Is Your Board a Competitive Weapon?

I was always a believer in a bright, bold line that separates operational management from the role of the board. As a CEO, I felt that my job was to run the company, and the board’s role was to provide strategic guidance and counsel. If the board did not approve of the way I ran the company, they could remove me. I resisted was the board trying to “help” me by diving into operations.

After multiple CEO positions, and multiple boards, I have mellowed a bit, and developed a more nuanced perspective on the board and CEO relationship. I still believe in a line of demarcation, but it has faded and become fuzzy. After some pretty bad board experiences, I started to study the dynamics of the relationship between the board and the CEO, and how to leverage the board as a weapon. I had a pretty good idea of what did not work, so my goal was to figure out what would work.

One of the first things I realized was that board composition is a huge determinant of building a successful relationship. In venture and private equity backed companies, the board is typically stacked with investors. There is a power dynamic as a result of the CEO working ‘for’ the board, but in a healthy relationship, the parties collaborate and the CEO works ‘with’ the board. Defining what it means to work together is a critical element of building a healthy relationship. For some investors, the model is “it’s our money, so we get to tell you what to do.” There are very successful investors for which this is exactly the formula. They have a playbook, and if they invest, then they call all the shots. There are CEOs for whom this is just fine. There are other investors that believe in ‘bet the jockey’ and look to the CEO to chart a successful path. There are CEOs that relish this autonomy. However, if there is a mismatch of investor type and CEO type, things never go well, so figuring out that dynamic is critical for a positive board/CEO relationship.

Being able to spot a good investment does not necessarily make someone a good board member. However, institutional investors have the benefit of seeing multiple similar businesses. They have been to the movie before, and their pattern recognition tells them how it will turn out. An effective institutional investor will translate their pattern recognition into constructive input for the CEO and allow for the possibility that the CEO may also have experiences and see alternative patterns. This is where a collaborative relationship is vital.

The CEO is much closer to the business than the board, and they typically have a much more nuanced perspective. It is incumbent upon the CEO to effectively communicate the salient facts and background to the board, so they can be informed and helpful. For board members, it is vital that they listen and understand the nuances before jumping in with superficial opinions. The rule should be ‘Ask then tell’ not ‘Tell then ask.’ Listen to what is really going on, ask what the management team is already doing about it. Consider the ideas that have already been tried. Then, and only then, if you still have something to add, tell management your opinion. Too often, I have seen board members hear a few facts and immediately start to pontificate about what management needs to do. All too often, it is exactly what management is already doing, and the exchange is insulting to management’s professionalism. Viewing the board dynamic as a collaborative relationship, and recognizing that the CEO and the board members are all professionals with a common goal to drive for success is critical for a positive relationship.

An effective board can become a competitive weapon. It makes the company better. But, board composition needs to be carefully curated to ensure the right collection of expertise and personalities and relationships. VC and PE investors have a responsibility to keep an eye on their money, but that does not mean they are automatically the most valuable board members. Investment documents grant board seats without much thought as to who will actually fill the seat and whether they will become a weapon for the company or a distraction. It is more of an investor policy matter - if we invest, we get a seat. This is a wrong-minded approach. Investors should put people on the board with the skills and the obligation to add value regardless of whether they are investor partners or just smart people.

Creating a board that is a competitive weapon requires an honest assessment of corporate needs. Some companies need help with internal operations, while others need help with entering markets, or engineering a financial path. Board members with specific expertise can turbocharge the business. They can be helpful to guide executives, or share experiences, or open doors that will help the company mature. Figure out what the company needs, and then go find the best person to bring that skill to the board.

The most important thing for a board member to realize is that their role is not passive. A board meeting should not be management putting on a show with board members in the audience. For the board to be a weapon, they have to join the fight and actually contribute. Investor board members need to have self-awareness to differentiate when they are just watching versus when they are contributing. If they are just watching, then they should become observers and relinquish the seat to someone who will actually get in the game and help.

Non-executive, independent board members play an important role. When curating the composition of a board, the independents can be the most valuable elements of building a competitive weapon. Choose wisely, and know precisely what role an independent will play. Clearly articulate and discuss what the CEO and other board members are expecting of the independents.

Lastly, keep in mind that companies mature and evolve, and the contribution the company needs from the board will change over time. Set board terms, and be thoughtful about extending a board member’s term of service - even for investor board seats. The CEO should be able to have a conversation about the current investor participant, and the opportunity to request a new member. It may be awkward, but so is failure or mediocre performance. Force the board to be the competitive weapon the company deserves.

The Optimism Dilemma

The role of CEO requires a mix of vision, leadership, enthusiasm, inspiration and passion. A big part of the job is to serve as the corporate cheerleader. However, when things are not quite right, members of the team become acutely aware of the vibe coming from the CEO. Like dogs that can detect fear, team members have a sixth sense about what is really going on in a company. They pick up on queues like closed doors, unidentified visitors (“suits”), hushed conversations, unusual absences, etc. On the positive side, team members pick up on confidence, joy, openness, and any number of other traits that convey a calming sense to the organization.

CEOs and executives are often surprised by the efficiency of the corporate grapevine and rumor-mill. We often fool ourselves into believing that nobody will notice when something is not quite right. Certainly in the tech world that I am familiar with, and I am sure it is true in every other environment, employees are quite smart and astute, and nothing gets by them.

As the head cheerleader, CEOs often feel obligated to be upbeat - to put a positive spin on whatever is happening. Team members have a natural disproportionate bias to over react to bad news, so if a CEO delivers a negative message, the way it lands will get amplified by this bias, much more than the impact of a positive message. In the HR world, the corollary is that a manager needs to provide at least four positive messages to offset the impact of one negative message. Similarly, CEOs often go overboard in the positive direction to counterbalance the negativity bias.

The problem is that team members are smart and they see through the BS. You cannot fool them. Over optimism is immediately understood to mean something is wrong. You really cannot spin missed bookings, or churned customers, or staff reductions, or strategic pivots, and expect the team will buy it. The result is a loss of credibility for the CEO. As goes credibility, so goes trust, and trust is very hard to regain. Once the team flips the bit from trust to doubt, it is hard to flip it back.

This balancing act creates the ‘Optimism Dilemma.’ In challenging times, how does a CEO balance optimism and cheerleading with reality? How do you keep the team engaged and moving forward when things seem to be going backwards? It comes down to the CEO’s track record for truth and candor.

Trust is like a bank account. You cannot spend what you do not have, and if you have not built up a balance of trust in your account, there is no quick fix. From day one, a CEO has to be honest and truthful with the team, and present a believable reality. Everyone expects the CEO to be optimistic and see the future vision with a positive outlook. They need to see that the CEO believes in the business, but they also understand that not everything goes as planned, so candor is vital. It is the role of the CEO to put the bad news in a believable context. Explain what it means, what the company is doing about it, and how it effects the future. You can be a cheerleader while still delivering an honest appraisal of results. When things are not ideal, the team needs to hear the CEO say “we screwed this up, but we got that right, and things will be OK.” The cheerleader role is important, but it has to be authentic.

