One of your many jobs as CEO is to make the company a safe place to debate and to moderate (and participate) in those heated discussions. You will also likely have to teach others on the team how to debate given our current dependence upon technology which has resulted in a lack of in-person communication with a high desire for harmony. I find that many startups today are filled with people who are extremely conflict-averse and require encouragement and mentorship to add value to the many debates.
Think about the never-ending set of debates you had in the beginning when your tech startup was simple… What problem did we solve? Who else was having the problem? How big of a problem was it at the time? How did others solve the problem? What was our value proposition? How did we reach those customers? What were the must-have features versus the nice-to-haves? Did a certain feature prove product-market fit?
John Wooden–“Men, this is how you put your shoes and socks on.”
Like John Wooden, you are going to have to teach your team the basic elements of debate… Possibly use the example of the premise your company was founded on… For example, your company was probably built on an idea (a claim), with supporting evidence that provided an inference that your claim was true—these 3 elements were the foundation of your company’s first debate. If you deconstruct Airbnb as an example (see pitch deck) you will see that the idea (claim) was that the world needed a web marketplace platform where users could rent out spare rooms (to make money) to travelers (that would save money and share in the culture of the city) so they didn’t have to stay at high priced hotels. The supporting evidence offered to the investor was that at the time there were 630K users on the temporary housing site couchsurfing.com, 50K temporary housing listings in the USA per week on Craigslist, 2B trips booked world-wide each year, 560M online trips (Serviceable Available Market) all inferring that with events, partnerships and Craigslist dual posting, an easy to use web marketplace with a host incentive would allow them to acquire 10.6M trips & 200M in revenue. You can imagine how the debate might go with the typical ventral capital group…
Help the team see the variables within
The claim is the statement that the person on the team is making and wants their audience to accept.
Supporting evidence is a set of ideas the audience accepts as true. This evidence provides the foundation for acceptance of the claim.
The person making the argument wants to move the audience from what they believe (the supporting evidence) to what they don’t yet believe (the claim). The magic happens when the audience discovers the connection between claim and the supporting evidence–The discovery of this connection is known as the inference.
Then help them understand where the complexity of the debate begins… Supporting evidence is usually a claim to be proved. For example, how do we know ‘Price is an important concern for customers booking travel online’–This seems obvious but how do we know this is true?
Sometimes it’s easier for the team to see the framing of the
With this context, you can teach your team how to frame arguments and also poke holes in a weak hypothesis. In framing, they need to know how to take the argument as deep as it needs to go by being prepared for counterpoints.
They also need to be prepared for the generic “bomb” on all the other reasons this argument does not make sense. For example if a generic counterpoint is made that is not in reference to a supporting point–the team needs to be prepared.
When you look at an argument visibly and go several layers deep on each and every claim and counterpoint you might start realizing how many critical decisions are getting made in your company with assumptions versus with the right level debate or all the necessary data.
As the team gets better at internal debates they will learn the difference between descriptive (definition of things), relational (the relationship between things), and evaluative (value of things) arguments and how to break down or support each using an efficient strategy.
You can use tools like 5 whys and the 6 Thinking Hats as great ways to open your team’s eyes up to both the depth of an argument, as well as, the efficiencies within the argument. Another great tool is the use of Precision Questioning where you can help your team know what’s expected in regards to supporting evidence to back up claims. The basics of Precision Questioning starts with how to use different types of questions as follows:
No-Go: Why is now the right time for this idea (claim)?
Clarification: What do you mean?
Assumption: What assumptions you are making?
Data: What’s the quality of the supporting evidence?
Causes: What’s causing the opportunity (a problem in the market) that your company will address with its solution?
Consequences: What happens if you are successful? What happens if you are not successful? What are the possible side effects? What are the opportunity costs?
Actions: What should really be done to solve this problem? What specific time-bound steps will everyone take? How does this align with other initiatives?
