When companies grow, there are certain events that seem innocuous, but actually signal fundamental changes in how the company has to do business. Check out the details in my article, “Venture Moments of Truth.”
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Venture Moments of Truth
As ventures grow and develop, the challenges they present change. Often change is sudden rather than gradual. These sudden changes require a shift in the way the company and/or the top managers do business. These are times when coaching can be most valuable.
The one-room shop. In a one-room company, even if the room is a 60-person room, communication is informal and universal. Roles can be amorphous, with anyone pitching in to help with whatever needs doing.
The first hire. With your first employee, you become a manager. Decisions must now be made taking the employee into account. Confidentiality and access to information get raised as issues. Delegation, clear communication, evaluating, and motivating your employee become necessary skills.
The first firing. It happens. And it isn’t pleasant. It also sends a strong message to everyone who is left. With the first firing, everyone will realize—really realize—that you are the boss. Handling the dismissal, handling your reactions to the dismissal, and managing perceptions of the remaining employees become the challenges.
The first customer. The market is now aware of you. You have your first chance to collect real customer feedback. The length and cost of the sales cycle becomes apparent. Your cash flow requirements become more knowable, and the strategy/tactics need to respond. And for the first time, you have to deliver on your promises.
The first lost sale. You have to grapple with whether your product should be changed to meet the market, or whether you just had a bad fit between your product and that one prospect. You may find yourself dealing with how to react appropriately, and how not to take this personally.
The two-room shop. Communication that happened through proximity and casual conversation suddenly stops happening. For the first time, you must explicitly identify communication paths and determine how they will operate. Things that have always worked in the past may not work any longer. You’ll grapple with identifying solutions and separating accountability of the system from accountability of the people.
The first fight. There comes a time when, despite the best of intentions, the founders disagree. Really disagree. This is a time to examine the relationship, and make sure you have a structure for working through conflict.
Money runs out. When the money almost runs out, the venture capitalists and other funding sources may hold your feet to the fire, just because they can. You will encounter issues around negotiating, personal balance, and separating your identity from the business to create as objective an action plan as possible.
Cash flow positive. Survival no longer depends on every cash decision! You can invest surplus in longer term projects. Cultures which have been compromised to save money now have the option of improving their business practices. “Spend as little as possible” was your old imperative. Now, you need a way to decide how to use the surplus cash. Culturally, you have an opportunity to increase integrity in how business is conducted.
Once you have cash, how you pick and choose opportunities to pursue becomes less dependent on pleasing outsiders. You are self-funding and have the option of slowing growth to avoid the need for new outside capital.
The Chaos Point. When the company gets too big for one person to keep on top of everything, chaos can ensue. Organization structure becomes necessary, and managers must shift from getting things done to creating an organization in which others can get things done. Delegation, willingness to give up control, learning to guide and create culture, setting compensation systems, building meaningful feedback systems, and hiring all become critical capabilities.
Outside money. With outside money, you are truly accountable to others. Board meetings take preparation, and the outside money may bring restrictions and new constraints. The personal challenges include balancing your own vision and plans with those of the outsiders. Changes in strategic direction may become dependent on outside approval.
The second Chaos Point. Somewhere between 70 and 100 employees, real business systems become necessary. The numbers just get too big: too many job applicants in the pipeline, too many projects to track, too many purchasing requests, etc. Few employees have the business process analysis skills to put systems in place. Those few who have the skills become overwhelmed as everything important is given to them: “Just this once? You’re the only person who gets things done around here.” Building business systems and training underlings in building systems becomes imperative.
Multiple product lines. Once you move to multiple product lines, issues start to arise around your company’s identity: what do you stand for? Who do you serve? If one line is more profitable than the other, are the managers or salespeople paid differently? Are you a single brand? Multiple brands? Issues of focus, resource allocation, balancing the culture, and accountability become important.
Acquisition. When you’re acquired, the challenges revolve around keeping good people, merging your identity, culture, and product lines with your new parent, and defining roles and career paths that work in the new entity.
IPO: the finish line? As rumors of an IPO begin to spread, comparisons start. Who has how much? Whose options are worth what? Will we be as rich as our friends at e-commerce.com? Suddenly, you are legally required to keep a lot confidential from your employees. Issues of fairness, ethics, trust, and reporting requirements arise within the company. The issues are huge: six-figure tax planning, psychological preparations to become rich (it’s not as easy a transition as most people think), learning to make decisions from a large asset base, examining how priorities change, understanding how to manage friends and family, dealing with the public speaking and stress of a road show, and keeping the company together while all this is happening.