The same Optimism Dilemma exists between the CEO and the board of directors. In a healthy board environment, we are all in this together. The board wants to see the CEO and the company succeed, and they are there to help. A good board can handle bad news, but they want to know that the CEO is on top of things. They can handle the miss if it comes with a believable plan to make things better. However, boards are very discerning and have a fantastic BS meter, so over optimism with the board undermines trust in the CEO. On the other hand, if the CEO projects doom and gloom or uncertainty, just like the employees, the board will run with the negativity. The best course for the CEO is to maintain a healthy dialog with the board so there are no surprises and there is a constant flow of grounded facts and information flowing between the CEO and the board. Transparency and confidence win the day.

The bottom line is that establishing a track record of honesty and candor, balanced with CEO optimism will keep a CEO out of the ‘optimism dilemma’ with all of their constituents.

Snake Skin

As snakes grow they periodically shed their skin to make room for their larger bodies. In many ways, businesses go through a similar, natural process as they grow and mature. The team that led the business up to a certain point may not be the ideal team to foster growth to the next stage of business.

Early stage entrepreneur leaders possess drive and skills to get things going. They are the center of the universe for their company, and they can keep all of the facets of the business and every nuance in their head. As the company grows, more people join the team, and up to a point, a loose structure and minimal written plans and policies can work just fine. However, the level of complexity and the number of people involved soon requires more formality and structure. The business needs governance in addition to vision. Formal procedures and policies make the business predictable and scalable.

The leaders that surround the CEO in the early days may not have the skills or recognize the importance of introducing structure into the business. Key members of the early team tend to wear several hats and perform a range of roles. They thrive on multi-faceted challenges and their ability to make a difference. However, as the company grows, it hires specialists to lead each function, and the original team members’ roles either narrow or becomes redundant. The most important job for the CEO is to ensure that the right people are in the right seats to enable the company to reach its fullest potential. The struggle for the CEO is that the early leaders are colleagues and often friends, so loyalty and friendship are in conflict with the needs of the business. Some of the people that were instrumental to getting the company to where it is, are exactly the people that will keep it from getting to where it needs to go. It is never easy to make these changes, but it is often required for the ‘snake’ to shed some skin so the company can grow. The CEO’s challenge is to keep the entrepreneurial spirit alive while also laying the foundation for a scalable business.

The hardest transition of all is to change the CEO.  It is a rare founder-CEO that can manage a growing business through all stages of growth. There are notable exceptions - Bill Gates, Jeff Bezos, Larry Ellison, and Elon Musk - to name a few billionaires. However, more often the skills that enabled the founder-CEO to succeed in the early days will not be adequate or the same skills needed for subsequent stages of the business. Some individuals are self aware enough to recognize the need to hire an experienced replacement. Some require a bit of a push from the board. A telling question for an entrepreneur is “do you want to be rich or king?” You may need to give up the role of king for the business to thrive and make you wealthy. Maybe it’s time for the snake to shed its skin.

Board Amnesia

In a prior MMM I wrote about the CEO’s responsibility to craft and focus the story for each board meeting. I advocate sending a board update well in advance of the meeting to provide each board member with information about what happened in the last reporting period (quarterly or monthly). The update is not forward looking or aspirational. Like the old TV show saying, it is “just the facts, nothing but the facts.”

VC- and PE- board representatives are typically engaged with several companies in various businesses and at various stages. It is not unusual for a board member to serve on five or six or more boards. From one quarter to the next, a lot happens in every company on their roster, and it is a challenge to keep it all in focus. When a quarter ends, all of the board meetings tend to be compressed into a short window, so individuals with multiple board seats have a flurry of meetings all in a row.

As the CEO, you are 100% focused on your company, and you live and breath it every day. Your mind is packed with all of the nuances of your market, your competitors, your opportunities, your personnel, and your company’s performance. Not so much for a board member serving on a half-dozen boards.

During the board meeting, everyone is focused on your company (hopefully). Typically there are questions raised and requests for follow up information, and there are actions agreed upon. In the moment, these are all clear and well understood. Then the meeting ends, and the board members are on to the next company and the next board meeting, and the memory starts to fade.

This pattern leads to ‘Board Amnesia.’ It is the understandable affliction where board members forget the details and the decisions made from one board meeting to the next. CEOs are often surprised when a board member asks the same question meeting after meeting, or doesn’t remember directing the CEO to take some action or investigate some outcome. As CEOs we find we have to re-litigate decisions that we thought we put to bed at a prior meeting. Board Amnesia is real, and it wastes a ton of our precious board meeting time.

A CEO has to recognize this condition and take action to overcome it. It is not that hard to do, but it does require focus. The starting place is to summarize the actions and requests made during the board meeting, and send them to the board immediately following the meeting along with whatever slides were presented during the meeting. Some CEOs add apendix slides that may not have beed used during the meeting, but provide support for topics discussed during the meeting. That is not a terrible practice, but it requires you to tell the board members why the slides are there and what to make of them. Be as specific as possible when summarizing the meeting, and clearly identify the items the board agreed to, or where action was requested. You are building the memory book for board members with this follow up, so pay attention to carrying your board narrative forward into the summary.

For quarterly meetings, it will be a long 90 days before you get totally focused board time again. Most companies have some form of interim update process. Maybe it is a monthly finance call, or a six week business update, or something less formal. My advice is to make it formal and follow a rigid cadence. You are not just updating the board on results, you are also striving to avoid Board Amnesia, so include update information about the checklist of decisions made during the last meeting. Your purpose is to keep bringing your company to top of mind so they do not forget what is going on.

Between board meetings, it is up to the CEO to remain engaged with board members. Regular, scheduled 1:1 calls are ideal. Too many CEOs only reach out when they need something or have a problem. Think about how you manage the people that work for you with regular meetings and discussions. As CEO you also need to manage your board. Continuous engagement is your second tool to stave off Board Amnesia.

Lastly, we come back to the board update that goes out in advance of the meeting. If you have kept the board involved throughout the reporting period (quarter), this ought to be a routine aggregation of what went on during the quarter and why it is important. In other words “NO SURPRISES.” However, keep in mind that you may still be dealing with Board Amnesia, so use this last opportunity to remind everyone of important conclusions from prior meetings and the narrative that led to those decisions.

As a CEO, manage up as well as down. Recognize that Board Amnesia is a common affliction for busy board members. When you communicate with board members, you are not just picking up where you last left off, you also have to reiterate the journey that led to your current actions and results so that your narrative strengthens and refreshes the board’s memory. Help put an end to Board Amnesia!