…and most important of all, ensure your team knows that what works as a debate tactic in politics (fear, lying, bluster, vulgarity, innuendo, and refusal to admit your wrong) does not work in a startup and you as the leader/moderator of most early debates can’t let it into the discussion.
I’ve been asked a few times what I meant by the phrase “Street Smarts” that I mentioned in Action #3 in the note titled “Your next 5 months as CEO” so I am going to go into more detail below given its importance…
I’ll use a version of the DIKW Pyramid that I modified to illustrate. I find that looking at the pyramid in this way bridges the gap between Information and Wisdom given the wide use of CRM and Machine Learning solutions available today (Note that I added 3 new categories to the Pyramid: ‘Background Knowledge’, ‘Prediction’ and ‘Intuition’).
Regarding the weather example in the graphic below: Machine learning can be used to ‘Predict’ the weather but this is not really ‘Wisdom’ (knowing the right thing to do) and we are also likely a few years away from a computer having ‘Intuition’ (something that one considers likely from instinctive feelings rather than conscious reasoning). The key differentiator, and what I have referred to in the previous article as ‘Street Smarts’, is the ‘Background Knowledge’ that encompasses a general understanding of how the physical world works, how human motives and behaviors work and knowledge of common facts that an average professional working in this field possesses. It’s the experience and knowledge of success, and potential difficulties and dangers of the vertical. This usually requires a lot of experience and it’s why your best employees almost always have great situational awareness.
Now, let’s relate the Pyramid to the case study outlined in the previous article.
Getting ‘Data’ on the housing market such as After Repair
Values (ARV), tax and mortgage records is quite easy. Overlaying where your company has been
successful on to that data turns it into ‘Information’ and provides you with
the ability to build Algorithms that you can easily program into your CRM and
Marketing Automation systems as ‘Foreground Knowledge’.
As the new CEO you must grow the business and that requires you to choose new markets to push into. Can you rely on ‘Foreground Knowlege’ analytics to predict those markets? Maybe, but you won’t know how to be successful in those new markets without a thorough understanding of the ‘Background Knowledge’. As a side note… This always reminds me of the following quote:
Everyone has a plan until they get punched in the mouth
– Mike Tyson
As a new CEO it is very important for you to separate the ‘Foreground Knowlege’ from the ‘Background Knowlege’ used to make decisions at every stage of the real sales process.
In our case study, the ‘Foreground Knowlege’ was straight forward… If there was a low probability of recession in next 6 months, and a property’s ARV was between 150k and 500k, and the property had been owned for more than 10 years, and the owner was behind on their mortgage or tax payments then the property may be good to purchase, fix & flip. This would be very easy to code into a simple formula to program into the CRM. The data was also very easy to come by given all the history available on past transactions. As an example:
However, what criteria for decisions were the employess really making? When asked, they were considering items such as — If the property was in an area that they had worked in before, would the job require permits, would there be a lot of capital at risk, was the location within 50 miles of a disposition manager, would it be fixed and listed in early summer or spring (best times to sell), was the owner temperament pleasant, and was the property vacant — only then would they consider it a good purchase, fix & flip.
These items are a bit more difficult to assess from available market data, but required if you are to have any ‘Wisdom’ about the items required to grow the market or to succeed in a new market.
This example outlines only one of the many decision points that needed to be understood to determine if a new market was appropriate and how to setup that new market for success.
Warning: If you leave it entirely up to the data people in your company to guide decisions you will likely fail. Only you can get the company to truely understand the ‘Background Knowlege’ (Street Smarts) required for success by asking a lot of questions. Consider using the ‘Five Whys’ technique.
As you deconstruct each of the stage gates in the company’s real sales process you will hopefully gain the ‘Intuition’ required to know when the market is changing and how to react to those changes.
Good luck! —a bit of luck never hurts when you are a new CEO.
