Customer Conferences Rock

I recently had the honor of being asked to attend the customer conference of a company where I serve on the board of directors. It was great fun, and it reminded me of how valuable it is to host a customer conference. No matter how many customers a tech company has, getting them together is magic. We have all seen enormous and lavish conferences like DreamForce, and those are great too, but I am talking about more intimate meetings with a couple of hundred or fewer attendees - even as few as five or six. At this size, it is possible to get to know every attendee, and to hear their input. In smaller conferences, listening and engaging with customers is what it is all about, unlike giant meetings where the focus is on talking to the customers instead of talking with them.

Enterprise software vendors deliver a foundational platform for their user community. As such, users rely heavily on the application, and are usually passionate about how it helps or hinders them to accomplish their jobs. User conferences tend to attract the users that are most in love with the vendor’s application, or the users that are most angry about its shortcomings. Usually, the former vastly outweighs the latter. The customers who are neutral may show up, but if things are running smoothly, there has to be a compelling reason to devote the time and energy. Non-vendor specific content and an opportunity for career growth is what will attract the neutrals to attend.

In general, customer conferences tend to be love fests. Attendees are eager to meet the vendor’s team members who they may have only seen on video calls, and they want the opportunity to share their views with the executive team. This is a vendor’s best opportunity to win friends and influence enemies, and it is important to set actual goals for every employee attending and have a purpose for every detail of the meeting. These conferences are expensive events in both time and treasury, so they have to be executed in a manner to maximize the outcomes. Here are a few categories and guidelines to consider:

• Content —attendees are there to learn something, so the content has to  be relevant to their job. Often, they will justify attending to their boss by showing them who will be speaking, or what sessions they will attend that will improve their performance. Customers like to hear from other customers and learn creative and successful applications of the vendor’s products. They also want to hear what is coming from the vendor, but only in moderation. The future is interesting, but they live in the present. The most interesting future is when the vendor commits to solve some product deficiency that is hindering their performance. Otherwise, grand visions are only moderately interesting. Industry experts who can provide market knowledge, career advice, and education can be a big draw, but the vendor needs to keep in mind what purpose they serve (more on purpose later).

• Training — If there are underutilized components of the vendor’s products, or if there are areas that commonly result in support calls or consulting requests, then training sessions may be a valuable conference component. The purpose is to help attendees to become better users of the product so that they become more committed to renew their license and spread its use. Free, live training or consulting can be a major draw.

• Selling — Customers do not expect to be sold to at a user conference, but it is a revenue opportunity.  Overt selling is probably not a good idea, but vendor attendees should all be listening for words that sound like a customer needs to buy something. Users may talk about other divisions or business units that would benefit from the vendor’s products, or opportunities to expand their own use. Vendor attendees all need to recognize a warm lead and formally hand it off to the right sales team. In other words you need a sales plan for the conference.

• Prospects — User conferences are a love fest, so I am an advocate of inviting qualified and interested prospects to attend. They will hear from happy users and be swept up in the enthusiasm. However, prospects will also be looking for unvarnished customer views of the products or company weaknesses. As such, the vendor sales team needs to gently chaperone prospects and guide them towards the happiest references. If there are several prospects present, it is useful to hold a prospect session with the vendor executives. It shows they are important and is an opportunity to reinforce the vendor’s vision.

• Social — I believe the social time is the most valuable of all. Do not over structure the formal content and presentations and squeeze out the social time. Breaks between presentations can be as important as the presentations themselves. Ideally, the conference spans at least two days so there is an evening social time. Consider structuring breaks and meals to bring together customers from the same industry or users of specific product features or from similar regions. Curating birds-of-a-feather tables at meals with a vendor representative moderating can be very effective. During breaks and cocktail hours, vendor personnel need to have a purpose. They should not be standing around talking with each other. Give them a quota for how many customers they have to meet. Make it fun, like a bingo card or a scavenger hunt to find certain types or numbers of users.

• Name Tags — This may seem like a silly topic, but name tags have a purpose. They can be ice-breakers, and spur conversations. Make the first name bold and large enough to read from a few feet away. Consider what content would be interesting to include on a name tag: title, company, products they use, years as a customer, location, industry, prospect / customer / vendor, etc. One company I know graded their customers with a score for their product usage, and they put the scores on the name tags. It created customer discussions to compare usage and understand how to increase their scores. The company even held a special lunch for the customers with the highest scores.

• Purpose — Every element of the conference, every vendor attendee, and every speaker needs to have a purpose. The vendor should decide on the purpose of the conference in advance, and clearly communicate it to all of the vendor attendees. Each vendor attendee needs to know why they are attending (what their purpose is), and be accountable for achieving their objectives. Each speaker’s topic should have a clear purpose and support the overall goals of the vendor. User conferences are typically considered marketing events, but more broadly they can benefit every aspect of the vendor’s business. The conference should reduce churn, increase up-sell, create leads and referrals, influence product direction, reduce support calls, and develop references and testimonials.