Short and Sweet

“If I had more time, I would have written a shorter letter” is one of my favorite quotes. It is often attributed to Mark Twain, but actually started with Blaise Pascal in 1657. The underlying truth is that it takes effort to make things concise. The power of a simple message cannot be over estimated. We see it in marketing all the time. The best marketing messages are short and crisp and memorable. The analogous sales adage is ‘if you are explaining, you are losing.’ We remember clear, simple sales and marketing messages, and we forget the complicated ones.

As it relates to board meetings, the responsibility to ensure clear communication between management and the board falls on the CEO. Most organizations produce materials that go to the board in advance of the meeting, and then a slide deck to drive the conversation during the board meeting. The CEO is responsible for the clarity of the message and it is up to the CEO to keep the materials concise. Typically, functional leaders and executives create the materials that relate to their domains, and the board pack is a mosaic of what has been created. There is a general layout and template so the content hangs together, but without CEO oversight, it will be a collection of stories, and not a novel.

Functional execs are good at crafting their own story to feature their team's accomplishments, metrics, and performance indicators. Over time, questions are raised or comments made in board meetings, and typically the executives try to factor the answers into the materials for the next meeting. Board meeting after board meeting, the list of items that were asked about at some point in the past continues to grow and become preserved in perpetuity in the executives’ materials. Eventually, it will start to crowd the content that conveys the message the exec is really trying to deliver. The stories become muddled with too much noise, and the signal is lost.

The problem with gathering baggage based on questions and requests from prior meetings is that often the request relates to an issue that was timely when it was asked, but once the issue is addressed, the focus moves on. Long ago in a distant galaxy, I developed executive information systems (EIS). The target users were CEOs, and the systems were designed to provide a comprehensive view of the entire company at their fingertips. Teams poured untold amounts of data into these systems and tried to anticipate every request. What we learned was that CEOs flitted from topic to topic at the surface, and only dove deep into a topic when it was a hot-button. Once the issue was resolved, they rarely revisited it again. Teams went nuts gathering data based on prior deep dives, only to find it was a waste of effort because the CEO had moved on. A lot of board inquiries follow the same pattern.

The CEO is not a bystander going along for the ride as each exec prepares board materials. The CEO needs to step back from the details at the start of the process, and determine the theme or plot-line for the board meeting. They need to weed out the extraneous content and determine what story will be told and how the plot will be developed through the materials provided to the board. With a clear theme and story-line, the CEO is in a position to orchestrate the content and edit the various pieces to fit together.

Board members are smart people, but they are not in the thick of the day to day operations. My counsel to CEOs is to be a minimalist with board materials. Tell the whole story but don’t stray from the plot. Board members are going to consume whatever is provided, and too often someone will see something in a random extraneous slide and choose to drill into it during the board meeting. Suddenly, you are dragged down a rabbit hole and twenty minutes of board time is gone. If you don’t want to talk about it, don’t deliver it.

Board meetings are only a few hours long, and every minute is precious. It is up to the CEO to ensure that the board knows what is on the agenda in advance, and what they are being asked to consider and discuss. My best-practice recipe is to send out a retrospective view well in advance of the meeting. The content should be purely facts and historic trends, no forecasts or aspirational claims, only background information. The purpose is to give the board everything they need to be prepared for the discussion during the board meeting. Keep it concise, and make sure every element answers the question “so what?” Rather than simply delivering a piece of data with no context, answering the “so what?” question requires the author to think about why this data is important and meaningful to board members. It helps the CEO curate the package and ensure that the story hangs together. The package also needs a CEO narrative that acts as a roadmap to the data being presented, and describes the theme of the board meeting. The retrospective is the first chapter in the novel that will unfold during the board meeting.

Sending the facts in advance means you do not need to allocate time during the meeting to catch everyone up. Insist that they read the materials and come prepared. It is up to the CEO to frame the discussion, keep the meeting on track, and manage the clock.

When it comes to board communication, CEOs should heed the words of Pascal and take the time to “write a shorter letter.”

Too Much?

In the post-COVID era, many companies have remained virtual organizations, eschewing the traditional office-centric business model. Some companies have morphed to a hybrid model asking people to be in the office certain days, and some have completely reversed course and insisted on the power and benefit of being together in an office on a more permanent basis. Lately, I have become interested in the dynamic of routine meetings in our new reality, and how frequency, scale, and participation has shifted.

During COVID, we had little choice other than virtual video meetings.  We found ways to stay connected, and we created meetings to just get people together for business and culture and fun. A lot of these meetings fell by the wayside as in-person became a thing again. The challenge is that during COVID we also learned that a virtual organization can recruit the best talent from wherever they happen to be in the world. We added key members of staff who cannot routinely be present in corporate offices. As some of the locals return to the offices, the remotes stay remote. The good news is we added great talent. The less good news is we lost the little daily random interactions that are a part of being in the same office space with each other.

The question is how this dynamic influences or changes the frequency of group meetings and the scope of attendance. What I found is that high-growth, fast-paced companies need to increase the number of large group meetings to ensure the dispersed teams remain on the same page. Instead of the sales team getting together to just talk about sales, it has become more efficient to open the meeting up so that it becomes a go-to-market meeting that includes marketing and customer success, and maybe even post-sale services and support people. The sales team may still need their own meeting to talk about forecasts and deals and how to sell, but the broader meeting brings the village together so everyone is hearing the same story and ‘rowing in the same direction.’ The same is true for product teams opening up their meetings, and services teams opening up their meetings, etc.

The advantage of virtual meeting technology is that we can invite more people to participate without all having to pile into a cavernous conference room. All-hands town-hall company meetings have become even more important to keep the culture alive and to build a shared understanding of progress and challenges. In the past, we may have done these quarterly or even less frequently, but in hybrid or remote environments, monthly virtual meetings are doable and valuable. Keeping the remote participants involved and visible is critical. Good etiquette says ‘camera’s on, distractions off.’ Engagement is critical.

I am an advocate for open, honest, transparent information sharing across as broad a spectrum of the team as possible. In any environment, nature abhors a vacuum, and an information vacuum in a corporate setting is typically filled with rumor-mill conspiracies (see my earlier post about the Ladder of Inference). With remote workers, the lack of casual office interactions exacerbates the vacuum. More frequent, more inclusive, and more comprehensive meetings can be an antidote to the rumor-mill. Sports teams huddle after every point for a reason. The individuals know their jobs, but the huddle ensures they are supporting each other and sticking with the same game plan. Businesses need a similar degree of over-communicating, and remote businesses need it even more than ever.

