Archive for the ‘Leadership’ Category

h1

Evaluating New Ideas

July 2, 2010

How do you decide if a project is worth the investment? I worked for a company recently that had a general policy about how they spent money. Every category (i.e., Sales & Marketing, R&D, etc) was measured as a percentage of revenue. This works great as operating metrics in a mature business, but it actually prevented the company from investing into new ideas that had no revenue. I find many larger companies struggle to allocate investment dollars to new ideas for this very reason, so I thought it might help to provide some perspective on the issue.

This subject is also timely as I’m working for a company that made a significant investment into a new product and they have asked me to help make it a success. This led to a conversation about how we should measure success. I’ve suggested that the owner treat the product as an early stage investment. So how do you evaluate an early stage investment fairly? I sat through a Venture Capital (VC) workshop recently and the presenting VC listed his criteria. It was very simple, and went as follows:

Team
Great Product
Large Market
Business Model
Timing

The above criterion are a very fair way to decide the odds of a startup being successful, but it doesn’t address the return on investment. Generally, an early stage investor is looking to get 10x or more out of any seed investment within three to five years. These are much bigger numbers than the average company looks to achieve on an operating basis, but seed investments carry much more risk. VCs also aren’t thinking one and done. They are making many investments knowing that only a small percentage will succeed.

We live in an age where most of our leading companies are struggling to innovate. As an example, I live in the Seattle area and this is the most frequent indictment of Microsoft. My experience in larger companies is that they simply don’t think like VCs when new ideas are presented. Every company should set aside some seed money for new ideas, and should evaluate them as early stage investments. If they did they would solve their innovation dilemma and they would have a lot less great minds leaving them to go start their own businesses.

Most people who leave mature businesses to start their own company do so out of frustration, not because they think they are going to get rich. If you want to keep your best ideas and people I suggest you think more like a VC and less like a mature company the next time an employee presents a new idea.

h1

Chemistry

May 13, 2010

I’ve been neglecting my blog over the last couple of weeks while I wrapped up my interim assignment. I’m back to a more normal schedule and looking forward to contributing again.

Today’s topic is Chemistry, which I think is an often overlook or misunderstood concept. A business needs to be greater than the sum of its parts. This comes from teamwork and collaboration between the employees. When you add a person to a business they need to make the people around them better.

As a business gets larger it becomes harder and harder for one person to make a difference. Certainly the person at the top always matters, but can one person be a catalyst for change? It depends on the current chemistry of the organization. Let’s keep the rest of the discussion simple and narrow it down to three types of companies: good chemistry, average chemistry, and bad chemistry.

Add a strong personality to company with good chemistry could just as easily backfire as create an incremental gain. If you have good chemistry and real strong people and you bring in a superstar with a skill set that is redundant, chemistry will be fractured. The existing people will feel threatened by the person you’ve added and wonder why you don’t have faith in them. You’ll find having more is less in this situation. If you add a superstar to a company with good chemistry that has complementary skills to the team it likely will raise the bar for everyone. This type of add is how you become greater than the sum of the parts.

It’s easier to improve a mediocre company by adding a new hire as a catalyst. In one of Jack Welch’s books he talked about the type of person they sought to hire at GE. Key things they looked for were people with Energy and Edge. A high energy person with a bit of an edge is likely to raise everyone’s game in an average company. Even if the skill set is redundant this person is likely to challenge everyone to produce more.

Adding the high energy-edge person will almost always fail in a company with bad chemistry. The strange thing is they’re the ones most likely to do it. It really doesn’t matter if the skill set is complementary or redundant. This person will do one of two things when they are added. They might become like everyone else (the vortex), or they quit. Either way it doesn’t change anything.

Let’s talk about what I like to call the bad chemistry “vortex”. Several years ago I was asked to take on a business unit with about 200 people that was severely underperforming. When I first entered the building I was struck by how quiet it was and how there didn’t seem to be any interaction between the employees. I held several early town-hall meetings and discussed the need to communicate and work together, but nothing changed.

Like most people I thought I could change this by simply adding a couple of strategic hires. I added one person to a key function and it didn’t work. Then I very carefully seeded change agents in management positions in the most critical areas. The result was a big thud. Not only did it not change anything, but these people quickly became like all the others. My frustration continued to build.

Finally, I asked high performing managers from other businesses I managed to get engaged and give me their opinion. After about 30 days they all came back and said it was hopeless. People were hunkered down and you simply couldn’t get a feel for what was causing the problem.

Not being a person who gives up easily, and never one to shy away from risk, I decided to make a sweeping change. I cut over 75 people on one day. My thought process was to keep those who I thought had potential, but had been sucked into the vortex. I figured if we simply forced them to do more they would rise to the occasion. I was surprised by what happened next.

When it comes to letting people go I tend to be hands-on. I believe reduction need to be handled delicately and most managers simply don’t have the experience. In the process of letting these people go there was a theme. For the first time in my career I had people thank me when I informed them their job had been eliminated.

Many of these people’s jobs had been greatly or reduced or completely eliminated over time. They lived in fear that someday someone would find out that they really didn’t have much responsibility. To avoid being found out they isolated themselves from others. They were thanking me for bringing this isolation and their paranoia to an end.

