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I was recently involved in a CEO search for one of our portfolio
companies. During the process of interviewing a number of very
successful, seasoned business leaders, I was struck by the number of
times I was told in resonating tones, "I believe in no surprises
management." Of course, this was designed to impress me as a Board
member and major investor.
However, quite the contrary. I usually
responded with something like, "I guess you've never been in a start-up
before." In fact, I could just as easily have responded with either, "I
guess you've never been in business before," or better yet, "I guess
you've never been alive before."
As far as I can tell, life, business,
and especially start-up business is a series of surprises. Do you
really know what is going to happen tomorrow? Really?
- Yesterday, I didn't know a branch would fall out of one of our
trees and cut off power to the whole neighborhood (we are SO popular
today! - or should I say poplar?)
- Yesterday, I didn't know that VC seed financing for start-ups was going to come in well above previous quarters in Q3. (Yea!)
- Yesterday, I didn't know one of our portfolio companies was
going to get a major order from a customer we thought had gone to sleep
on us. (Double Yea!)
One bad surprise, two good surprises, but surprises
nonetheless. Anyone who really thinks they can avoid being surprised by
the ebbs, flows and uncertainties of business is just not paying
attention.
So, why all this chest beating about "no surprises" management. I
think what these CEOs really wanted to say, but didn't quite have the
right language for was "completely transparent and alert" management.
This means not that they don't get surprised, but that when they think
they see a surprise coming much less get one, they let their Board know
essentially immediately. And, when they think there is a probability of a
surprise (does that make it not a surprise?) they plan for that
eventuality so there is an action plan ready to deal with it. It even
means going hunting for potential surprises to find them earlier, when
they may be less disruptive.
To give you an example: Early on in my VC days I was asked to
step in as back-up for one of my partners on a deal. We do this to get a
second set of eyes on the prize, and also try to provide more
value-added to the company. At the first Board meeting I attended (as
an observer) I listened to the sales VP present her outlook for the
quarter, this meeting coming about mid-way through the last month of
that quarter. All the PowerPoint slides indicated that her team was
going to make their number. I'm sure she was trained to present like
this in previous jobs, and frankly most good sales executives can't
fathom the notion of reporting in advance they are going to miss their
quota.
But, having had a number of sales VPs report to me when I was an
operating exec, the first thing I did when the meeting was over was to
turn to my partner, as well as the CEO, and say something like, "Guys,
I'm new here. However, I'll bet you the price of a good dinner that you
are going to miss your plan." They both pushed back hard. But indeed,
a few weeks later that's what happened. And to them, it was a
surprise. But it wasn't to me simply because I had enough scar tissue
from missing quarters in my previous life, that I knew when a Sales VP
was giving me the body-swerve clues, preparing the ground for the
excuses to come. That doesn't happen when a sales VP is really
confident.
So, here's a case where the CEO could have questioned my judgment
(always a wise move) but still accepted my experience and gone hunting
for more indicators on his own. If he had, and kept us informed along
the way, we still would have had the sales miss. But the Board and the
company would have been much better prepared for the corrective actions
that needed to happen afterward.
Claiming you ascribe to "no surprises" is false bravado. I'd
much rather have a CEO who I knew in my heart had the intestinal
fortitude to come to the Board not only with real bad news, but with his
or her gut feel of possible bad news coming, even if there was no
concrete data to support that yet. We've always said that in start-ups,
the distance from euphoria to panic is one phone call. And we've all
gotten that call.
Likewise, I don't mind if potential good news is shared
(everyone likes to do that) but along with the clear expectation from
management that the Board won't take it to the bank, and won't bang on
the team if the good potential doesn't prove out. In the third bullet
point above, the CEO - who is a master of completely transparent
management - had shared with us both the bad news that this big customer
had appeared to go to sleep, but also that there was no obvious reason
for that. So, when we first got a glimmer of the giant waking up, and
then yesterday concrete evidence in the form of orders and delivery
requests moving in, we were happy, but not overly surprised.
Transparent and alert - that's what we like to see from the CEO, and from the entire management team.
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