Customer conferences require a considerable commitment of resources from the vendor, but invariably they are worth the effort, particularly if you take the time to define the purpose and rally the team to maximize the opportunity for every aspect of the meeting.

Independent Perspective

When a business runs into challenging times, and the CEO is struggling with too few good options, it is time for fresh perspectives. This is when the board of directors needs to step up and help. In the world of venture and PE-backed companies, investments usually come with one important string attached — a seat on the corporate board of directors. I have written in the past about curating the board to ensure it is a competitive weapon. Unfortunately, if each institutional investor insists on a board seat, and if the company has had several rounds of funding, then the board tends to be over indexed on financial participants, rather than operators or industry experts. That is not to say that investor board members are unable to help. In fact, because they typically participate on the boards of several companies, they likely have been to this movie before and bring pattern recognition and experience to the table. But, in the context of curating the board, it is important to make sure there is room for independent board members. Typically, independents will have hands-on operating experience, or deep market knowledge that uniquely equips them to offer a creative perspective to assist the CEO.

Problems can arise when the turbulence the company is facing has to do with cash flow and funding. It is particularly challenging when funding rounds had different participants and terms. This is when the investor interests of different board members may overshadow their pure board-level interests. Each investor has unique fund dynamics that will influence how they guide the company. Early investors may be approaching the end of their fund’s lifecycle, and may be out of cash or unable to participate in a current investment round. Later investors may see this as an opportunity to step up and assume greater control, usually with the effect that it diminishes the value of the positions held by investors that are not able to participate.

In theory, board members have a responsibility to represent all of the shareholders and strive to maximize shareholder value. Unfortunately, when there are different classes of shares, there can be built-in conflicts driven by each board member’s holdings. These dynamics can cloud the picture and the perspective of investor-board members exactly when everyone on the board needs to firmly put on their board member hat and not their investor hat. This is also a time when the CEO may need the independent board members to become referees and peacemakers. Back to that topic of curating the board. When considering independents and who should be on the board, game out the possible future scenarios, and make sure you have independent voices on the board that will be able to help the CEO through those turbulent times when investors tend to go to their own corners. A little bit of distance provides perspective and opens the path to creativity, which is a great role for independent board members.

Focus on Outcomes

There are lots of ways to set and measure goals and objectives. From Key Performance Indicators (KPIs), to Objectives and Key Results (OKRs), and all sorts of other measures and metrics. Some are forward looking statements of what we will do, and some are backward looking measures of what we did do. The common theme is to keep the organization aligned and on track, and to create heuristics and early warning signs when things are going off track.

The question is whether we are measuring the right things, how often should we measure, and how many different measures can we manage. It is easy to get carried away with goal setting and measurements. The more goals you set, the more effort you have to invest in monitoring them, and the easier it is to lose focus. If a team of people share a single goal, they are all focused on that one target. When you introduce a plethora of goals, some members of the team may focus on one set of goals while others focus on a different set. Overall, the team gets distracted and the efficacy of the process is impacted. Fewer goals are generally better than many goals. Focus matters.

When considering how often to check progress or performance, the frequency needs to match the pace of the goal. Some goals take time to achieve, and checking every day is a waste of effort at best, or a distraction at worst. We also need to distinguish measuring from reporting. Suppose the goal is to increase average daily visitors. We need to measure every day, but there is no need to report every day. In fact, trying to manage the goal by reacting to each day’s visits is a waste of effort. It may make sense to report weekly, or bi-weekly, so we know how we are progressing toward the goal, and so we can take corrective action if necessary. Over instrumenting a goal can cause an organization to become distracted by unnecessarily reacting to every minor change. Sometimes we just need to set the course and ignore the small wobbles along the path.

A second challenge is to set goals where we know how to interpret the results, and what to do about them. In other words, are the measures meaningful and actionable. A common approach to defining goals is to make SMART goals - Specific, Measurable, Achievable, Relevant, and Time-bound. The trickiest element is ‘Relevant.’ While the letter ‘R’ makes the acronym work, it also opens up the definition to considerable ambiguity. Something can be relevant, but not very impactful, so is it really a SMART goal, or is it a distraction from what will really change the business? We want goals to be meaningful, or impactful, or critical, or strategic, all of which are stronger definitions than ‘Relevant.’

Here is my formula for goal setting. Start big and work your way down to details. The best starting point is to determine what are the desired outcomes that we can achieve in a finite timeframe. I am an advocate of setting generalized longer-term outcomes. The Supreme Court once said that they did not have a definition of pornography, but anyone would know it when they saw it. Similarly, these generalized longer-term outcomes do not need fine-grained detailed measures, but they should be clear enough that everyone will know we achieved them when they see it. A generalized goal may be to become the leading product in a market. That is enough to anchor behavior, so we do not need to pile on by saying exactly what it means to become the leader, or what measure we will use to confirm our leadership. Being the leader is the goal, and we will know it when we see it.

