Praxis

Sixth Sense Companies

I was chatting with a startup veteran friend of mine recently about the difference between startups where a founder is the CEO and those where an outside "hired gun" has taken the CEO role. I recall a recent blog post* which said that a key difference is what happens when things get difficult, or major issues crop up that threaten the company's viability. Conventional wisdom is that in such situations, the hired gun will cut their losses and move on to the next thing (often without really trying to get past the obstacle), while the founder hangs in there, stays optimistic, and is often seen as being in denial. Any sane outsider would look at it and say "this is futile", or even "it's already dead", but the founder/CEO is sure that there is a customer or product or feature or angel or acquisition or partner or marketing opportunity right around the corner that will change everything.

Our conversation turned to companies where this state of denial is so strong that any sane observer would look at it and say "this company is already dead", but the CEO soldiers on, often keeping their very loyal team equally committed. We were reminded of a scene from the movie "The Sixth Sense":

Cole Sear: I see dead people...Walking around like regular people...They only see what they want to see. They don't know they're dead.
Malcolm Crowe: How often do you see them?
Cole Sear: All the time. They're everywhere.

We decided to call such startups "Sixth Sense Companies" - they are already dead, but they just don't know it.

The question is, are these CEOs really deluded, or are there examples of startups that were "Sixth Sense Companies", written off by everyone, by all rights should have shut down, but were revived by their passionate CEOs and brought back to life? Fred gives us a few candidates, but I don't know these well enough to say if they were "all dead", or only "mostly dead". There's a difference, as Miracle Max tells us:

Miracle Max: WIt just so happens that your friend here is only MOSTLY dead. There's a big difference between mostly dead and all dead. Mostly dead is slightly alive. With all dead, well, with all dead there's usually only one thing you can do.
Inigo Montoya: What's that?
Miracle Max: Go through his clothes and look for loose change.

Feel free to comment with nominations for Sixth Sense Companies - the "all dead" ones - that made it back.
________________
*(tried to find it but couldn't; feel free to direct me to it in the comments and I'll link to it) 

VC Cliché of the Week - The Other Side of the Story

Fred had one of his best Cliché of the Week posts a couple weeks ago, in which he discussed what happens when an investor says of his portfolio company that "that vacation didn't match the brochure."

You go for something; a hire, a partnership, or a new investment, based on a certain set of facts and promises. And then it doesn't work out. You feel like you were sold a bill of goods. But when the vacation doesn't match the brochure, you only have yourself to blame. It means you didn't do your homework.

...

The same approach has to be used if you are in business. If you are a VC, you don't need to read the business plan (the brochure) cover to cover, but you do need to do your diligence. If you an entrepreneur making a key hire, you don't need to spend a ton of time on the resume and prepared references. Even the interviews will only tell you so much. You need to pick up the phone and talk to people who've worked with and for the person in question to truly get a feel for them.

The bottom line is you can't rely on the brochure in whatever form it may take. Because if you do, the vacation will surely not live up to it.

This is an outstanding point, and one that VCs, managers and prospective employees themselves should not lose sight of. But there is another side to the story.

I've frequently seen people - investors, entrepreneurs, and team members - have a particular target in mind (employee, investment, etc) and buy into a deal convinced that they have found what they are looking for, even when all the indications pointed to the contrary.  Some examples I've seen (or lived)- 

Company A needs a strong engineering manager, but insteady they hire a solid geek whose resume lacks any solid management experience.

Employee B joins a startup in the midst of a major system conversion, taking a sysadmin job with a description that talks about maintaining servers and clearly reads "24 hour pager availability required" and quits a couple months later because he thought he was taking a coding job. 

Investor C is looking for an investment with a particular business model, and invests in a company with a completely different plan. The investor's desired business model is never mentioned in the company's powerpoint, and the projections show no revenue or investment which would suggest any interest in that path at all. But the Investor convinces himself that, to paraphrase Fred, the brochure he read describes the vacation he's hoping to take.

In that latter case, I used a different metaphor to explain to a friend what happened:

"Jack (not the investor's real name) walked into the pet store looking to buy a cat. He saw a bunch of cats, but was drawn to this very cute dog, so much so that the line between dog and cat began to blur, and he saw the dog as a cat-like pet - 4 legs, tail, fur.

Jack took the dog home, and began to play with it, and had fun. But then the dog peed on the rug. Jack was patient, and once again showed the dog to the nice litter box he had bought. But the dog peed on the carpet again, and again, and Jack quickly got disillusioned with what he still saw as the new cat he had bought.

Jack tried everything he could think of (non-metaphorical things, like bringing in consultants and changing the team) in hopes of getting the dog to pee in the litter box, but it never happened, and eventually he had no choice but to listen to all the people who were telling him "it's a dog, not a cat, silly."

I was reminded of this story up at Gnomedex, when a friend working on his own new startup asked me for one piece of advice when dealing with outside investors. He seemed to be expecting some negotiating advice, or some particularly onerous clause in the term sheet to watch out for. There are lots of things to know, and many things I've learned after raising money a few times, but ultimately if you are not in sync with your investors about what the business model is when you are first funded, it's unlikely you ever will be.

If your investor can listen to your pitch and paraphrase it back to you in a way that sounds familiar and demonstrates a common vision, then you can intelligently debate strategy and tactics, and do so from the same perspective. If she can't, you're both in for a crappy vacation.