You have now been the CEO for 30 days and you followed the
process outlined in the article “Your First
30 Days As CEO” as much was possible. You understand your inherited
business and you are not impressed. But
you realize you would probably say this about every business you go into repair—because
someone else created the mess. Guess
what? It’s now your mess because you are the CEO. You pause, then realize that every business
you will repair will have both a different set of complex challenges yet the
same 2 causes: Poor
leadership that led to poor management (never forget… Leaders deal with management
Most complex challenges however start with revenue – it’s
been flat or going down… Why? Your first month of digging into the data
should give you what you need to understand the causes. It may be due to brand issues, lack of focus,
lack of good market analytics, lack of rich customer prospect data for
targeting or generally just not keeping technically up with the market… It may
be due to being out done by competition or poor sales management, lack of
product market fit, quality, customer satisfaction etc. It may also be due to lack of investment,
making the wrong strategic bets or lack of strategic planning. Who knows—there are way too many issues to
outline but I am confident in saying that the skill of (or lack of…) leadership
had a big part to play…
There are 5 Actions below to help you stay strategic at this stage—none or all may be applicable to your situation, but my hope is that they help you take your strategy to the next level. I’ll use a recent experience (repairing a real estate wholesale business) to provide some color on how I used each of these actions.
Case Study Background
My team was brought into the referenced company by the co-founders. The company had a well-known regional brand because it ran localize television commercials for 15 years and transacted in over 3 thousand properties. However, the company was struggling to grow, and other competitors were coming into the market using the same model this company pioneered and taking away market share. The company built their business with both wholesale and Fix & Flip transactions.
Wholesaling real estate is when a company puts a distressed home under contract with the intent to “assign” that contract to another buyer. The wholesaler doesn’t plan on fixing up or selling the property and never takes ownership of the property (hence no debt is leveraged for property acquisitions). Instead, they market the home to potential buyers for a higher price than they have the property under contract for.
In contrast, Fixing and Flipping real estate consists of buying a property that needs repair and fixing it up before reselling it for a profit. The “fix & flip” scenario is profitable to investors because the average homebuyer lacks the time and funds for repairs and renovations, so they look for a property that is ready to move into. Also, most traditional mortgage lenders require the home to be habitable with no significant repairs.
Every city has a set of real estate investors—just Google “buy home for cash” and you will find several in your area. The industry refers to most of these companies as “bandits” because of the “bandit signs” that they use for marketing. However, the company I am referring to here was past the ‘bandit’ stage regarding their maturity.
The real estate wholesale sub-vertical is fascinating
because it is simple (real estate transactions) yet so complex given it’s a 2-sided
marketplace with multiple stage gates on both sides. The most interesting thing is that success-at-scale
is nuanced and difficult to see. The vertical
is also unique in many ways:
Ways to make money: Beyond the obvious strategies of wholesaling, Fix & Flip and Fix to Rent there are people making money in many unique ways given the financials involved and the number of transactions. There are people making money teaching ‘how to invest in real estate’ seminars, running master-mind groups such as https://thecollectivegenius.com/, selling data to investors such as https://www.attomdata.com/, selling technology tools like vertical CRM solutions to bandits, making loans, offering title services—this list is long.
Debt: A pure wholesaler never takes ownership of a property hence they take on little to no debt; a company doing Fix & Flip transactions usually has to take on a small amount of debt to take possession of the property, afford the construction and pay the utilities/taxes while they own the property. However, a company doing Fix to Rent transactions usually has to take on a great deal of debt.
Breadth of Communication: To be good your organization must be able to communicate effectively at all ends of the spectrum… On the Disposition side (selling properties) the team must be able to communicate across a spectrum—from construction employees with 9th grade educations to MBA types at hedge funds. On the Acquisition side (finding properties to put under contract to wholesale or purchase) the team is dealing with all types of hard personal issues (people going through recent divorces, dealing with uncurable diseases or the recent death of a family member) and mental states (many sellers are hoarders and are embarrassed by their state of affairs and the last thing they want is for many people to visit their homes).