People frequently ask ‘are we meeting too much?’ Or ‘are there too many people in this meeting?’ Or ‘what is the point of these meetings?’ All good and valid questions that should have solid answers. Meetings need a stated purpose. Attendees need to know why they are in the room. Meetings need to have fresh content and serve a communication purpose. But, with all of these caveats, in my opinion it is better to meet and over-communicate than it is to try to be more ‘efficient’ and miss the opportunity to ensure everyone is on the same page and going in the same direction. Keep the meeting content tight, and time-boxed, and lively, and the questions will fade away.

Best If Sold By...

There are many ways to build a growth tech business. Some entrepreneurs are able to self-fund or bootstrap their company and quickly build profitability to support growth, but more typically founders need to rely upon some form of investment to make a go of it. From the first investment dollar, funding decisions will have long-ranging effects on the trajectory of the business.

At the start of a business, there is a bit of a chicken-or-egg problem with funding. An entrepreneur is asking an investor to invest in an idea with no tangible evidence it will succeed. If the financing is in the form of debt, then what is the collateral and evidence the business will be able to repay the debt? If the financing is in the form of equity, then the question is what is the business worth, and how much equity are you selling? Entrepreneurs have grand ideas and huge visions with little evidence. Investors want to share the vision, but for the most part they are pragmatic and avoid being swept up in the entrepreneur’s enthusiasm. The result is an imbalance of valuations. The solution is often to follow a crawl-walk-run approach and agree on a small amount of initial funding to get going, so you can prove the business and live to fight another day about the value of the business when seeking a larger investment.

Whether you are an entrepreneur starting a business, a CEO of an ongoing business, or an executive considering joining a company as a hired CEO, every funding decision is of paramount importance. Once you get past friends and family and angel investors, institutional investors follow fairly defined playbooks, and it is vital you understand what you are getting into.

Most PE and VC firms raise closed funds with a fixed amount of capital and a fixed set of limited-partner investors. Funds have investment rules about how much can be invested in a single company, and they generally have an anticipated lifespan during which investments are made and exited so that investors get their money out. Most firms cannot (or will not) cross invest from one fund to another. If an investment is made from fund 1, and a subsequent capital need arises. If fund 1 is tapped out, it is rare that the firm will make a subsequent investment in the same company from fund 2. Often there are different pools of investors, and it gets messy if fund 2 is perceived as bailing out fund 1, or if the outcomes will be different.

As a CEO, when considering an investment from a new VC or PE firm, you want to know the fund dynamics. You are not just considering an investment firm, you also have to consider the fund out of which the firm is investing. You want to know how old the fund is, and how your potential investment compares to the typical investments in this fund. You also want to know the rules of the fund for follow-on investments and if there are limits on how much may be available to your company as well as if the fund has the capacity remaining to make sufficient follow-on investments.

When considering a first institutional investment, the CEO has to recognize that it is a lot like tattooing a “Best if Sold By” date on their forehead. Institutional funds have a lifecycle, and depending upon where the fund is on that timeline when the investment is made, the best-if-sold-by date will be loosely tied to the expected remaining life of the fund. It is a fair question for the CEO to ask and expect an answer that is more than just BS. The CEO and the investor need to be aligned on timing and what success will look like for the fund, as well as what the firm’s expectation is for eventual exit. Nothing will be hard and fast, but there needs to be alignment, and the CEO needs to recognize that the investor is not in it forever.

As the business grows, it will likely need capital and also likely move through the ranks of institutional investors from angels to venture to growth equity and through various larger tiers of private equity potentially to public markets. Each tier of investor has different expectations and tolerances, as well as different timelines. Every single funding decision has long-ranging implications, and this becomes very apparent as the business grows and seeks additional capital moving up the tiers of investors.

Managing board and investor expectations is a major part of a CEO’s job. This is particularly challenging when the firms around the table come from different investor tiers, and they invested at different stages with different expectations. A venture firm may have invested in a technology business with expectations of >50% growth rates, high gross margins, and limited focus on profitability. A subsequent PE investor may expect more modest 30% growth, greater attention to EBITDA, and a longer hold period. For the CEO, this makes setting strategy and measuring success a challenge. Being aware of investment expectations before accepting an investment, and solving for a common ground early will greatly smooth the board / management relationship going forward.

Committing to board seats, granting decision making blocking rights, preferences, and participation rights at early funding stages can become nightmares at later stages. Large-scale professional investors may be unwilling to have Uncle Bill on the board, even though you promised Bill a seat when he gave you seed money to start the company. They will also object to Bill having the right to block an equity decision, or any real say in the business. As an entrepreneur you have to jealously guard all of the rights that will become critical later in the business, and avoid giving up too much too early. Starting out with 100% of the equity, giving away (or selling) too much early on will result in massive dilution after multiple rounds of institutional capital. You may wake up one day and discover you only own a few percent of the business you poured your heart and soul into for years.

Preference stacks and multiples are the bane of an entrepreneurs existence. Institutional investors typically invest in preferred stock, and too often they require multiples of their initial investment before the proceeds trickle down the preference stack to common shareholders (including the entrepreneur founder and team). If the company has gone through multiple rounds of investment, and each round includes a multiplier, it is not uncommon for all of the proceeds of a sale to be distributed to institutional investors and none to the common shareholders. CEOs need to be aware of the preference stack and conscious of how high the bar is being set before the common shareholders make money. Don’t be surprised.

The bottom line is to create a long-range business plan with realistic projections, and anticipate funding needs long before they materialize. Jealously guard against giving up too much too soon. Be aware of all of the tools investors employ to reduce their risk and increase their returns. Sometimes, it is not only a question of enterprise valuation at the point of investment, you also have to consider the dreaded preference stack and multiples and participation rights. Most importantly, the CEO needs to be aligned with and aware of the investors’ time horizons and expectations, and look out multiple years to plot an appropriate strategic funding course.

How Do You Choose?

In the last few posts, I highlighted the important role of the CEO to ensure that the right executives and managers are in place, and that they know what to do and how to do it. When the CEO finds themself stepping in to do the job of an executive leader, there is probably a problem.

Most of us are guilty of hiring too fast and firing too slowly. Once someone is onboard, we all have heart and know how disruptive it is to the individual and the company to make changes. Our first instinct is to help the individual overcome their challenges, plug the gaps, pick up the slack, or whatever it takes to foster success. To be honest, we pride ourselves on making good decisions and having good judgement about people, so it is hard to admit we may have made a hiring mistake. The problem is our procrastination takes a lot of time, and often in a growth environment, that is the one thing we never have enough of.

Similarly, as companies grow, the challenges change. An executive who was great at an earlier stage of development may not be great when things get bigger and more complex. Like a snake that sheds its skin as it grows, often executive teams have to go through the difficult process of reshaping and replacement as the company grows to the point of needing different skills and capabilities. A great executive from $0 - $20M may not have the skills to get to $50M and beyond, or to get there in the most expeditious way. The challenge for the CEO is to know when it is time to make a change, even though the company owes so much of its success to the individual who helped get it to where it is.