Life goes on…publicly. Whoops. The company iPod and you just realized an IPO is just the beginning, not the end. Early employees, who hold much of the company’s intelligence in their heads, become rich enough to leave. The motivation of “someday we’ll be public” is no longer available. Outside pressure to “manage for quarterly results” begins. Preserving the knowledge and skill base of the company while achieving the forecast numbers become two of the biggest challenges. On a personal level, growth opportunities include learning to manage increased analyst scrutiny and formulating your next set of goals and aspirations.
An executive coach can help during many of the “moments of truth.” When growth is happening so quickly, employees (including founders!) may not have the time to grow into their roles; their roles are changing too fast, and they’re too busy building the business. When roles shift, or unquestioned assumptions and rules suddenly stop working, an executive or advisor can help you through what’s needed structurally, motivationally, or personally-to bring things back on track.
Use your Smartphone to be More Productive
How to use your web-enabled smartphone to be productive. Or not. I’m quoted today in this 
Our Intuitive Knowledge Isn’t Always Right!
I was recently listening to a lecturer discuss how risk-taking is an integral part of “the entrepreneurial mindset.” He was very inspirational. Unfortunately, he was also flat-out wrong. There has been a lot of research into the psychological qualities of entrepreneurs. What has it concluded? There is no “entrepreneurial mindset”–entrepreneurs are a very diverse group. But especially among lifelong entrepreneurs who have experienced multiple successes, there is no evidence that they are any more risk-taking than anyone else. In fact, they do everything they can to mitigate risk.
My point, however, has nothing to do with entrepreneurs. It has to do with conventional wisdom. We intuitively (or culturally) want to believe that entrepreneurs are a special breed of person. That way, we have an excuse to be an entrepreneur if we deem ourselves “that breed.” Or we have an excuse *not* to be an entrepreneur if we aren’t “that breed.” Either way, we get to shift the responsibility for the decision to our personality type, rather than our decisions and efforts. That makes the very notion of an “entrepreneurial mindset” attractive, as a flexible rationale we can use for all kinds of stuff.
A lot of conventional wisdom is similar. The American myth that CEOs are somehow to credit for the entire performance of their companies, for example, is unsupported by any data whatsoever. W. Edwards Deming, the statistician who created the Total Quality movement, said that no more than 10% of a company’s performance could be attributed statistically to the CEO, and then only in highly unusual cases.
The problem is that our minds aren’t very good at understanding complex things. For 100,000 years, our minds weren’t able to do much beyond farm. Then we invented the scientific method, which was the first time we had a rigorous way to separate our intuitive-but-wrong ideas from the nonintuitive-but-accurate ways the world really works.
There is a lot of poorly-done science in the works. There is also a lot of excellent science, which is why we live 2x as long as our ancestors, in comfort, with electric lights and polar fleece.
Especially in the human potential fields–self-help, business leadership, etc.–there is a substantial body of research about how people and human systems actually work. Much of that research has even been popularized and published in books accessible to everyday people.
Before jumping on the pleasant, inspirational stories propagated in our cultural myths, take the time to read some of the research-based books on the topics. You can even go further and read the studies the books are based on. Some of the science (or the way it is being interpreted) may be ‘iffy,’ but some may be solid. And you may learn how the world *really* works, which will only make it easier for you to create the life you want.
(*) this is what I did for the Get-It-Done Guy episodes on visualizing for results. “The Secret” doesn’t work. They’ve done controlled experiments to find out. But some slight tweaks in the visualization technique *has* been shown to boost results. Not because of a deep spiritual principle, but because the right visualization gets people motivated and moving to make their dreams come true.
Meritocracy: A Fine, But Mythological, Idea
I love the idea of a meritocracy! It’s a glorious myth that makes a wonderful story. But if you look at how resources, wealth, prestige, etc. get distributed, it’s very hard to make a case for meritocracy.
It’s no surprise we believe in meritocracy. We spend our entire first 18-25 conscious years in school. School is a true meritocracy. The more you work at mastering the material, the more you earn good grades. I don’t know about you, but school was the last meritocracy I had the privilege to enjoy.