Once we have our generalized outcomes defined, then we can focus on the shorter-term specific steps that will lead to those outcomes. Each step should be unambiguously defined so we can easily agree when it is achieved. In our example, perhaps to become the leader we need to enter specific new markets, or deliver a new product or capability. Each step toward our outcome should be a distinct and specific goal. The process of getting from one step to the next should be instrumented with meaningful metrics to avoid any ambiguity about whether or not we have achieved the step. I am an advocate of putting the steps in priority order, and/or putting them in chronological order as in a staircase - one step leads to the next.

One last element in my model is to clearly state where we are today. Apply the measures or metrics from each step to the current state of the business, and codify it as the start of the plan. If one of the steps says we are going to have a 30% market share, then publish what our current market share is today so we can see what the transformation will look like. Documenting the current state of affairs helps to answer many of the ‘so what’ questions. For each step, we need to know if it really matters, in other words ‘so what.’ Visualizing the change from today to the future state will illustrate what will be different. If we are planning to go from a 10% market share today to an 11% share in the future, is that meaningful, or impactful? I.e. So what.

By starting with broad business outcomes and working toward narrower goals, we can ensure we focus on what matters, and we will provide the organization with a step by step roadmap to achieve our desired outcomes. What we measure and how frequently we report will flow naturally from the definitions of the steps on our staircase.

Look Before You Leap

In my first CEO role, I did not know anything about the job, but I had held several diverse executive roles, and I had worked for a couple of great CEOs, so basically, I thought I was good to go. I was so excited to have the opportunity to become a CEO that I skipped all of the diligence steps, and essentially said yes before they even offered the job. I never even questioned why they would consider me for the job when there were tons of better qualified people out there. I quickly learned a few important lessons that have guided me through all of my subsequent CEO roles.

The first thing I learned was the difference between a restart and a startup. I was hired into a restart, and that was very different from what I naively expected. The best analogy to understand the difference is building a house. A startup is like building a house on a vacant lot. It is a creative project that can go in any direction. A restart is like buying a lot with a broken down house already on it, with all sorts of zoning rules that require you to rebuild within the existing footprint, and most of the systems need repair or replacement. You have to clear the rubble off the lot before you can begin construction, and you have to decide what if anything from the prior structure can be salvaged. A restart has a team of existing people who have already adopted policies and practices and habits. There is typically an installed base of customers, and usually an outdated product with technology debt. Most importantly, a restart already has a burn rate with licenses and leases, and maybe debt and covenants you cannot turn off.

Boards of directors rarely hire a new CEO unless the company really needs one, so chances are, if you are being considered for the CEO position at an existing company, you are probably walking into a restart or a pivot. Restarts and pivots happen with companies of all sizes, so do not assume that the company is on the right path just because it is established and has some scale. As a candidate, you need to have your senses on high-alert to make sure you fully understand what you will be dealing with. Having stepped into the role a number of times, I speak from experience when I say it is important to take the time to do your diligence and make sure you truly understand the reasons why the company is changing CEOs. When you ask board members why, do not blindly accept the first answer offered, even if it is totally logical and believable. Like a child, keep probing with ‘why’ questions.

An incoming CEO to a restart has to quickly learn the contours of what exists, and determine what can be preserved or enhanced, versus what has to change or be eliminated. You have to assess the existing team, and regardless of job title, you need to figure out who are the leaders and who may be the roadblocks, or worse, who are the trouble makers. A restart adds an entire new dimension to the challenge of achieving success.

In my first hired-CEO gig, the company had some fresh capital, but it was burning cash without a clear path to profitability. There was a lot to figure out. My first thought was to preserve the cash and do as much as I could with the people that were already in the company. Fortunately, a gray-haired wise board member took me aside and strongly suggested I hire an experienced executive team. More importantly, his advice was to make sure that each executive hire was better at their job than I was, so there was no on the job training while trying to turn things around. He also advised that I make sure I was building a team, not just hiring a bunch of individuals. Lastly, he admonished me to give the new team the space to act, and not try to do all their jobs for them. I was the conductor, and my role was not to play all the instruments. My responsibility was to make sure we all played from the same sheet music and made beautiful music together.

I quickly learned the power of a motivated experienced team. One longterm board member thought it was nuts to hire expensive executives for a company going through the turmoil we faced. Fortunately, the rest of the board was aligned with the need for seasoned talent. What I learned was that hiring smart, skilled leaders early was the fastest path to figuring out how to get the company on track. The cost of the small team of early executives was far less than the tons of capital that would have been wasted trying to figure out the path without their brainpower and experience.