Making these difficult decisions about hiring and firing is one place where an effective board can be very helpful. As a group of involved but external individuals, the board can provide a unique perspective. The CEO should continuously inform and consult the board regarding the effectiveness of the executive team. A healthy ongoing dialog can be very impactful. I am an advocate of the CEO presenting an executive scorecard at every board meeting. A simple ABC grading or a more sophisticated 9 box analysis, or just a discussion of each individual is an important element of every board meeting. During the CEO and board-only time, there needs to be at least a brief review of the exec team. Over time, this simple review step will begin to highlight issues and weaknesses, and add perspective. It forces the CEO to look beyond the day-to-day and honestly see where executive team strengths and weaknesses lie. Trends will emerge and become actionable.

Malcom Gladwell wrote a book titled “Blink” that in essence says we typically know what our decision is in the blink of an eye, and then we spend a lot of time gathering evidence to support our view, all of which leads to our original conclusion. This is true for terminations and hiring decisions. In terminations, it is more of a switch that flips at some point when the CEO recognizes there is a problem. In their gut, they know the outcome, but they are not ready to admit it. The result is we take too long gathering evidence to prove our Blink decision to ourselves. This leads to the problem of firing too slowly.

On the other hand, we hire too fast. It will never be possible to be certain about a candidate’s long-term success during the hiring process, but we can improve the odds by taking the time to do it better. Hiring is where the concept of “Blink” fails us. We know in a blink that we have the ideal candidate, and too often we spend the rest of the process gathering evidence to prove it. This is our downfall. We need to remain impassionate and objective and paranoid. Consider every hire as if a wrong decision will lead to the worst possible outcome, because it probably will. We have to overcome our natural tendency to look in the mirror and hire someone just like us, but the challenge goes much deeper. We have to create objective criteria and be honest with ourselves about how each candidate meets the test. Instead of a ‘blink’ decision, we need to listen to the small voice that may be expressing caution, or we need to respond to our blink reaction by focusing on gathering evidence that we are wrong, instead of evidence that we are right.

I advocate creating a tough scorecard and being a harsh grader when evaluating candidates. Write down the criteria for a successful candidate. At a minimum, the list should include elements that identify: leadership, industry expertise, operational excellence, strategic thinking, problem solving, interpersonal behavior, executive presence, and communication skills. Determine what it will take to be successful and do your best to objectively score each candidate.

In a typical hiring process, a bunch of people interview a candidate, and often they ask very similar questions. After a couple of meetings, the candidate refines their answers and everybody sees the same strengths (and weaknesses). It is much more effective to focus each interviewer on a specific topic and ask them to go deep instead of wide. Five interviews should add five pieces to the puzzle, not five versions of the same piece.

People decisions are among the hardest choices a CEO has to make. There are lots of experts and papers and books that talk about how to improve the probability of a positive hiring outcome. The important thing is to make a plan and follow it with clear objectivity. Hiring an executive is not a time for surface interviews and gut reactions. A CEO should engage board members to provide objectivity and experience evaluating executives. Most board members have been to the movie many times and can predict how it will turn out. Use their experience. Avoid the Blink that is in all of us.

How Can I Help?

There was a popular television program in the States called “New Amsterdam.” It was about an inner-city mega-hospital that gets a new medical director. As he is making his mark on his new team, his oft-repeated line is “how can I help?”  What a powerful line for a new CEO to adopt, or for that manner any leader at any stage in their tenure.

There are many different leadership styles. Some leaders are autocratic, some visionary, some micro-managers, and others see their role as a coach. All of these approaches are potentially successful, but they all share a common theme of the leader being the smartest person in the room. These leaders are essentially telling everyone the ‘answer’ with varying degrees of directness, but in all cases, the leader knows the answer and is guiding the team toward it. While the word ‘leader’ clearly implies you are setting the path for others to follow, you should not assume you have to tell them how to walk.

Leaders need to lead, but they also need to support and provide space for smart people to grow and apply their knowledge and skills to solve problems. A CEO needs to be committed to hiring the best people in each domain. These are experts who presumably will add value to the corporate village because they know more than the CEO about their chosen field. The CEO has to trust them to do the job they were hired to perform.

So, back to the simple question ‘how can I help?’ What a powerful message it sends. It is embodied in what is known as the ‘Servant Leader’ style. With a qualified team, asking this simple question of employees at all levels of your organization makes them feel respected, appreciated and valued. It demonstrates that the CEO is a member of the team and is there to help them succeed. It follows a rule I try to embrace to ‘ask first, then tell’ instead of ‘tell first, then ask.’ We have all experienced a situation where an executive or board member tells you what you should be doing before they ask you what you are doing. It is demeaning. Starting with the simple question ‘how can I help’ will elicit an answer to the question about ‘what are you doing,’ but in a non-threatening manner.

I recently wrote about how a CEO cannot succeed if they try to do it all by themself. As an organization grows the CEO has to step away from being the center of the corporate universe. Putting the right executives and managers in place, who know what to do and how to do it, allows the CEO to evolve to a more supportive role. That does not mean the CEO has to abdicate their role as visionary. Ultimately, they remain the place where the buck stops, but moving out of the center leads to a more collaborative style where the contribution of others is respected and welcomed. ‘How can I help’ conveys a message that says ‘I know you know what to do, so how can I help you get it done.’ It is an offer, by the CEO to empower a valuable team member to be a leader, and it makes it safe to ask for help. For a new CEO or board member joining an existing company, the question is a self-effacing recognition that you respect the experience of the existing team and want to join the company to help it succeed, instead of acting like the new sheriff in town who is coming in with all the answers - ‘ask first.’

Most of the best leaders I have ever known have self-confidence in what they know and self-awareness and the humility to recognize what they don’t know. They are unafraid to acknowledge a team member for their superior expertise, and they are content to take direction in response to the ‘How can I help’ question. There is great strength in being humble.

How can you help?

You Can’t Do It All

Early in my career when I arrived at my first CEO spot, I was faced with finite capital, a company burning cash, and  a very junior inexperienced team (including me). Nobody ever hires a new CEO if things are going great, so as a hired CEO you have to expect that something is wrong and that drove the board’s decision to hire a new person to run the show. I may not have recognized it at the time, but that was the situation at my new company. By this point in my career, I had held a range of leadership roles, so my ego led me to believe that I was up to the task and equipped to sort through any issues. Because we had finite capital and we were burning cash, the words that rang out in my head were “cash is king,” and I was loath to spend money.  Specifically, I thought I could save money by not hiring an experienced executive team. I could do it all myself.