Results of our first 30 days
So, we built the scorecard referenced in the “First 30 Days” article … If you were to look at the company as a ‘lifestyle business’ that would throw off enough cash to make the founders comfortable then more items in the scorecard would be yellow (At Market) but we were brought in to turn the organization into a GROWTH company and from this perspective it was A LOT redder than most… There were times when I personally wondered if a growth-oriented turnaround was even possible, but the one thing the company had going for it was that it was bringing in revenue and covering expenses. …and in the business of repairing organizations–revenue heals many wounds. There were also some bright spots in one of the most important categories—people.
One of the most useful deep dives from the “First 30 Days” article was the “Sales: Do a deep dive on sales stages” exercise. When evaluating how the organization worked (and eventually comparing it to how it should work) we did a deep dive on the organization’s sales stages (none of which were in the outdated CRM—the current CRM was used to capture the opportunity notes, some call logs, contact info and if the opportunity was alive or dead). Here is how the organization really worked: marketing programs were used to find sellers of properties that fit a profile (~70% of the ARV minus repairs), those sellers are nurtured through a sales process and based on the sellers circumstances (need to sell in the next ~30 days) a decision is made to purchase or assign the property. Then a purchase contract (with an expiration date) is created with the seller. This is how inventory is created and is referred to as the ‘Acquisition’ process. Then the property either gets marketed to buyers list (wholesale) or fixed up and listed on the MLS (fix & flip)—this is referred to as the ‘Disposition’ process. If you have ever purchased or sold real estate, you know how complex the process is and all the unexpected fees that take a bite out of the transaction (every state has different laws and fees). When we evaluated the stages we were amazed by how many hands touched each stage of an opportunity and the business logic used at each stage (most of which was in people heads versus algorithms in a system). Here is a list of the real stages and what we eventually built into the new CRM:
Over the course of the first 30 days I personally filled at least 3 notebooks, but I only have time here to outline my summary notes. Here is what I wrote down on day 30:
In today’s world where tech is inexpensive, and DATA IS EVERYTHING.
When you see an organization that is not deep into harvesting and leveraging
data (about its industry, its suppliers, its customers, it’s competition, and
most important itself) you should worry. This is basic 101 for growth companies—if
this is not part of the company’s DNA then it’s toast. … and this company:
Was not using data to drive their marketing (targeting)
Could not track marketing spend to results or
doing any type of A/B testing
Was not using computer algorithms to make
Could not track how and why people perform or didn’t
Could not track how long key process were taking
within the company to find bottlenecks and issues
Did not have consistent approaches to on-boarding,
off-boarding, compensating, or managing employees
Was not capitalizing on symbiotic revenue
Could not tell at any moment in time where the
company was on its P&L or budget
…and most importantly did not really understand the
variables of success. They didn’t
understand the variable that made the big companies in this space successful. …and
at a micro level they didn’t understand the variables that made them successful
with their suppliers and customers (if profit was the only variable of success)
so those variables could be scaled and replicated. I’ll refer to this as street
smarts. Most execs kind of know
what these variables are but only the successful execs can crisply articulate
them and more importantly make them programmatic KPIs that drive systems and
They were also committing the #1 sin of good old management 101—consistent
listening and communicating…
Revenue was flat because the co-founders basically mismanaged the opportunity. Over the course of the last 15 years (time this company was in business) other entrepreneurs-built companies in the same vertical worth well over 1B. So, step 1 here was stabilization and getting the company to Par (basic 101… rebuilding the company DNA), step 2 would be growth…
Actions: The Repair Begins
You will find that there is always going to be a great deal
more to do than you can afford to do in order to turn the organization the
right direction and light its fire. You
will need to pick your battles and prioritize the items with the maximum return
but the least cost. One challenge may be
that one item requires another item, so you must choose wisely. Remember, Leaders
deal with management shortfalls…
Action #1 – Establish a
consistent protocol for transparent/honest communication with employees
Your employees have the best ideas… they know how things
should be run… or at least they know how things should not be run… there
needs to be a consistent forum where people can state their mind without
fear of retribution. You as the new CEO
need to own and moderate this forum.