At my very first job out of college, I was told, “You do the best job of anyone here, but you’re too young to be making any more money.” Sadly, I persisted in thinking that doing a good job was the way to get what I wanted out of life. I still think that way in my gut, even though I continue to see little evidence of it.
Many very successful people talk a lot about meritocracy and how they just worked hard to succeed. That’s all fine and good, but they’re looking at only their own story. They’re not looking at the vast majority of people in the world who work very, very hard, and don’t get rewarded nearly as well. I’ve also noticed that the people who are highly successful/rewarded/prestigious have a tremendously powerful psychological vested interest in believing in and trumpeting the idea of meritocracy. Otherwise they would have to confront the idea that maybe they don’t deserve all that money/power/fame, and it simply came to them because they were born to the right parents, or were in the right place at the right time.
In capitalism, we give the bulk of the value created by an enterprise to the owners. It’s far better to own 50% of the equity in a successful company that you left 6 months after founding it than to work your ass off for 12 years making that same company a success, but working on salary. What matters as far as material reward isn’t the work/merit, but the capital and ownership structure. (That’s a true story, by the way. The company founder never worked again. The employees, while doing reasonably well, are still working at the same or other companies to earn their daily bread.)
If you want to do a good job, by all means, do it. Personally, I like to be proud of my work, and I strive to do the very best. But don’t confuse that with getting what you want. When you’re designing your life, remember that producing good work may be something you do for the psychic and self-esteem rewards. When you’re going after other rewards, say, money, be as clear-headed as you can about what will help you reach that result. Hard work and skill may not have anything to do with living the kind of life you want.
Should we take personal responsibility for business’s impact?
Many businesses do things that are legal, are in fact good business practice, but which are shown later to have bad effects for society. In some cases, these effects are huge. For example, the contribution of fast food cooking and recipe practices to obesity and heart disease only came to light 40 years after the founding of the fast food industry. And tobacco was only shown to cause cancer hundreds of years into its trade.
If these had caused immediate obesity or cancer, they probably wouldn’t have succeeded in the market. But human beings have an odd quirk: if the effects of something don’t happen quickly, we discount them in favor of immediate gratification. Our compulsion to eat that extra cookie (like I did last night) is immediate, and we act on it much more than we act on the hypothetical, imaginary future world in which we have added a few inches to our waistline.
Then we came up with science and started uncovering these longer-term cause and effects. If a new product were to be introduced that was known to have such negative health effects by triggering short-term gratification impulses, I’d like to think we wouldn’t rush to embrace it.
But even if we’ve gotten smarter (debatable), there’s an even trickier question: some things are fine when done individually, but disastrous when everyone does them. Skipping college is a great example. We’re living in a moment in history where our college costs, educational outcomes, and job prospects are such that it makes very little economic sense for most people to go to college. There’s just no way they can get a job that can pay back their tuition, and we don’t provide enough national educational assistance or reimbursement to encourage people to go unless it has a direct effect on their future income. (Let’s leave out for a moment the recent studies that show that many 4-year colleges are nothing but an extended party and don’t seem to teach very much.) For any one person this makes sense. When an entire generation does it, 20 years later we’ll have a workforce unsuited for anything but manual labor and jobs as check-out clerks. Bad check-out clerks, I might add.
Outsourcing is another place where the individual benefit leads to bad things societally. Any one company can be more profitable through outsourcing. When all companies start doing this, however, it leads to higher domestic unemployment and the gradual deskilling of our workforce. Why would anyone put in the time and effort to develop a skill when they can’t compete with $3/day people of similar skill overseas?
Our economic system is clearly set up to reward the individual, short-term decisions. Sometimes that produces the larger good outcomes, and sometimes it doesn’t. If we as businesspeople are concerned about our larger societal outcomes, how can/should/could we change the system to deal with (a) profitable short-term gratification businesses that have long-term negative effects, and (b) individual incentives that lead to rational individual behavior, but when everyone does them, larger Very Bad Problems?
Do we have any responsibility to address those two flaws in the system? If so, how? If not, then how should we handle the very real societal problems that result?
Success Starts When You Stop Using Your Own Product
Have you checked out your competitors recently? I was just reading a review that says the new Blackberry smartphone is by far the best, speediest, most elegant Blackberry ever. But the reviewer would not recommend anyone buy it. Why? Because it’s still missing a lot of the key functionality that other smartphones have. The hardware is leading edge, but they haven’t truly made the device do anything better.
