thousands of aspiring startups each year.

But all too often, we see startups adopting a hedging strategy. They pursue two, three, or more different products, markets, or opportunities at the outset, prior to establishing any beachhead position. When asked, usually the answer is: "its too early to tell which of these might succeed, so therefore we would be negligent to count any of these out."

This portfolio strategy for a newcomer attacking the market is doomed!

A reduced risk strategy for an not-yet-established company will seldom work. While it is possible to just get lucky and win the lottery (and some companies have) the chances of succeeding with a diffused set of investments, lacking a laser focus, has proven to be faulty. The competition is fierce. Well heeled competitors with established distribution, brand recognition, and operating momentum are tough enough to compete with head to head. But, trying to fight multiple battles concurrently is a prescription for disaster.

Startups succeed when their drive, willingness to take on risks, and gorilla strategies all point in the same direction. They win by attacking staid competitors who themselves see that new potentially winning strategy as risky, who lack the desire to do "whatever it takes" to be successful, and who are busy covering their bets so they do not risk the shareholder value they have already created.

This is probably why we often find that entrepreneurs are young and early in their careers. They either are naive to the risks of failure, or they have little to loose. But entrepreneurs who are willing to risk it all, are the ones that big established businesses should be afraid of.

There are many analogies that can help understand why this focus is necessary. Have you ever tried to drive a dull nail into a hard piece of wood? The resistance of the wood, coupled with the larger surface area of the dull-ended nail, makes this a difficult task. Better a very sharp nail with all the force directed on its head to succeed at this task.

War analogies also apply to this situation well. Small armies attacking larger established forces never attack in multiple locations. Instead they pick their targets, focused on the spot of most vulnerability, and use all of their forces in one location. No self respecting general would ever pursue a strategy of trying to go head to head with a much larger enemy in multiple locations at one time and expect to live to fight again. That is until they establish their beachhead and then branch out from there.

And of course there is the old Chinese proverb: "He who chases two rabbits catches neither." Ever tried to chase down even one rabbit at a time - that alone is tough. But with the added distraction of the second, the chances go down exponentially.

Business leaders who are unwilling to focus, to pick one target, and give it all they've got to try to win, are not entrepreneurs at all. They should go back to the comfort of their less risky established company jobs and run a division. As an investor, who better to take advice from than Warren Buffett? Mr. Buffett suggests that if you are looking for a portfolio of investments, then buy the stock of multiple companies, rather than investing in companies with a hedging strategy.

Geoff Moore, Author of the seminal marketing treatise: Crossing the Chasm, suggested that disruptive inventions solve one problem for one market substantially better than the existing solutions (if any exist at all) and focus on taking a single beach head on the other side of the chasm. Doing otherwise increase the risk of failure.

Rather than decrease risk, entrepreneurs that follow multiple simultaneous paths, actually increase their risk of failure.