When Startups Go Bad

Guy Kawasaki has an excellent post on the symptoms of a startup heading off track and some excellent suggestions on what to do when each of them happens. I've seen each of his nine scenarios happen. Sometimes, the company fails; often it can turn it around - in many cases by following the path Guy suggests.

It's not unusual that in the midst of a crisis, the CEO and/or his team can get the feeling that their situation is dire and no one has ever faced the same issue before. Happily, few of us are talented enough to invent new ways of failing - most of the ways we fail are tried and true, and have been perfected by many who have gone before us. Guy's been nice enough to educate us on some of the most successful ways to drive a startup into a ditch.

Guy's post should be required reading for everyone on your startup team, from the founder/ceo to the developers to the marketing people. Everyone should know what to watch for, and understand when the leadership takes action to improve the situation.

Of all the scenarios Guy provides, the most important one to see, and to learn from, is number 4:

4. Problem: Our team is not getting along.

How you got here: You’re in this position because this is how it always goes. Companies don’t ship on time, watch sales go the roof, go public, and kick back. Startups are messy. Things go wrong. People don’t get along. If it was easy, everyone would do a startup and be rich. Welcome to the real world.

What to do now: You work things out. You keep talking. You try to get an experienced outsider to provide a fresh perspective. There’s no magic bullet to fix this—it simply takes time. The same time, by the way, to finish the product and achieve sales because not getting along is the flip side of poor sales. If sales were booming, believe me, you’d probably be getting along—if not euphoric.

One thing you don’t do is lynch people because you want to (a) set a precedent; (b) show everyone you can make tough decisions; and (c) get it over with. You should give people a second chance. Maybe even a third chance. Focus on the positive: how people can help an organization, not how they are hurting it.

You have a moral obligation to give everyone a chance to change their ways and to succeed. If you don’t fulfill this obligation, then the unintended message that you’ll send through the organization is: “Anybody could be gone, so don’t piss me off.”

More often than not, a failure of a team member is a shared failure on the part of that person and the people managing him. That doesn't mean that you don't make tough decisions and fire people, even if you accept a decent share of the blame for it not working out. It does mean that you work with people to try every avenue before you do, unless there are security or ethical or moral issues involved that make an immediate termination necessary.

I have always found that you get a lot more out of people who want to work with you than you do out of people who are afraid of you, or worse yet respect you only for your title and not for your leadership.

Which brings up the importance of openness and communication. If you ask your team to give everything they've got and you trust them with the success or failure of your company, you can trust them to be grownups and be able to handle the truth about what is going on.  Besides, the fewer closed-door phone calls and secret agendas, the less time people spend talking about what's really going on and the more time they have to actually do productive work.

Building value by building an incredible team - and believing in them

Spent the long weekend in Vegas with the family, where we stayed at the Wynn. I thought I was just there to relax, hang out with the kids, and gamble a bit, but it turned out I was really there to experience firsthand one of the most incredible case studies of HR, training and team building I've ever seen.

The Wynn has been open for just under a year - its anniversary is April 28. When they opened, they had 10,005 employees catering to guests in their 2700 rooms. How do I know all of this? The facts came up in conversations with various members of the staff who I encountered during my stay.

Everyone has commented about how Steve Wynn spared no expense in creating the luxury that is his hotel. It's true, and it shows - towels, bedding, china, flatware, etc. - you name it, it was custom-designed, and is beautiful. Incredible displays of fresh flowers abound. Lots of marble. The most comfortable massage table I've ever enjoyed. And on and on. 

But the incredible achievement is the staff. Each and every person I encountered was outgoing, helpful, knowledgeable, respectful, and well-trained in everything about the resort. I went downstairs to buy some Tylenol and, not knowing where the appropriate store was, I approached a staff member operating a floor sweeper. Well, actually, he had parked his floor sweeper to get on his hands and knees and scrub a spot from the carpet. When I approached him for directions, he stood up, flashed a great smile, and directed me to the store...and told me that the tylenol was on the back wall, to the right.

A room service waiter delivered our breakfast and noticed that some towels had been used already, so he offered to go and get us more towels.

The clerk in one of the stores answered questions about Avenue Q, one of the shows there. 
How did she know about it? Well, each and every employee was comped to see all of their shows, for exactly that reason.

My masseuse told me that the Wynn had tested all applicants to find a certain "style" of person, trained them extensively, and trusted them to make decisions and do what was necessary to please guests. The result? An incredibly motivated staff who has earned the respect of their guests (a rather demanding demographic) and their colleagues.

I've always believed in hiring great people and trusting them to take initiative. They may solve a problem differently than I would, but in doing so they create a learning opportunity for themselves and for management (who should know that they don't have all the answers). I used to poo-poo the various personality tests some companies give, but I learned at Colt that they can be very valuable, both during recruiting and for existing staff, to learn how best to manage and communicate with each other.

The best part about the staff - when we left, there was no silly survey asking me to rate arbitrary parts of my stay on a 1-10 basis. When you know you have the best staff in the business, they're enthusiastic and passionate, and you can trust that they are constantly trying to improve the experience, you don't need to burden your clients with the responsibility of telling you how to manage your business.

Hire the best. Train them. Trust them. Listen to them. Give them an environment where they believe they can succeed - and where they want to. Everyone wins.