What I want to know is what kind of smartphone the co-CEOs of RIM use? Do they use Blackberrys? I can’t imagine a worse choice. They should be using iPhone and Android devices for 95% of their calls and computing. We’ll let them use Blackberrys, but only on Sunday. And they’re not allowed to have their IT people set them up; they need to do that themselves. Then they’ll start to understand fundamentally what it’s like to use these devices, and why Blackberry is increasingly falling behind.
I’ve been in Blackberry’s marketing research list for years. I want so badly to tell them why my next phone will be an iPhone, and exactly how and why their platform falls short. But they never ask that. They ask too-specific questions about their guesses as to why I might prefer an iPhone. And their guesses are wrong, because they’re so steeped in their own product.
If you’re in a competitive market, you owe it to yourself to adopt your competitor’s product. Don’t just use it for an hour or a couple of days; really integrate it into your life. Understand its strengths and its shortcomings. Do this a couple of times a year. Only then will you have a hope of being able to take the next step and leapfrog what they’re doing with your own next product. Otherwise, you’re playing guessing games. You might get lucky once or twice, but at the end of the day, you can’t create a vision of a next generation product when you don’t even know what this generation holds.
Use An Editor!
If you want to produce extremely high-quality work, it may be wise to find someone to help. It’s hard to be objective about our own work. Almost by definition, we believe if we did it, it must be good. But yet, sometimes an objective eye can help us take our good work to the realm of greatness. The objective eyes I’m talking about belong to editors.
Editors ROCK! When I’m writing a Get-it-Done Guy episode, my natural sense of humor comes out. My natural sense of humor was developed doing comedy improvisation with college audiences. “Decorum” is not high on the list of words you would use to describe my first draft material.
Fortunately, there’s a very dedicated editor at Macmillan publishing who reads my drafts. She sends them back with paragraphs circled in red pen. In the margin, she writes notes like, “If you say that, the FBI will open a file on you, start wire-tapping your phones, and put you under 24-hour surveillance. Again.” While most people would enjoy free protection services, I find it cramps my style when I go out clubbing. So I rewrite the paragraphs she highlights, this time using Goldilocks and the Three Bears as the central metaphor of my piece. My editors approve, and another Get-it-Done Guy episode is born.
Editors come in many varieties. Some editors can make sure your humor is appropriate. They can make sure your text flows, that you don’t repeat yourself, and that your points build on one another. Copy-editors handle editing the details. They double-check your spelling, your grammar, and your punctuation. I was a copyeditor for the school newspaper when I was a student at Harvard Business School; I need to give my marketing staff a special therapy budget, so they can deal with me.
If you have to write reports, pamphlets, or anything where quality matters, get yourself an editor. It doesn’t have to be a professional, a colleague who writes well may be all that’s required. If you’re worried about letting your coworkers see your work before it’s polished, find a friend who has the write skill set, but works at another company. You can be an outside helper for each other, without worrying about work-in-progress-quality work getting out to the people in your company.
If you’ve never worked with an editor, give it a shot. You’ll discover that having an extra pair of eyes double-check your work can often produce something better than either of you could have written on your own.
Know the Lifetime Value of Your Customers
When that lone customer arrives at your restaurant on a busy night, it’s tempting to make him or her wait, in favor of the party of 12 that’s sure to rack up a huge bill. But it just might not be wise.
When you’re deciding how to structure your business, who to give service to, and when to go the extra mile for a customer, don’t just consider the transaction you’re in the middle of dealing with. Consider the total lifetime of interaction with your customer. The “lifetime value” of a customer is how much you expect that customer to spend over the course of their association with you. That lifetime value is what you want to take into account when deciding how far out of your way to go. I’ve recently had a few run-ins with companies that have taken a short view, much to their detriment.
I eat lunch 5 times a week at the same deli. They discontinued my favorite kind of hot pepper, leaving no condiments that I enjoyed. I asked them to please bring them back, and they refused. I offered to buy my own jar for them to use. They refused. And I stopped eating there. Five days a week, times 50 weeks a year, times $7 per lunch is $1,750 of income a year they were happy to forgo to avoid dealing with the hassle of keeping a jar of peppers around. My new deli is part of a franchise. They are only supposed to serve their approved condiments. I spoke to the owner and he happily kept a special jar of peppers just for me. In the 3 years I’ve been eating there, they’ve made $5,000 and my previous deli has gone out of business.