Needless to say, this was a very bad idea. It was like I was staring at a barbell loaded down with weights, and there was no way I could lift that thing all by myself, but I was unwilling to admit it. Fortunately, I had a wise seasoned investor who took me aside and gave me some of the best advice I ever received. He pointed out that the path I was on was going to be slow and arduous, and we would likely spend all the cash we had before we could turn the corner. However, by spending the money to hire a strong team we could accelerate our progress and as a team we would have the strength (and brain power) to overcome our challenges and, in effect, lift that barbell.

Throughout my career, I have seen it time and again where CEOs, particularly less experienced ones, try to follow the same do-it-yourself path I was on. Maybe it is ego, or maybe it is frugality that makes them think they can do it, but invariably it is the wrong path. The corollary problem is when the company has grown, and although there are executives and leaders in the company, they are not up to the task at hand. Rather than recognize the need to top grade the team, too many CEOs move to micromanage the areas that are weak, and end up trying to do too much while at the same time not doing enough of the CEO role.

Often, the company has outgrown the team that got it to where it is, but the CEO, and frankly some boards, are too slow to recognize the need for change. It is in our nature to be too quick to hire and too slow to fire, or at least to identify the need for a change of personnel. Even when some CEOs decide it is time to hire, they struggle with being clear about what they really need, which leads to bad hires or misfits, and once again, the CEO tries to jump in to prop up the new hire by doing their job for them.

One of the most important responsibilities of a CEO is to get the right people in the right roles, particularly the senior leadership team. This is also a place where the board can be most helpful. The board can provide advice and guidance for the CEO and take an active role in hiring the exec team. Many tech company boards are dominated by investors who work across a portfolio of companies. They have been to the movie many times, they know what good looks like, and they can see how bad will turn out. I always maintained a bright line between operations and the role of the board. I did not always welcome ‘help’ running the company, but one area where I learned to seek input was hiring executives. Not only do investors know potential candidates, they also have a keen sense of the CEOs strengths and blindspots, and they can be effective helping to make good hiring decisions that will complement the CEO.

I spent many years participating in a CEO group led by the High-Growth CEO Forum. They have a model of company/CEO growth that truly inspired my thought process about the CEO role. When a company is small, the picture looks like an atom with the CEO at the center and the team as the electrons circling around. When the company matures, it evolves to look more like a molecule made up of atoms where the exec team members are each at the center of their own atoms. The CEO moves from the center of the company universe to become more of a leader orbiting around the edges, inspiring the teams and empowering the executives to be the masters of their domains. The only way this works is if the CEO has hired well and has trust and confidence in the leadership team.

In my experience, this transition starts to happen in software companies as they approach $10M in recurring revenue, and really has to be in full bloom by $20M. When a larger company is still CEO-centric, it is an indicator that  something is not quite right. Maybe there is a talent problem in the leadership team and it is time to top grade some of the execs, or maybe the CEO has failed to let go and is still playing ‘small ball.’ The result inevitably is constrained growth because no CEO can or should do it all. When this happens, it falls on the board to be the mirror that reflects the situation back to the CEO, and the board may need to drive for change. Unfortunately, sometimes it means the company has outgrown the CEO and it is up to the board to act - never a pleasant situation.

Back to that sage advice my board member gave to me in my first CEO role. Put an experienced team in place early and collaborate to drive for success - As a CEO, you can’t do it all alone, and you can’t do it with a sub-par team. Hiring well is a fundamental requirement for a successful CEO, and the task is ongoing as the team will require continuous renewal and up-skilling as the company grows. I recommend including an executive team scorecard in every board meeting. It does not have to be sophisticated, but it will cause the CEO to continually consider each member of the team and share their assessment with the board. Invariable, the scorecard tiggers a few minutes of board discussion and creates an early warning system to spur action when appropriate.

Minimum Successful Product

I recently wrote about creating Mission and Vision statements, and how these documents are critical to set a company on the big journey toward success. However, in the early stages of a business or a new product launch, it is important to have focus and think like a minimalist. The most important thing is to get out there in the real world market, and start letting buyers guide you to success.

In the first release, we don’t have to solve every problem and we don’t have to support every process, but we do have to demonstrate and deliver a solution that seamlessly solves the hard problems. We have to do so in a way that the alternatives cannot get the job done. We want a competitive offering that is clearly differentiated, but we may not need a complete cover for every feature and function the competitors have. Provided our offering has a compelling new approach or feature set, it can gain traction with the early adopters and start us on your journey.

In this 40th anniversary year of the introduction of the Macintosh computer, we cannot forget what the first one looked like. At the time, the IBM PC had a hard drive, high-density floppy disks, color screens, communication ports, slots for all sorts of add-ons, and tons of applications. Apple launched the first Mac with just a small black and white screen, no hard drive, no communication ports, one single-density floppy, and no expansion slots. It sold like crazy (for a while). Apple delivered a graphical user interface that blew the world away – with only two integrated applications: word processing, and drawing. Apple is unique, and maybe we can’t pull off this type of launch, but in our own more mundane market we may be on the verge of launching a new product that can change the landscape. Our challenge is to think like Apple about what will rock the buyer’s world enough that they will see past what is missing.

The goal for the first release is often referred to as a ‘Minimal Viable Product’ (MVP). I have a particular aversion to the term MVP. The ‘minimal’ part suggests that we only have to find the smallest competitive bundle to launch. This sounds like a Macintosh concept, and I am generally aligned with the minimal part of the MVP. However, my issue is with the second word - ‘Viable.’ We may have different interpretations of the word ‘viable', but to me it sounds like we are aiming for an offering that only deserves a ‘C’ or just a mediocre passing grade . Who wants to just eek into a competitive market with a bland minimalist offering that may be slated to become the living dead - not a winner, but also not a total loser? I don’t know about you, but I never want to be just ‘viable.’

I prefer to replace the MVP goal with MSP - Minimum Successful Product. ‘Success’ is so much more energizing and powerful than ‘Viable.’ Aiming for success instead of merely trying to be viable will set a very different tone and direction for the team. It goes to the heart of creating a uniquely differentiated offering, and opens the discussion to build something different and better, instead of something that barely ‘covers’ what is already in the market. In fact, following the Macintosh example, it frees us to think about not covering the features of the competitors at all, but instead creating something innovative and new that is so compelling that people will buy it despite its shortcomings. The key is to surround the compelling new offering with market buzz and a believable roadmap and commitment to finish the feature set in a reasonable time frame. Even Apple had to eventually build a comprehensive offering.

This takes us back to focus. Too many businesses start out with a broad definition and try to do too much - to cover all of the competitor’s features and to be all things to all people. It usually slows down their time-to-market, and creates a posture of ‘me too, plus.’ Gaining traction requires differentiation and focus. If you can only do one thing or solve one problem, what is it going to be? For the early Macintosh it was to deliver a simple graphical user interface. In a prior post, I warned that including a conjunction (‘and’) in a mission statement will cause a lack of focus. The same logic applies to defining an initial product offering. An MSP needs to be tightly scoped, and you need to be confident that it solves a real need for a carefully understood ideal customer profile (ICP). If you know your buyer well, then you know their pain and you can engineer a winning MSP.