When I arrived at that first CEO gig, the existing team had a pretty consistent view of what the company was trying to do. Unfortunately, it was a “boil the ocean” vision. The company was attempting to build an initial product that spanned a broad range of business processes, and would compete with established public companies that had taken years and hundreds of millions of dollars of capital to build market-leading products. It was a grand vision, but it was far beyond the scope of the team or the available capital. We had to focus on what we could deliver in finite time with the available capital, and we had to pick a market segment where our offering would be clearly differentiated and give us a chance to grow. I heard a presentation by a successful CEO that captured the value of this type of focus. His analogy was a garden hose. When the water is running, if you narrow the opening by putting your thumb over it, the water sprays out faster and further. He said that every time he narrowed the focus of his company, they grew faster and stronger. The learning was that focus was a key to success.

The lesson stuck with me, and I recognized it as a common theme across several of the companies where I was recruited to be the new CEO. Gauging the level of focus became a key element of my diligence when considering CEO opportunities. The recruiting team rarely comes right out and says focus is the issue, so you have to look for it. When probing for why a company is hiring a new CEO, the focus issue usually surfaces in the form of multiple descriptions of the business. Depending upon who you ask, the elevator pitch will be wildly different. The sales executive and the marketing executive are often not aligned in their description of the ideal customer profile (ICP) and the core competitive differentiators, or the CTO describes a product direction that is not aligned with the go to market team. Different board members may express different perceptions of what market the company is chasing, or what success looks like. Once you look for it, you can quickly spot a lack of focus and alignment, and then you have to decide if you will have the tools and the space to fix the situation.

Everyone in a company has to have the same north star and the same definition of what the company does, who they do it for, and what they have to do to succeed. However, in a restart or a pivot, focus requires more than just alignment. It requires the will to stop doing things that are distractions, and eliminate everything that is not in service of the [new] business vision.

If you are being considered for a CEO position, take these lessons to heart. Figure out why the board is hiring a new CEO, and ensure you are going in with your eyes open. Evaluate the existing team and be prepared to quickly make significant changes. Prioritize focus and ensure that everyone is aligned on the same vision and plan. Never lose site of capital efficiency, and be prepared to quickly make hard personnel decisions to streamline the team and extend the runway. Always be clear with the board and the team about what success looks like. No matter what, take the time to look carefully before you leap.

The Importance of Focus

Geoffrey Moore recently posted an article about Volkswagen’s EV plans that dealt with the topic of core versus context. In it, he defines core to be “whatever differentiates you from your competition, causing customers to prefer doing business with you.” Context is “everything else you do…to meet industry expectations as efficiently as possible, to not disappoint.” The argument is to build the core yourself, and outsource the context as much as possible. Put all of your engineering efforts into making your core standout, and do ‘enough’ on the context to get into the game.

When introducing a new product, there is a related concept to focus on the ‘minimum viable product’ MVP. Get into the market with speed and efficiency, and then let the market lead your expanded development efforts. The problem is that buyers generally struggle to differentiate competitors, and an MVP connotes it is just enough of a product to be considered a competitor, but not much more. To Use Geoff Moore’s terminology, it has enough context to get into the game, but not enough core to cause the market to shift to doing business with you. MVP sounds like a ‘me too’ product offering. Particularly in an established market, it is nearly impossible to stand out and gain traction with a ‘me too’ offering. Established markets are sometimes referred to as the ‘one plus’ phase of a market lifecycle, where the big news is that a vendor offers one more feature, or one new color as the ‘major’ upgrade. Mobile phones are largely in this phase now. The big launch is a slimmer case or a battery that lasts a little longer, rather than any meaningful new capabilities. Bringing an MVP to a market in this phase is a fools errand.

Those of you who know me know I hate the MVP concept. To me, it sounds like a vendor aiming for mediocrity. Your MVP is just another drop of water added to a large swimming pool filled with water. No one will notice. I never want to launch products that are just ‘viable.’ I want to launch products that are ‘successful,’ so I believe the bar should be Minimum Successful Product — MSP instead of MVP. When we focus on a successful product, we have to understand what our core is and why people will buy from us instead of the other competitors. In the Volkswagen example, why will a buyer choose a VW EV instead of a Tesla or a Volvo, or any of the dozens of competing EVs on the market? In the first round, the traditional automakers launched EVs that were MVPs. Most of the offerings were just retrofits of existing vehicles with nothing unique or innovative, and they did not make a dent in the Tesla market. In this next round of EV launches, companies like VW are finally aiming for MSPs, and bringing their core strengths to the table. It should become a pretty interesting market.