Repeat back what you heard at the last discussion, talk about how the
feedback has shaped your thinking or actions or why the company is not going to
proceed down a certain path. In the company
we are using as a case study here we were small enough where we could do mandatory
Friday lunches and bring in other offices via zoom meetings. We went around the group (much like a SCRUM)
and asked people to speak about good/bad issues from the current week, plans
for next week and blockers that may inhibit effectiveness. Your job as the CEO is to make sure that the
team is being honest and open and talking about hard issues. You must participate in this forum as well
and speak to what was good/bad for you this week and what your plans are for
next week and what the blockers may be that might inhibit your effectiveness. Obviously
with a bigger team you must be creative in your approach however the need is
the same—be consistent, listen, use the data or be honest why you are taking a different
path, communicate plans and positive/negative company performance. BE HONEST…
People want to work for a stable company where they are
treated fairly, where they have a future, where they are heard and where their teammates
and work are intellectually stimulating.
They also want to know that they are fairly compensated for their hard
work and the more they perform the more they make. It’s your job to create this environment if
you want the company to scale.
Action #2 — Track, measure
and automate success
If a growth company is to scale and leverage technology and
automation at all levels it must invest wisely in the platforms that run the
company such as the financial system, the CRM, the Call Telephony Integration
(CTI) system, the marketing automation, document management, analytics etc. and
the systems need to be tightly coupled yet flexible enough to quickly change
with ever changing business processes.
With our reference company the current CTI, CRM and document management/electronic signing systems had to go, and much more sophisticated platforms needed to be brought in. We chose Salesforce.com, RingCentral & HelloSign and built out the object models and business logic to map the company’s real stage gates. This was not a cheap or easy undertaking, but it was a necessary step to get the fundamentals of the company to work at scale. Widgets and reports were created to show everyone the performance of the company at the macro level (how’s the month looking, the quarter, the year—based on the pipeline and probabilities) and the micro level (how an individual was performing & how they compare to their peers (# deals, margins, type of deals etc.)). Notifications were created for handoffs between Acquisition, Disposition and finance teammates and partners. Reports were automated for opportunities with issues or business processes taking too long to complete. Automation was created if checkboxes were checked (example: automatic customer or supplier emails at certain stages with pertinent status updates).
Your company’s technology platforms must work for the team versus being a tool for management and they must be mobile. API’s need to be programmed in to prepopulate data (in real estate as an example, API data from companies like ATTOM), the systems should algorithmically help with the decisions and no communication, action, decision, event, spending, result should go untracked/measured from the creation of inventory to the sales of inventory to the support of customers and performance of partners. There is a reason that Salesforce.com purchased and tightly coupled Pardot (marketing automation), Datorama (marketing intelligence), Tableau (Analytics) and made an app exchange that allows third parties like RingCentral and HelloSign to integrate seamlessly into the platform—it’s because customers, partners and suppliers expect this from all companies.
With tightly coupled systems you will be able to determine:
What is the performance of all levels of
marketing spend (cost per lead)
What percent of leads turn into discussions
How many times the sales team needs to reach out
to a lead
What times and mediums (SMS, call, email etc.) work
or don’t work to contact a prospect
How fast does a lead needs to be contacted
What percent of discussions turn into appointments,
what causes them to and not-to tun into appointments
What percent of appointments turn into contracts,
what causes them to and not-to turn into contracts
What percent of contracts turn into revenue,
what causes them to and not-to turn into revenue
Of the leads that turned into revenue, what was
the lead origination? How much was spent on marketing and overhead to acquire the
This list can go on forever, but I think
you get the point…
Action #3 – You should
now clearly understand what makes the company successful and why (street
smarts). It’s now time to make it programmatic and then do more of it.