The Ladder of Inference

The last couple of posts have been about maximizing employee ROI, and the importance of developing meaningful Mission, Vision, and Values statements to guide the team to a successful outcome. Even when we get it right, there always seems to be occasions when the employee rumor mill takes over and negativity creeps in.

Sometimes, the negativity is in response to actual bad things happening, so it is understandable. Perhaps there was a reduction in force, and the remaining team members are feeling down. Or, the company just lost a big deal, or a major customer just churned. Like a toxin entering the blood stream, a healthy corporate body can respond and ‘metabolize’ the bad news, so the company can move forward. There is a saying ‘that which doesn’t kill you will make you stronger,’ and often recovering from a negative event does make a company stronger.

However, sometimes the problem is a hyperactive rumor mill and corporate conspiracy mongering. Corporate grapevines are extremely efficient.  Managers think they are shielding the team by keeping secrets, but somehow the staff always figures out that something is going on. Employee rumors often follow what is referred to as the ‘Ladder of Inference,’ and leadership needs to instill a strong mechanism to defuse the ladder.

Suppose that every Friday the company provides bagels in the morning for the staff. Without fail, week after week, the staff shows up and the bagels are waiting. One Friday, Johnny is the first to arrive and there are no bagels. Horror of horrors! Jane is the second person to arrive, and Johnny turns to Jane and says “OMG, there are no bagels! I bet the company did not pay the bill. Maybe we are out of cash?” Mike arrives next, and Jane immediately tells him “the company is out of cash and we are not going to get paid!” Mike turns to the next person and says “the company is broke and going out of business. Quick get your resume on the street…”  Finally, Mary the accountant arrives and announces to the panic stricken team that the bagel guy’s truck broke down and he will be a little late.

This is a classic example of a company escalating up the ladder of inference based on a lack of knowledge and a rich rumor mill. In the absence of information, we have a tendency to jump to negative conclusions and quickly climb the ladder of inference to engage others in our negative view. We assume the worst. Part of building a strong culture is developing a posture of continuous communication that will enable the team to stay in a fact-based zone and seek clarity instead of imagining evil intent and bad outcomes. The team needs to embrace the value of being data and information driven, instead of rumor and conspiracy driven.

The key is to be open and support high-volume bi-directional COMMUNICATION!  In public places and on trains, the slogan is “if you see something, say something.”  The same applies to business (clearly for very different purposes).  If an employee sees something they think is wrong, their first instinct needs to be to say something to someone that may be able to offer an explanation, or who can help redress the problem.  It is far more productive than imagining evil intent or griping to a colleague.

Leadership’s responsibility is to demonstrate honest and open communications. If employees perceive that they can ask difficult questions without repercussions, and they grow to believe that the answers will be truthful, then the ladder never gets off the ground. When employees feel that management is secretive and hiding things, or worst of all, not honest, then employee paranoia and conspiracy theories take over, and we quickly climb the ladder.

Mission - Vision - Values

Last week, I wrote about employee ROI, and the responsibility and importance for each employee to be aware and maximize their contribution to employer success. The question is ‘how do employees know what is valuable to their employer?’

The principal source of guidance for every employee is their manager. It is a manager’s responsibility to coach, advise, and guide their team to success, and study after study of employee retention finds that the key factor in why an employee decides to leave or stay with an employer is their relationship with their manager. However, it is one thing to make a friendly work environment, and quite another thing to instill a sense of purpose and build belief in the direction of the company. Employees who believe in the company remain with the company.

What binds the whole business together is a shared understanding of how all of the teams and roles fit together, and a sense of culture and purpose that is driving the entire company toward a common goal. When employees see the big picture, they can assess how they are contributing and delivering ROI. To achieve this, the company needs an explicit statement of Mission, Vision, and Values (MVV). It is perhaps the most important role for the CEO to lead the process to develop a clear statement and shared understanding of the corporate MVV, and to repeat it over and over to all employees.

I am an advocate of a concise, aspirational mission statement. I read that Steve Jobs believed a mission statement should be so clear and concise that if you wake an employee in the middle of the night and ask them what it is, they will have no trouble stating the mission. When I joined one company, I went looking for a mission statement, and I found three completely different documents. Each one was over a page long, and each was prominently displayed on different employee systems. Nobody knew which one was current, or what they actually said. Having more than one statement was a problem, but the bigger problem was that nobody was paying attention. The mission statements had a lot of boilerplate words that provided no guidance. We have all seen the typical statements that go on for paragraphs about “being the best in the world at doing a specific thing that somebody cares about… blah, blah, blah.” In my example, we re-wrote the three different bland statements into a clear seven word mission, and everyone got it.

The often quoted saying ‘I would have gladly written you a shorter note if I only had the time’ is at the heart of a bad mission statement. Take the time! Mission statements are grand declarations that can, and should, be crafted in under 10 words. They provide team members with clarity, and a roadmap to determine if their contribution is furthering the mission (core), or secondary to the mission (context).

The second problem with bad mission statements is the dreaded conjunction: “and.” Frogs have very simple vision systems. When they see a bug wiggling in front of them, they strike with their tongue to eat the bug. The problem is when they see two bugs wiggling on the right and the left side. Their simple brain averages the two and they strike in the middle. The result is no food to survive.  Similarly, a test for a bad mission statement is to look for a conjunction in the wording - “we are going to do this AND that.” The conjunction shows that there are really two missions, and there is no common-ground that encompasses both objectives. Think of a company like the frog, and when the mission has a conjunction, it is like having a bug on both sides. If employees ‘strike’ in the middle, their contribution is lost.

The second critical element is the Vision Statement. The Mission Statement is what you want to accomplish; the Vision Statement is how you will accomplish it. The Vision Statement is a bit longer, and more specific about the strategy and where the company will invest to achieve its mission. This is where a team member can gauge how their role fits into the corporate direction. As an example, if the vision is to become a pure product company, and your role is to deliver bespoke services, you may be out of sync with where the company is headed.

Lastly, a company needs a clear statement of values. The Value Statement defines who we are and how we behave. It is the moral compass for the team. Managers should measure employees with the core corporate values in mind, and employees should consider their ROI in the context of their adherence to the corporate values. Even a productive employee is of diminished value if they are a cultural misfit. This is sometimes described as the ‘no asshole’ rule. A good test is to determine if the employee is someone people want to work with, or someone they intentionally work around. Values help frame what a good employee looks like. I strongly believe that developing the value statement should be a broad collaborative effort. Everyone has a role to play in building a shared understanding of how the team will work together to achieve the vision and mission.