The lesson from defining your core versus context is to truly understand your unique value proposition and honestly evaluate if it is enough to make you stand out from the pack. If not, then you have to double down on your core and attempt to redefine the game to be one where you can be the leader. In the seminal work by Trout and Ries “Positioning, The Battle For Your Mind,” the authors describe competitors as being on the rungs of a market ladder. The leader is at the top, and others are on the lower rungs. The concept of positioning is to define a market and a ladder where your offering can be at the top. Defining your ladder means thoroughly understanding your ideal customer profile (ICP) and featuring your core value proposition in a manner that positions you at the top of the ladder for your ICP buyers.

Harkening back to Geoff Moore’s Volkswagen discussion, he states that “to differentiate, we have to field an offering that is deeply compelling to our prospective customers and at the same time one that our competition either cannot or will not match.” The conclusion is that we have to narrow our view of the total addressable market to the segment of the market where our core strengths enable us to be at the top of the ladder. To break out, all of our engineering effort needs to be concentrated on making our core compelling, and all of our go to market engine has to focus like a laser beam on the narrower ICP where our core capabilities resonate.

Like the kid in the candy store who is distracted by all the possible sweet treats, it is hard to avoid distractions or ignore all of the possible buyers in the total addressable market so that you can focus exclusively on the smaller ICP segment. Many marketers want to deliver broad messages that are vague on details so that their net will scoop up as many shoppers as possible. That is the opposite of a capital efficient approach to capturing the specific ICP buyers that will be attracted to your MSP. The result will be a lot of wasted sales effort wading through the misfits or trying to compete with undifferentiated products solely on price. Concentrating on your core and hyper-focus on your ICP will win the day.

What Makes a Great CFO

I saw a post recently by Allison Allen that said “If your strategy can’t survive a CFO’s questions, it isn’t a strategy.” She went on to say “Too often, leaders pitch “strategic initiatives” that sound inspiring but collapse the moment ROI enters the conversation.” It immediately made me think about the great CFOs I have had the honor of working with, and how they naturally performed the role of the voice of reason. I have also worked with not so great CFOs who viewed their job as requiring them to say ‘no,’ regardless of the strategic value of whatever was being proposed.

In my CEO positions, I came to appreciate the special relationship between the CEO and CFO, and I learned to respect the different roles they perform in leading a company. As a CEO you fall in love with your company and exude unbridled enthusiasm for your business. In good times, you see no limit to success, and in bad times, you are the eternal optimist looking for a way out of trouble. The staff takes their cues from the CEO about the health of the business, but the CFO is typically the steady hand of reason.  The staff often looks to the CFO for a reality check on the CEO’s cues.

It made me think about the contrast of what makes a great CFO, versus a not so great one. Once you get past basic competence, it is really about the CFO’s fit with the CEO and the company. It starts with the CEOs personality and behavior, and how they create an environment for a CFO to succeed. There is a spectrum of comfort zone for CEOs, and depending upon where an individual falls on that spectrum, they need a CFO to complement their strengths and abilities. On one end of the spectrum, some CEOs are numbers people and detail focused, they need a CFO to be the score keeper that produces the numbers that drive their actions. On the other end of the spectrum are the CEOs who are more vision and strategy oriented, and they need the CFO to keep the wheels on while they paint big picture ideas.

As a CEO, you have to start by knowing who you are and where you fall on that spectrum. You need an honest self-appraisal of your tendencies and your strengths and weaknesses. Once you know who you are, you are equipped to write the job description for your great CFO who will complement you. If you hire a CFO who does not fit with your skills and needs, you are sowing the seeds of discontent. Like buying the wrong size shoes, you will always be uncomfortable. By contrast, with an honest self-awareness, you will recognize what you need help with and what you are looking for, so you will be able to give the CFO a clear understanding of their role and responsibilities . A great CFO will become the CEO’s business partner, and in fact they will become a business partner for all of the operating executives.

In my experiences, great CFOs start conversations with “how can I help you,” instead of starting with rigidity or skepticism. They do not create an environment where they are perceived as the gate-keeper protecting the corporate treasury from those crazy executives. Instead, they see their role as finding a way to help executives and the company achieve their goals. They do not sit across the table from other execs, they sit side by side with them. In order to do this well, great CFOs need to have a deep understanding of the business and the market. They have to be part of developing the strategy and they have to be great business people with understanding and empathy for every operational role in the company. The not so good CFOs in my past were more focused on the mechanics of their role - legal, accounting, HR, and insurance details, and they did not leave a lot of room to become knowledgeable and a part of the actual business. They acted like bean counters, and gatekeepers, rather than business leaders.

In addition to figuring out who you are as a CEO, it is important for the CEO to also figure out who the board members are. The board works closely with the CEO, but in a healthy environment, the board and investors will also have a lot of direct interaction with the CFO. When creating the job specification for a great CFO, the CEO has to take into account the personalities on the board and what they will expect of the CFO. The CEO will also need to consider what s/he will expect of the CFO when they interact with the board. The CEO needs have confidence and trust the CFO when they fly solo with the board, and that requires a high degree of mind-meld, trust, and a close alignment and positive working relationship.