Now the above example is quite extreme, but I’ve seen it at other places. For one reason or another people reach a point where they feel they don’t matter and crawl into a cocoon. The longer they stay there the higher the level of paranoia that develops. When many people do the same thing it feeds on itself.

Imagine trying to get something done in an organization like this. Every person you go to offers no help or direction. They simply want to be left alone. It doesn’t take long before you simply give up or quit. When you give up you start to behave just like these people. The more people that do it, the harder it is to fix.  You eventually reach a point where the only choice is a sweeping change. Most businesses don’t survive sweeping changes. You simply can’t replace the majority of people and expect to succeed.

The lesson to be learned here is to never let the above situation take root. This is easier said than done, but at its root are managers who don’t make the hard people calls. If the person’s job was eliminated give them a chance to fill another open position. If there isn’t a fit cut them. It doesn’t matter how good they were before, you can’t keep people who don’t have jobs or don’t fit the jobs you have. If you have someone who isn’t performing, don’t minimize their responsibilities coach them to improve. If they don’t improve let them go. I know this sounds harsh but if you don’t do this you will create the bad chemistry vortex and jeopardize the entire business.  Proactive management is required constantly to keep a business thriving.

h1

Changing A Culture

April 9, 2010

I’ve walked into a number of situations over time where the culture needed to be changed. People simply weren’t into what they did anymore. I also find “How would you go about changing our culture” a frequent question in interviews.

My answer is simple: give them something to believe in. I’ve found that if employees really believe in what the company is trying to do the good ones engage.

I’ve also found that in most places the employees already know what needs to be done, even when they don’t. I’m sure you read that and thought what? If you talk to the employees they won’t be able to articulate what needs to be done, but when you ask them what they would change, you’ll most likely find a lot of commonality.

When you enter a new situation and you are expected to change the culture, there is a reason why the job was open. The most common reason is the management of the person before you. You’ll also find that their management fit one of two scenarios. First, and most likely is that they gave up trying. Nothing kills morale more than a leader that simply gave up. Second and almost as common, the last guy went nuts. This is the person that tried to the bitter end. You know what they say, if you keep doing the same thing and expect a different result…

If the person before you gave up and you paint a compelling vision and do it with passion, you’ll see the attitude change quickly. If you followed the second type of person it’s harder. Think of it like being the second husband of a wife that was abused by the first. The employees are ducking for cover before any words come out of your mouth. In this case you need to be supportive. It takes time to recover from this. If you need to do it quick, bring in a couple of helping hands and spread the load.

Culture change is not as hard as it seems, and it isn’t as touchy/feely as all the books make it out to be. Keep it simple, and you’ll be surprised. People want to contribute and feel good about what they do. Show them you care, give them a chance, and they’ll surprise you in a positive way.

h1

Size Matters

March 19, 2010

A common mistake organization’s make is to assume if someone can run a large organization they can run a small one and vice versa. In my experience this is rarely true. The size of an organization plays a big role in determining the proper person to lead. I’ve been fortunate to have leadership roles in businesses as small as startups to as large as Fortune’s Top 50. I’ve personally experienced the demands on senior management at each level and can testify that it is very different depending on the size of the company.

When I started my first business I was the only employee, so I needed to do everything. In this environment you quickly find yourself moving across disciplines like finance and accounting, sales and marketing, and product development. Most people can’t do all of these jobs and hiring or contracting people eats up cash. Cash is like air in a startup; without it you die. The CEO’s ability to do multiple jobs conserves cash and this is absolutely critical.

Now contrast this with a large company. The biggest business I ever managed was a couple hundred million in revenue and was part of a $1 billion dollar company. At this company I worked for someone who, prior to joining the company, ran a large high-end consumer goods company (Fortune Top 50). This person was extremely intelligent and very well respected, but he struggled to lead the billion dollar company towards his vision.

He believed his vision was clear and couldn’t understand why the organization wouldn’t follow his leadership. I was on the senior team and had a firsthand view of what was happening. My belief was that he simply didn’t understand that a vision alone would not suffice. A company this size requires the CEO to develop a clear plan that can be executed, a high level vision is not enough. Strangely, the problem wasn’t that he couldn’t develop the plan he simply didn’t recognize the need to do it. In the consumer goods company the vision alone enabled his staff to execute. In a smaller company more is required of the leader.

To illustrate this point further let’s look at another company I led as CEO that was approximately $20 million in revenue. I had a competent CFO and CTO, but as CEO I was required to be the chief product strategist, marketing department, and get directly involved in sales. I also had to manage outside investors and a law firm. This was a very mature business, which made the Board and Investors easier to manage. If the business had been a startup that rapidly achieved the same revenue the Board and Investors would have been pushing for a liquidity event. Driving for a liquidity event is like taking on another whole job. You still have to do everything above, but you also must find a willing buyer and negotiate the sale. This is burnout central for most executives.