With a strong and concise MVV, employees can determine how their role is contributing to success, and if they are in synch with the corporate culture. A clear MVV gives managers the tools to help employees grow consistently with where the company is headed so they maximize their employee ROI.

Creating Employee ROI

Last week, I wrote about creating a return on investment (ROI) for customers. Unlike customer satisfaction, focusing on customer ROI gets to the heart of renewals in a recurring revenue business. Customers may be satisfied with your product or service, but if they are not seeing adequate financial return they are unlikely to renew. I saw a recent post on LinkedIN that spoke about employee ROI, and it got me thinking.

The tech industry has seen massive reductions in headcount across the board from large employers to small. I read numerous posts from former employees who were caught in the downsizing, and were totally surprised. Terminations for cause or failure to perform should never be a surprise, but corporate reductions in force are often surprising. For the suddenly terminated employee, the question is always ‘why me?’

Reductions in force are typically driven by the need to improve profitability, or to restructure as a result of a strategic pivot. Of course, there are always staffing decisions related to ‘death’ and ‘marriage,’ better known as bankruptcy and M&A, but run of the mill reductions in force (RIF) are what typically leave terminated employees surprised. I have read all sorts of comments like “this was the best job I every had,” or “my manager just told me how much they appreciated me,” or the worst of all “I was just promoted and given a raise, and then this…”

What is the calculus that is leading an employer to choose one employee instead of another? When I wrote about customer ROI and churn, I proposed that there are really two separate scales involved. One is satisfaction, and the other is financial return on investment. Customers can be satisfied, but just not see the economic value. In a RIF, there is a similar calculation being made. An individual may be a ‘good’ employee, but not in a role where they are contributing more than they cost. This is not a simple financial calculation because there are many factors that influence how a manager evaluates contribution, but in the end it can be thought of as employee ROI.

The employee shock factor arises when they cannot see the handwriting on the wall. Despite solid performance reviews, they miss the signs that their contribution is not adequately benefiting the bottom line, or an awareness that in a down-draft their role may not meet the bar for retention. When an organization has decided to cut employee costs to a defined level, managers are forced to make decisions about which individuals’ contribution outweighs their cost.

So what can an employee do to avoid being swept up and surprised by a RIF? Sometimes, the answer is nothing at all, but just like a vendor needs to understand the calculus and strive to create a positive ROI for customers or face churn, employees need to focus on their ROI contribution to their employer. It starts with candid probing conversations between the manager and employee about how contribution is being measured. Is the current role the highest and best use of the employee’s talents? Is the current role core to the business, or peripheral to the mainstream? What can the employee do to become more valuable to the business?

Employees need to have ‘spidy senses’ about how the business is performing, and how they are personally contributing to success. They need to develop situational awareness and EQ about how they are interacting with others, and if they are seen as a ‘go to’ resource or a siloed contributor. Working with their manager, the employee should take an inventory of their skills and determine how they can diversify or stretch to become more valuable. In a RIF environment, managers are often looking for employees that can do ‘more’ in favor of employees that are siloed or narrow in their skills. One way to think about the manager’s calculus is to place each employee on a 2-by-2 grid charting contribution and skills.

Low contribution and low skills are ‘First to go.’  High contribution and high skills are the ‘Keepers.’  Low skills and high contribution create a dilemma for the manager because it is an indication that the employee is maxed out, but they are good at their job, so they may be hard to replace. Employees in the final quadrant are the employees that have low contribution but high skills. Most managers will try to find a spot where this individual can become more effective, but if the manager perceives that this is simply an employee who is not striving to contribute, that may be a ticket to a RIF.

Nobody wants to manage through a RIF, and nobody wants to be the ‘surprise’ victim of job loss, but more and more it is a fact of business life. Employees can help make themselves more bullet-proof by focusing on the ROI their employer is getting from employing them. Managers can help employees avoid the door by coaching them to expand their skills and contribution to become go to resources, and more RIF-proof. Individuals need to be aware of the ROI they are creating for their employer.

Is Your Customer Achieving An ROI?

We focus on our own business metrics and results, but in a SaaS or recurring revenue business, we also need to consider the results our customers get from doing business with us. What is the return on investment (ROI) our customers are realizing from our product or service? Recurring revenue businesses only succeed if their customers continue to renew their contracts, so our goal is to create a win:win valuable relationship for both parties. Customers may say they are happy with your team and your products, but if they do not see ROI, then they are on a path to churn. 

A customer’s definition of ROI can take many forms: closed business, or pipeline growth, or customer / employee engagement - to name a few. It sometimes takes a lot of probing to figure out exactly how a customer views the ROI from your offering, but you need to keep digging until you have a clear articulation of how they measure success. It could be the original reason for purchasing from you, but more often than not, that is not the ultimate ROI measure. When teams license a platform to make themselves more efficient, efficiency is not always enough for the senior executives to approve the renewal. Execs do not always see team efficiency in the same light as the hands-on team, and they often do not measure ROI in the same way.

Defining how a customer measures their ROI from your offering requires detective work. Particularly in an enterprise environment where different constituents within the customer’s organization may have significantly different measures for ROI. As a vendor, you need to map the various views of ROI, and ensure you are delivering on the promise across the board. Unmet needs will sow the seeds of discontent, and in an enterprise setting, just one unsatisfied team can play their ‘veto’ card and suddenly the whole customer is churning. Account Management or Customer Success teams need to ferret out all of the influencers within the customer’s organization. It is not enough to just talk to the teams that are eager to talk to you - you have to find the quiet teams and the influential execs to ensure you are meeting their needs.

Traditional customer satisfaction surveys are a great tool to get directional feedback, but understanding customer ROI and ensuring they are achieving their critical results is typically not easy to discern from a customer satisfaction survey. Positive scores do not necessarily mean they are receiving value, and negative scores may be feedback about minor issues, even though they are getting great value. The CSAT answers rarely give you the real ROI answer you need, so a survey is just one step. You need to go much deeper with a real conversation to determine what is important.

A methodology I have used is to create an anonymous customer survey with a twist. Making it anonymous creates a safe space for customers to be candid, but here is the twist. Include conditional logic in the survey that determines if it was a positive of negative response. For negative responders, have the survey include a simple message from the CEO: “You gave us a low score and I am sure you have more to say. Are you willing to have a short conversation with me? Please share your contact info so that we can connect and I can learn what led to your opinion. It is important that we hear it, so we can improve.”  In my experience, a surprising number of customers will accept the offer, and as painful as it will be to make these calls, you will learn a ton from speaking directly with detractors.  For the most part their feedback will be constructive, and provide a window into what their organization really sees as the key to ROI.

Whatever you discover, continuously measure it and report about it. Open every customer meeting with the metrics and the trends, and never lose sight of your team’s role in achieving your customer’s ROI goal. You are only getting a renewal if the customer is receiving value that is greater than the cost of doing business with you.