When I think about the great CFOs I have worked with, and I consider what I had to learn about myself in order to make room for a great CFO to succeed, I realize how it shaped the CFO job description and the ideal candidate. I learned that I was better at the big picture than the numbers. I had an intuitive feel for the metrics and numbers, but I was not particularly adept at keeping all of the specifics in my brain. Therefore, I needed a CFO who was rock solid on the numbers. I had board members who only saw numbers, and I needed a CFO I could trust to meet their scrutiny with absolute control of the details and the facts while I focused on the operating characteristics of the business. I also learned that I had eternal CEO optimism. When I added up the numbers, I always rounded up, and rarely saw the holes in my analysis. I needed a CFO who would round down and find the flaws, but who would also help to chart a path forward that aligned with my optimism. I learned that I needed a CFO who I could trust to be my sounding board, and who would be able to give me honest feedback. I have written about how the CEO job is a lonely role that sits between the executive team that works for the CEO and the board who the CEO works for. A great CFO business partner is a member of the executive team that works for the CEO, but is also able to be that sounding board and assist the CEO to lead the executive team.

There are tons of job elements and specific knowledge that define whether a person is equipped to be a CFO. However, once you get past the skills, the differences between ‘great’ and ‘not so great’ are a lot more complicated. Business acumen beyond finance and accounting is absolutely necessary, but job success will be driven by the ability of the CFO to align with the leadership needs of the business. How well they complement the CEO’s skills and support the operating executives will establish their ability to become an integral part of the business, and not just the score keeper.

Watermelon Customers

I recently saw a post (forgive me I do not remember who posted it) that said “Beware the watermelon customer...green on the outside red on the inside.” It was a reference to customer satisfaction metrics that indicate the customer is positive (green), when in reality they are mad on the inside (red) and about to churn. It is not unusual for customer success managers (CSM) to report that a customer’s metrics indicate satisfaction, only to be surprised when the customer fails to renew the license. In one company it was such a frequent occurrence that the CEO said the red/yellow/green reporting from the CSMs seemed like they were just holding a wet finger in the air and declaring a status. Despite collecting reams of data, there was no real meaning to the scores, and the reporting was essentially worthless.

There are a number of factors to unpack in order to get to the bottom of this situation. The first is to take a look at the metrics being tracked to establish a satisfaction score. Too often, these are “feel good” metrics. They measure motions, but not progress or value. Activity scores such as logins, page-views, data entered, reports created, etc. are all measures of motion. It is nice to see a customer using the platform, but it does not mean they are happy, or that they are receiving value for what they are paying. They may be using the platform because they have not yet found an alternative. They may be doing a lot of motion because your platform is inefficient, and the task should not require so much effort, so they are actually unhappy with the user experience. Seeing lots of motion may make us feel good about a client, but it is a far cry from telling us how satisfied they are.

One path for CSMs to improve the analysis is to actually have conversations with clients instead of just trusting metrics. Unfortunately, this is often just a second category of “feel good.” Depending upon how the questions are asked, the response may be full of praise and positivity, but not really honest. The user may tell us how happy they are and how much they like the platform and the team. You would think this is a good thing, which it could be. However, often the front-line user is not the beneficiary of the output of your platform, and they are unlikely to be the decision maker regarding value and renewal. Your platform may be critical for their job, but the output may not be all that valuable to their employer. The positive feedback makes us feel good, but it may not be truly informative.

One last “feel good” feedback occurs when the CSM has what a salesperson would call “happy ears.” I have written a lot about having healthy paranoia. Too often we only hear the positive feedback, and our CSMs are not sufficiently paranoid to hear the faint voice of discontent buried in the praise. Customer satisfaction usually does not go out like a light switch. There can be an event that just flips the switch, but more likely it is death by a thousand cuts. Once a seed of dissatisfaction is sown, every seemingly minor act or interaction can become supporting evidence for why they should consider a change. When they start to question their choice, they metaphorically open a file and start collecting evidence to support their position. Every broken promise or delayed delivery or slow response becomes evidence that goes into the file. Eventually, the file is stuffed full and the last bit of evidence is the proverbial straw that breaks the camel’s back - the customer churns. All along this tortured journey, the CSM may be hearing positive feedback with just occasional grumbles about ‘minor’ items, but the minor items are adding to the file. Without a healthy dose of paranoia, the CSM with happy ears will continue to think the client is green, when in reality they are sliding toward red.

The first fix for the watermelon problem is to broaden the scope of customer feedback. Insist that CSMs build rapport with the ultimate beneficiaries and decision makers in addition to the front line users of the platform. When a CSM has one go-to contact, they are essentially flying into the target. A few measures I like to track and report are the number of conversations per month, the number of individual people within a client that were contacted, and the number of levels in the organization. If the CSM is talking to multiple people at multiple levels, and gathering honest feedback, the resulting satisfaction report is likely to have a lot more credibility.