My friend passes through Reno every year on the way back from the Burning Man festival. He stayed in Harrah’s because they gave him a free upgrade if they had rooms available. He then spent the money he saved in the Harrah’s restaurant and spent even more in the casino. They stopped giving free upgrades, and he changed hotels. It would cost them nothing to give him the upgrade, and instead, they’ve lost year-after-year of restaurant and casino business. Let’s not even consider how much Harrah’s would make on all the referral business my friend would bring. Smooth move, Harrah’s.
To return to the original example, while it may make sense on any given night to forgo seating one person in favor of the party of 12, if that one person dines at your restaurant three times a week, in the course of a year, they’ll outspend the entire party of 12. As unintuitive as it may seem, treating the solo customer well may be a better business decision than handling the occasional bachelorette party. And believe me—the cleanup’s a lot easier, too.
When you make decisions about your customers, do you consider their requests as separate events, or do you consider the lifetime value of each customer before deciding how much to commit to their happiness?
“Strategic Thinking” – The Meaning Behind the Buzzword
It sounds easy: my client wanted to think more strategically. isn’t that the hot buzzword? “Strategic thinking.” Oooh! Sexy. There’s only one problem: what, exactly, does it mean?
You’d think we would know. But I’ve seen executive teams discuss in all seriousness what the lever does on a piece of machinery. That’s about as non-strategic as it gets. In fact, a general rule is that if you read it in a manual, it’s quite likely not strategic.
What is strategic is when you’re doing something that changes the structure of the business in some basic way. Paint a machine lever red? Not strategic. Decide to outsource manufacturing to China? Strategic, because it changes who you hire, how you manage them, and what they’re capable of achieving. You punt your machines and take on eager young managers who speak Mandarin.
This is the first kind of strategic impact: changing organization structure. This includes outsourcing, selecting vendors (since what you can do now becomes expanded and limited by what they can do), mergers and acquisitions, changing the org chart, going public, and hiring and firing people who will in turn make strategic decisions.
Or consider an entrepreneurial client who insists on answering the phones himself. He’s done it since founding the business 20 years ago and prides himself on knowing everything that’s going on. But now that the company gets a hundred phone calls a day, he decides to install an automated attendant, freeing himself to do other things. This is an example of “business process reengineering,” which is a fancy way of saying “doing things differently.” Changing how a business does something is strategic because different hows give the business different capabilities. If your product is produced on a machine that turns out 100 widgets a day, then you simply can’t bid on a job that wants 500 units by tomorrow. If you can rearrange your factory processes and produce 5,000 units a day, whole new markets open up.
Speaking of markets, choosing the markets to compete in, what to sell, and how to price are all strategic decisions. After all, those decisions determine who you’ll hire, how you set up your org structure, and how you’ll deliver your product or service.
The American Express web site lists 20+ cards. I called a friend in Amex’s strategy group to help me understand the difference between the “Platinum Business” and the “Business Platinum” cards. He said, “I work in strategy. I don’t really know our product lines.” A strategy group that doesn’t know the products? I don’t know what they do, but it seems awfully dangerous to be making organization structure and process decisions without even knowing what your customers are buying.
Everything we’ve discussed so far is cross-functional; they can involve changes that affect many parts of a business. Though it’s possible to make strategic decisions in one area of a company without involving other areas, that’s a dangerous game. If our marketing department starts competing in a new market that cares about delivery time, but doesn’t tell our shipping folks, they can set the company up for failure.
Don’t make the same mistake. Learn when your decisions are strategic.
That means decisions about org structure, process–the HOW–, cross-functional decisions, and the marketing decisions of what to sell and who to sell them to.
If you want to learn more about strategy, my very favorite book is Co-opetition by Adam Brandenburger and Barry Nalebuff. I also liked Geoff Moore’s “Crossing the Chasm.” Both books are circa mid-90s. There are 83,416 other business books that will teach you some kind of strategic thinking. I’m not sure the specific strategic approach is very important (though consulting firms will make big bucks telling you otherwise); to me, the value comes from learning to think at a strategic level consistently and integrate strategic thinking into your daily running of the business.