From the above I can see how you could come to the conclusion that it is easier to run a larger business than a smaller one, however this isn’t necessarily the case. Running a large highly complex business is very difficult and very demanding. There are lots of moving parts and understanding the business and competitive landscape is a real art form. You have to have excellent business instincts and the ability to digest and analyze enormous amounts of information. You also have an incredible amount of noise coming from outside of the organization in the form of Directors, Investors, Banks, and even the Press. Everyone has an opinion and everyone is playing backseat driver. This is why they get paid the big bucks. In a small company there isn’t anywhere near the complexity or noise and you are free to focus on executing a core vision.

The maturity of the market and organization also plays a big role in what is required of management. Early stage companies are all about growth. Late stage companies in more mature markets are generally earnings driven. Early stage companies focus on exit strategies while late stage companies focus on growth through acquisition. Acquisitions also require integration planning and implementation skills.

Hopefully you are starting to get the picture. The entrepreneur that starts a business, achieves rapid growth, and then drives towards an exit is not a likely candidate for CEO of a Fortune Top 50. These two jobs require very different skill sets. This is why when BigCo acquires SmallCo the CEO of SmallCo stays a year and moves on. They are simply a fish out of water.

The thing I don’t get is why no one seems to recognize this when they are searching for the next CEO. SmallCo always wants BigCo’s executive and BigCo always wants the SmallCo entrepreneur. This is because SmallCo thinks the BigCo executive knows what it takes to get big, and BigCo thinks the SmallCo entrepreneur knows how to innovate. I’ve got news for you, the BigCo executive knows how to manage it when it’s big not how to get there, and the SmallCo entrepreneur is more likely to suffocate in BigCo than innovate. The lesson here is: If you want to find the right person don’t factor out the environment because size really does matter.

h1

Making the Tough Calls

March 12, 2010

Today, I’ve finally decided to get off my butt and start contributing again. The leadership team at my last company achieved a successful exit in late 2008, and since then I’ve pursued a couple of startup ideas and have taken some time to enjoy life. I’m now itching to get back into the mix and I’ve also decided it time to start sharing what I’ve learned along the way. This is the first of hopefully several postings on what it takes to be an effective leader. I hope you enjoy it.

One of the most important traits of a leader is the ability to make tough decisions. Have you ever sat in a meeting where a topic is being discussed with two or more opposing views and no conclusion? I’ve sat in far too many in my career. There is nothing more frustrating than an endless debate. Everyone leaves dissatisfied and it doesn’t take long before no one wants to go to another meeting. If you are in this situation it is because the leader of your organization is not making the tough calls.

The reality of being a senior executive is that you are paid to make decisions and you will be judged on how well you do it. One thing I don’t think many executives understand is that ultimately they get the recognition or the blame for how their organization performs. Organizational performance is almost always closely associated with how effectively the leader made decisions.

Many executives think they can avoid making decisions by simply surrounding themselves with a strong team. Sometimes this is true, but if you hire good people they will want to explore all sides of ideas and opportunities. Leaders have to be careful that the best debater, or the person with the most data, doesn’t simply overwhelm the rest of the group. A strong leader will make sure all sides are heard. I often take an opposing side of an argument, even when it isn’t what I believe, just to make sure I’ve looked at all points of view.

Beware of the meeting where only one person is really prepared, or the opposing voice isn’t in the room. Politically astute up-n-comers love to use this tactic to get their way. Leaders need to cut it off at the kneecaps.

Sometimes the best decision isn’t the one supported by the data. Another thing senior executives are paid to do is to make the controversial call. I’ve often said that if you find yourself agreeing with industry analysts it is probably because they got their input from people just like you. I always look for where I disagree strongly with the analysts, because that is usually where the biggest opportunity can be found.

The speed of the organization is also a factor of how effectively the senior people are making decisions. People can’t act if they don’t know they have support. If the executives take a lot of time to make decisions the organization will move slowly. If the leader doesn’t make decisions it may stand still. If you make decisions quickly it buys more time to adapt when you are wrong.

Oh yes, expect to be wrong. Strong managers love to believe they are infallible, but the reality is we all will make wrong decisions. The best leaders know how to recognize a bad decision and take action to correct it.

Early in my career I took on a product management position with a Fortune 50 company. I soon found myself in endless cross functional meetings. A cross functional meeting is one where each organization discipline (sales, marketing, manufacturing, engineering, etc) is represented. Everyone in these meetings was at the same level and the meeting chair would moderate discussions related to the purpose of the team. Many of these discussions were endless, for example sales always wanted more product features and service needed to contain cost. It didn’t take me long to get very bored and frustrated.

After a couple of weeks of going to meeting after meeting where nothing was decided I chose to try to change the game. I went to the meetings and started making decisions, as if I was in charge.  Soon after this the attitude of everyone in the meetings improved and we started getting things done and building momentum. At the same time I received a number of anonymous email and voice mails expressing concern for my wellbeing and cautioning me to be careful because “they” (I never did find out who they were) could hold me accountable. What these people didn’t understand is that I wanted to be held accountable. I was amazed later to watch these same “anonymous” people take credit for the good decisions, and deny anything to do with the bad. It’s not a perfect world, but don’t let that stop you from making a difference.