When we asked the employees of the referenced company “when we were successful, why were we successful?”, we heard -“we are on TV”, “we have the best SEO and are the first to show up on a Google search”, “people know our jingle”, “we have the best BBB ratings and Google/Facebook ratings”… but they really didn’t know because they didn’t ask the people they purchase houses from or the people they sold houses to. They didn’t measure the attribution of a lead—did the customer see the TV ad… then do a Google search… then read a direct mail flier… or was there an article they were reading that made them fill out a form on the website? The reality was that they were successful on the Acquisition side because of the companies honest and ethical track record; and they were successful on the Disposition side because Assignment buyers thought there was enough margin left in the property for a construction company to make a profit if they performed the Fix & Flip.
When we asked the employees of the company “what motivated sellers to sell to us?”, we heard –Divorce, Disease, Death and Financial Distress…. This always came up in the initial call as the seller usually discloses it on their own—now with a good CRM you can record this and measure if its accurate and how much of it is driving sales—or is something else we don’t understand driving sales this month? However, the team was correct–these sellers are motivated to sell in the next 30 days because of a life changing event and they don’t want to deal with a realtor because they don’t want people visiting the house and they don’t want this to take time and they don’t want to spend money fixing the issues with the property. We also found out how much empathy for the sellers situation was important–afterall this was likly one of the sellers biggest financial transactions and it was coinsiding with a life changing event… and that would be overwealming for anyone.
Once we understood these very basic success variables:
We started talking to data providers like Experian, ATTOM, Quantarium etc. for target marketing, we tuned sales scripts, we reflected how we solve the pain in content for SEO/PPC (adwords) and began to tune messaging.
We built algorithms into the CRM to help the Inside Sales Rep (ISR) determine a go – no-go decision for an appointment. This all started with the After-Repair Value (ARV) minus a high-level repair estimate minus some fixed costs to see if an Assignment is plausible; Then it looks at the mortgage to see if the seller would get anything out of a transaction. Then it factored in what the seller was expecting out of the transaction. This is all done in just a few minutes and automated using simple algorithms programmed into the CRM.
We built out other algorithms to specify the deal type and range the Home Visit Specialist (HVS) could offer the seller and enabled the Seller to electronically sign the sales contract on a tablet that the HVS brings with them to the meeting. Those docs then get automatically stored in the CRM along with the pictures of the property.
Then we went
a bit deeper and asked the employees, what makes a great property to purchase
versus assign, they said the following:
Probability of recession in next 6 months under 30% = 0 (good); else = 1 (bad) (use this link)
Correct ARV (predictability of pricing) – commodity area we know w/more than 3 examples = 0 (good); non-commodity area = 1 (bad)
Accuracy of Rehab — commodity house w/non-permit rehab = 0 (good); permit rehab = 1 (bad)
Amount of all up-capital risk (Cost of managing bills, loans, paperwork, insurance, maintenance over contract length) is <30k = 0 (good); else = 1 (bad)
Location within 50 miles of a dispositions manager = 0 (good); else = 1 (bad)
Time or year for list/exit early summer spring = 0; late summer & winter = 1 (bad)
Owner temperament pleasant = 0 (good); else = 1 (bad)
Property vacant yes = 0 (good); else = 1 (bad)
It’s easy to
turn such a list into an algorithm in a CRM with a weighted risk score that
tells an HVS to move forward with a purchase or not.
Once the deal
type was locked (Assignment or Fix & Flip) and the sales contract was
signed then Dispositions would be notified by the CRM and either marketing or
construction began—either way different processes in the CRM needed kicked off
and different costs needed to be tracked in the financial systems.
A good CRM with tightly coupled tools and well thought out business processes is worth its weight in gold—but it is also key to survival in todays business world and is the price of entry (at Par). However, for true growth, algorithms need to be built that work for your company based on the street smarts that made you successful up to this point.
