Disclaimer - Names, geographies, and businesses have been altered to maintain confidentiality.
Mature Start-Up, High Tech
The Boss Fires His Buddy
And Faces Market Realities
Background
Winter, 1984
I first worked with the Earthdata Corporation when it was 18 months old, the head count was 40, and the engineers had fallen behind schedule building their first computer. I worked with the engineers for six months and helped them get back on schedule. Eighteen months later, the CEO called and said they needed leadership training. We agreed I would first survey the company.
What The Survey Unconvered
Earthdata had projected $40M in revenues the first four quarters after their product launch. But after two quarters, revenues were trifling, spending had doubled, and there was wide disagreement even on the amounts received, with one camp predicting the company would run out of cash in three months.
The survey revealed that the revenue projection process had been blighted from the start. Four of the five members of the Executive Team had projected first year revenues around $20M. But the fifth executive, the SVP of Marketing, projected $40M. Despite the 4-1 margin, the executive team approved his $40M projection.
Why? Because the SVP was loved and protected by everyone. He was the CEO's best drinking buddy, though the CEO had been on the wagon for three years. Many observed that the SVP walked unsteadily and slurred his words after lunch, and the prevailing wisdom was, "If you wanted him to think, you had to talk to him first thing in the morning, when he was still hung over." He was known as the "Black Hole of Calcutta," because "once you put something on his desk, it was never to be seen again." If his flaws were brought to the surface, the marketing team worried, he might lose his job, and never work again. That would destroy him. Their choice was to protect him or save the corporation.
The CEO was unaware of their assessment of the SVP. He always stressed teamwork, and emphasized that team players didn't meddle in others' areas of authority; to raise serious doubts when it was someone else's decision meant you were a poor team player.
Thus, two quarters after the product launch, everyone was waiting for the marketing strategy, and the sales force was complaining that marketing gave them no support. The was company split over revenues, with one camp claiming they were $7.85M, rather than the projected $16.5M for the first two quarters, and the other claiming they were only $4.47M.
Privately four of the five executives thought the SVP's original projection was horribly wrong but said nothing, believing that was the right thing to do.
What We Did
1. After surveying the company, I put these issues on the table. I helped them explore their concerns about addressing their issues. We decided how to manage these concerns.
2. The executives, beginning with the meeting in which I put the issues on the table, practiced new skills, supported by my coaching. They practiced while visiting prospects, designing and implementing a headcount reduction, and recruiting a new senior marketing executive.
3. I raised a reasonable doubt about their way of trying to be good team players. They assumed that being a good team player meant not meddling in other executive’s bailiwicks.
a. Their definition of teamwork made it unlikely that they would learn from each other. It prohibited them from raising reasonable doubts about key assumptions on strategic issues.
b. Teamwork, I said, meant actively supporting, questioning, reminding and observing each other. Doing this requires leadership, common language, common purpose and mutual trust. It is done best when it is done with humor. They met all the requirements, including the humor. What they needed was focus.
c. A good team player, I suggested (1) Avoids placing his own interests, or the interests of any individual, above the common interest. (2) Raises the tough issues productively -- gives feedback both regularly and as needed. (3) Strives to do so with compassion. (4) Accepts responsibility before his own conscience, and before his mates, for the consequences of his actions, both intended and unintended. (5) Separates facts from opinions. (6) Accounts for all relevant facts and opinions. The CEO led the way in applying these “teaming” rules. The others followed.
4. The discrepancy in revenue estimates raised a doubt about SVP's assessment of prospects. I recommended that they visit their prospects and assess for themselves where each prospect was. I pushed them to do it as soon as possible.
5. At the same time, I offered support, comfort, and inquiry to the CEO as he faced, and thought through, his worries and fears about his friend the SVP, his performance, his drinking -- and about the welfare of the company.
a. I said that it was possible that retaining the SVP both harmed the common interest and harmed the SVP, by enabling him. I reminded him that every complex decision caused some suffering and injustice. The only solution, once he had accepted executive responsibility, was to act with compassion. I defined compassion as taking appropriate action with sufficient resources, while responding to suffering and injustice with empathy. I pointed out that he was already in a deeply empathic place with the SVP. To act compassionately could mean coupling his empathy to the actions that placed the common good first.
b. I designed a process that allowed him to collect his own data -- through customer visits. Halfway through the visits, he was clear and resolute on the need to replace his friend as soon as he could.
c. One way, I suggested, that he might express his love for the SVP was to build him a safety-net.
d.He put his whole heart into constructing it.
6. The executive team, facilitated by me, prioritized the issues: (1) SVP Marketing says we have five prospects inside the ten yard line. We must verify this. (2) Even our best case scenario requires that we reduce our overhead. Let's start thinking and talking about it now, and continue the conversation during our travels to our prospective customer.
7. Based on my summary of the executives' questions and concerns, I developed questionnaires and templates for them to use with their prospects. They practiced interviewing each other, asking the questions while I coached. We taped these practice sessions and they listened to the tapes. Listening to the tapes, all reported, was extremely uncomfortable, but well worth it.
8. Together, the other four executives visited their top prospects. These were the prospects that the SVP had characterized as, "inside the ten yard line".
a. They discovered that not one prospect could be characterized as having crossed midlfield. After the second visit, the executive team was able to predict accurately what they would learn in the final three visits.
b. By the last visit, there was agreement amongst the four of them to reduce their headcount by 30% and to do it in two weeks. During their trip, I facilitated some conversations by phone, helping them articulate their observations and opinions and formulate new questions.
9. The CEO immediately took action on multiple fronts.
a. He talked to his lead investor, describing what he had learned, and what they were planning to do. Then he offered to resign, holding himself responsible for the present situation. The lead investor thanked him for his resignation and asked for time to think about it. He asked the CEO to continue functioning as CEO in the man time. Then they agreed on the next steps he would take in the meantime. [
b. He began talks with his other investors.
c. He talked to the SVP. First, he discussed his own performance. He took responsibility for the revenue estimate and headcount build up. He confided that he had offered his resignation, hoping the SVP would do the same. Then he said that the SVP's performance jeopardized Earthdata. He accepted responsibility for having done a poor job of supervising SVP. With tears running down his cheeks, he apologized for letting down the SVP.
d. The same day, he began his search for a new senior marketing executive.
e. The next day, the SVP resigned and the CEO implemented his safety net.
10. At the same time the CEO was taking these actions, the executive team began designing the cost reductions.
a. I gave them a sequence of questions, which they modified. Then I facilitated their discussion.
b. They addressed the following: What must they keep doing? Is there anything they need to do more of? What could they stop doing? What are they losing? What will they stop doing? Who do they want to keep? Who are they were willing to lose? How to implement the reductions without losing anyone they wanted to keep?
c. They succeeded in retaining everyone they wanted to keep.
11. A week later, the lead investor asked the CEO to stay on. Within a month, they identified a senior marketing candidate all were excited about. However, for him, it was a lateral move, sliding from a famous midcap to a mature startup. He was looking to move up to CEO. To make room for this, the CEO resigned his executive position, while remaining Chairman.
12. The new CEO immediately addressed the marketing strategy. The corporation had been trying to sell to the Fortune 300, he said, and they never had a chance. "No SVP of Data Processing will ever be fired for buying Big Blue (IBM). We must sell into the Fortune 300 to 500, where SVP's are paid to take risks."
Outcome
They met their revised first year projection. The second year, they doubled revenues. The third year, their first public offering raised $550M (real money in the mid-eighties).
Copyright © 2004-2012 Don Rossmoore