The next fix is to look at what is being asked and what is being said, and what behaviors or outputs are actually being measured. Insist that CSMs explore beyond the confines of your solution. What happens to the output, who uses it and how is it consumed? Your platform may be a small cog in a complex machine. If the output from your platform has to be transformed and sculpted to fit into a broader system, and if you hear words like “we take this result and put it in a spreadsheet to calculate the answer we need,” you should assume you are in trouble. If your system consumes effort and then requires even more work to deliver a result, chances are your system is ripe for replacement. This is sometimes measured in a Customer Effort Score (CES). The concept is to measure how easy it is for customers to interact with a company or use its products and services, and it can be applied to measure how much effort it takes to get to a desired result. Too much effort, and you are in trouble.

The bottom line to get past feel-good reporting of customer satisfaction is to focus on the value delivered to the customer. Have you managed to deliver a product or service that is truly valuable and has a positive ROI, and have you communicated the ROI to the decision maker who has the authority to approve your renewal? For the CSM, a clear view of value will improve how they communicate with customers, and how they feature the ROI to decision makers. Even more importantly, measuring and understanding value can have a profound impact throughout your entire organization that goes well beyond simply measuring customer satisfaction. When the sales team understands how happy customers value your solution, they are equipped to sell better and close more business. When the product team understands the true value of your solution they can focus engineering on building greater value, and therefore stickier relationships with customers. When the business development team and leadership team have a more comprehensive awareness of how customers perceive value, they can make better investment decisions and pursue more meaningful M&A to expand the scope of the business. The entire organization benefits from value analysis.

Understanding value unlocks the potential to improve it. Delivering value is the currency of real customer retention and expansion.

Know Your Employer

In my last post, I wrote about early stage businesses operating with losses while they scale. I suggested the need for a capital plan to reach cashflow breakeven as soon as possible, and warned of dire consequences if the investors suddenly turn off the flow of capital before the business is self-sustaining. A friend and former colleague suggested that early stage companies are not for the faint of heart, and unfortunately, not everyone is aware of the financial condition of their employer, or even considers it when they decide to join a new company.

I remember joining an existing company as the new CEO some years ago. In one of my early town hall meetings to introduce myself and describe the state of the business, I commented that the company had plenty of cash to get to breakeven. A hand went up in the audience, and the person asked in horror, “are you saying we are losing money?” The question took me by surprise, as I thought that was pretty common knowledge. It turned out that quite a number of the employees had no idea that this early stage business had not reached profitability and was burning cash. My effort to be transparent triggered somewhat of a panic that required a lesson in how early stage investors fund companies and the “normal” financial progression of our stage of business. For some of the employees this was shocking and way beyond their personal risk tolerance. For others, it was refreshing to hear the quiet parts said out loud, and they became even more engaged in the success of the business.

Some of the members of the ‘old guard’ management team were surprised that I was so open and candid about our financial position. Conversely, I was surprised that they had not been transparent in the past. As my friend said, joining an early stage company is not for the faint of heart, and I believe it is the responsibility of the CEO to be honest with individuals and help them to make informed decisions about their risk tolerance when joining a new company.

A related topic is being candid about the value of employee equity grants. Everyone likes the idea of receiving options as a part of their compensation package, but very few people truly understand how to value their options, and most employees significantly over-value their grants. They receive a grant with what looks like a big number of shares, but they never ask how that number relates to the total outstanding fully-diluted number of shares, or what debt or preferences are higher in the stack before common shares receive any value. The result is a false sense of value that often leads to a disappointing outcome. When employees see the company sold for a big number, they are surprised that their options have little or no value because they did not understand the context of their grant..

I have seen CEOs and leaders ‘sell’ employees on the potential value of their equity grants. They pitch a story about how much these shares ‘could’ be worth in some utopian future, and for the financially naive employee it creates an expectation of a future jackpot. I have always believed the CEO has an obligation to be intellectually honest about employee equity grants. I prefer the adage to ‘under promise and over deliver.’ My guidance when asked about the value of equity grants has always been that the employee should be happy with their base salary and any variable compensation they are contractually entitled to receive. They should treat the options as a remote potential bonus way in the future, but do not consider their value when deciding to accept an offer. I have also tried to put the potential value of the options into a context such as ‘a nice dinner out’ or ‘a nice vacation’ or ‘a new car’ or some other tangible thought that helps frame the expectations.

Clearly, in successful companies that have undergone successful exits or public offerings, some employees with stock options have made a lot of money. However, at the time of the grant the strike price is equal to the fair market value, and employees should have a clear understanding of what has to happen for the options to become valuable. This is just another element they deserve to understand along with the operating financial picture and risk profile of the business. Employees that join an early stage company with their eyes open understand what they are getting into, and are excited about building something great together. In my experience, these are the most valuable team members that are aware of the risks and are willing to do what it takes to succeed. It starts with the CEO being open and candid, and acknowledging that employees deserve to know their employer.