“If you can’t explain it to a six year old, you don’t understand it yourself.” –Einstein
Action #4 – You should
also now clearly understand the characteristics of a company in your vertical at
the next stage of success. It’s time you
begin acting like one of those companies!
Who are the companies at the next stage of success? It’s hard to even call them competitors
because it’s likely you don’t see them because you don’t act like them. However, the exercise of the “First 30 Days”
should have made you aware of who the next stage companies are and what characteristics
they possess. For this reference
company the biggest characteristic that identified these companies was the
number of transactions per month (properties purchase/sold).
However, these stage III companies approached the market
differently and these nuanced characteristics would be the most important items
to understand if we were to move the company from point A to point B.
If you talk to the companies at stage II you will find that they all believe that the most important thing to get right is to buy the property at the right price and if this happens there will always be a buyer (If we get the Supply right, then the Demand will follow). This may be the truth; however, it is a very unsophisticated way of looking at business and blinds you to the next stage of success. Companies at stage III understand the Demand and then work to find the Supply. It’s a nuance but a very important nuance that would drive big change in how a successful company in this vertical operates. This required the company to track where buyers transact, what kind of properties they were interested in, what range of pricing, how much construction they were willing to do, how much money they were willing to bring to the closing table, how often they purchased properties etc.…. It also required the company to hire a sales team to constantly speak to those buyers. It also required the company to market to find new buyers that may be interested in future transactions. All programmatically done with marketing automation, a tightly coupled high end CRM and a new buyers marketplace portal built on Heroku (yes, another Salesforce.com platform).
How hard will it be for you to get your new company to
operate like one of the sophisticated players in your vertical? What KPI’s do they care about and how do
those differ from the KPI’s your team currently monitors? Figuring this out, acting on it and having it
pivot the company’s business practices may be one of the keys to your success.
Action #5 – You should also
now understand your customers inhibitors of purchasing—It’s now time to remove
those barriers and if possible, create symbiotic revenue streams and gain competitive
intelligence as part of your business model
With the reference company we found that the 2 biggest inhibiters to a wholesale buyer purchasing a property from the assignment inventory was:
How much room was in the deal for the buyer to
make money—hence we were transparent with our math (sales price + repairs =
How much money the buyer had to bring to the closing
table—hence we started a lending business (symbiotic revenue stream).
This new lending business would also provide a great of intel into how the market is working in general given the buyers were also getting loans to purchase other competitor’s properties.
What are your company’s biggest inhibitors to purchasing
your products/services? Could you be in the business of solving for those
bottlenecks? If you were in that business, how much competitive intel would that
provide you on your market?
Action #6 – Remove the bad apples, stop doing things you shouldn’t be doing,
double down on the things that are beginning to work
You may be able to do this earlier, and it may be a
necessary action to contain costs in order to reinvest in change. Just be consistent in your communication with
the organization and be transparent with what you are changing and why. By removing bad apples, I mean people. Once you start performing the bad apples likely
weed themselves out versus need to be told to go… Especially if you are leveraging SCRUM
to manage your new business.
In the referenced company—many of the low performers left on their own and new people with a growth-oriented outlook joined the company and those new high performers naturally made everyone else want to perform at their very best. I don’t know if the referenced company will ever be a growth company, but we did provide the co-founders a foundation for them to build a growth-oriented company. My fear for them is that poor leadership led them to this place and if they don’t get this piece right, they won’t exist in a couple years.
Every company is different and has its own challenges. You would not be there if it wasn’t for
leadership and management challenges that probably caused many other issues
limiting stability and scalability. Your mission is to quickly fix the leadership
void and then start managing the change required to gain stability and scale.
Never forget, leaders
deal with management shortfalls. Good luck!
I read this @USAtoday story and had to laugh “The House Democratic Policy and Communications Committee is hosting a session Thursday morning with Ocasio-Cortez of New York (@AOC – 2.42 million followers) and Rep. Jim Himes of Connecticut (@jahimes – 76,500 followers) ‘on the most effective ways to engage constituents on Twitter and the importance of digital storytelling.’”