Breakeven Will Set You Free

It is rare for a startup to be profitable on day 1. More often, entrepreneurs have a big vision and raise capital (or self-fund) to chase their dream. The typical tech startup runs operating losses and negative cash flow while the business scales, and early tech investors have traditionally been willing to invest in growth with the expectation that the business will gain value faster than it consumes capital.

While there are still investors willing to fund losses for scaling companies, in recent years, the pendulum has swung far in the direction of valuing profit and positive cash flow more than growth. The heady days of easy capital as long as the business can demonstrate growth have mostly ended. This shift has left many CEOs in a precarious position. They built large expense bases anticipating future growth, relying upon their perception that investors would be willing to keep the capital flowing. It is a rude awakening when they find themselves in need of capital, and are forced to dive-bomb to cut expenses to reach profitability so they can attract investors before the cash runs out.

One of my favorite, and often quoted lines is “too much money makes you stupid.” In essence, when the bank account is full, companies are more cavalier about spending and investing for future growth. They build up their expense base, operations, and infrastructure in ways that are hard to undo. The best example is signing a long-term lease for an office that is bigger than you need today, but ‘clearly will be necessary in the future when the business grows.’ If the growth does not materialize, the business is saddled with an enormous rent expense that is nearly impossible to eliminate.

The less cash a company has, the more often they count it, and the more they consider every expense and commitment. Less cash forces CEOs and leadership teams to be smarter about how they build up their expense base. They are more likely to be vigilant about scaling revenues faster than they scale expenses, so that they can reach profitability sooner rather than later. The result is they become much more desirable investments, even if the growth rate is more modest. When the business has demonstrated product / market fit and the ability to delight customers, then it is time to step on the gas, and the money will become available. ‘If you build it, they will come’ is an apt description of the availability of funding for businesses that are built in a capital efficient manner. If you build it, investors will come to the business when the time is right.

For CEOs, one of the hardest leadership roles is to reinforce the importance of capital efficiency and profitability. We have all faced the optimism of functional leaders who make well reasoned and passionate pleas for resources, justified by all the great things their teams will do in the future. It is easy to be caught up in the excitement and agree to ‘spend money to make money.’ However, the CEO cannot lose sight of getting to profitability as soon as possible, and never let the business backslide. Becoming sustainably cashflow positive will set you free! When the business is funding its growth instead of relying upon the whims of investors, the business is growing responsibly. Not to say that any investors are truly whimsical in their decision making, but fund dynamics, portfolio biases, and market forces often shift investor enthusiasm, and CEOs find themselves suddenly surprised by skeptical investment committees and constrained capital availability.

There is a saying that it is better to be bought than sold. In this context, a company that is desperate to raise a round of capital or sell itself will never do as well as one that is self-sustaining and able to wait for the right buyer or investor to make a fair offer. The business may not be growing as fast as possible, but at least it will not be facing an existential cash-out event and need to go looking for any port in the storm. Positive cashflow provides the time to be bought, rather than the pressure to sell.

Capital planning is one of the most important responsibilities of the CEO, the leadership team, the board, and investors. However, the obligation to be capital efficient sits squarely with the CEO. I have seen too many situations where the board identifies soft spots in the business and guides the CEO to increase spending on those areas to improve performance, and the CEO dutifully follows the guidance and increases the committed spend level. However, the CEO needs to measure the advice in the context of remaining capital efficient and executing their capital plan. If the business runs out of cash, the CEO is the steward ultimately responsible. Boards usually have great instincts and their advice regarding areas that are underperforming or opportunities to invest to improve performance are generally spot-on, but the CEO needs to balance the advice with awareness of the complete operating budget and financial performance. A responsible approach may be to cut back in other areas to fund increasing investment as directed. These are hard decisions that may impact morale, and are squarely in the leader’s hands.

We often talk about growth stages for businesses, and the adage that the team that led a company to one stage may not be the right team to lead it to the next. For a CEO to continue to grow with the business, they must have intellectual honesty about the staff required for each phase, and the quality of the team they have versus the team they need to make the transition. So, when the board suggests that the go to market function needs an upgrade, and they recommend hiring a CRO, it is up to the CEO to look across the entire business and decide how to reallocate expenses, or reconfigure the business so that hiring that new CRO fits within the overall expense budget and capital plan. Hiring a new expensive CRO will hopefully improve revenue, but it will absolutely increase operating costs. The CEO needs to balance the certain increase in costs with the possible increase in revenue, and remain vigilant about maintaining positive cashflow. In other words, the CEO cannot outsource responsibility for spending decisions to the board. Instead, they need to take the board’s recommendations and manage the changes in light of the overall financial plan.

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.