I’m center-right politically, and I don’t agree with some of @AOC’s views on issues, however, I do have a great deal of respect for her leadership abilities.
As a side note, I don’t disagree with what Himes is quoted as saying, “The older generation of members and senators is pretty clueless on the social media platforms”. Just review the senate’s embarrassing questions at the Zuckerberg hearing and you will see plenty of “clueless” senators … However, Congress is totally missing the point in regard to @AOC’s momentum and it will bite each of them during their next election cycle if they don’t wake up—The point is @AOC is showing leadership—watch and learn!
Congress–your constituents are people… not objects!
@AOC is listening and talking to people—Twitter is just one of her preferred communication tools. Here is the point–Many of today’s politicians tend to treat constituents as ‘objects‘ versus ‘people’ with hopes, dreams, and pains. Remember back when Bill Clinton engaged with a person directly at a 1992 town hall meeting—he talked with people. @AOC resonates because she is having a conversation with ‘people’.
Members of Congress–stop labeling people (i.e. ‘deplorables’, ‘Trump’s base’, ‘the Democrats’, ‘the Republicans’, ‘Men’, ‘Women’, ‘Black’, ‘White’, ‘Hispanic’, ‘LGBTQ’ etc..), fight for what you believe is right for your ‘people’.
Congress—we don’t want ‘managers’ we
‘Management’ is about systems, processes, policies, and resources (what all those federally appointed officials manage daily…) but ‘leadership’ is about vision, inspiration, values, and people. Leaders deal with management short-falls– Basically, leadership is required when the systems and process do not work…. Leadership is required when the policies are not applicable or do not exist… Leadership is required when there are not enough resources to accomplish the task…
In 2019, being an effective member of Congress requires you to have an open dialog with people, take a stand on issues you believe in, simplify complicated subjects and educate others, build consensus regardless of party and admit when you are wrong (and don’t take credit when you are right).
Regardless if you agree with @AOC or not… learn from her because she is showing you what we expect from members of Congress in 2019.
Congratulations! You have been brought in by investors to repair or scale a struggling tech company. The investors still believe in the company and need an experienced operator to right the ship.
The investors likely brought you in because either the company is shrinking or not growing (see Figure 1 for likely scenarios) and the investors have decided the problem was leadership. Or, perhaps the outgoing CEO was tired or didn’t have the skills for the next level of growth.
Regardless, you now have the job so you better have done your homework before accepting the role. You hopefully understand the financial situation, why the CEO departed, individual board members’ views of the company’s opportunity/risks/expectations and the ownership (cap table). You should have also fully digested all available news, analyst research, competitive positioning, and GlassDoor feedback. Oh, and find the date of the next board meeting. After all, you do report to them.
Your job is to lead the company, find growth, scale the organization (In figure 2–move the company from A to B) and do a stupendous job communicating to all the stakeholders.
You need a 30-day plan.
But Be Careful. You must learn quickly, but you don’t want to bring down the entire organization doing busy work as you come up to speed. Be respectful of people’s time and leverage the finance team as much as possible versus customer-facing employees. Realize that you are an unknown to the ecosystem; all people know about you is what is online. In other words, they will have judged you before they have ever met you. Be careful not to undermine your new management team by going a couple levels down in the organization without their consent, and be careful not to engage in speculative discussions (spitballing half-baked ‘what if’ ideas) that could easily be misunderstood. And above all else, in the first 30 days, provide no directives unless you are forced to, and then only move forward with the thoughtful involvement of your team.
Note: McKinsey wrote a great article about the time between accepting the CEO role and starting the job. You can find it here.
First Step: Broadly communicate your vision of a better company
Help the employees understand why you took the job and your approach. It’s too early for specific plans however you should convey the values that you will use as a framework for making future decisions. Be clear about your management style so everyone is not wasting energy trying to figure out how to please you.
Face to face is best (because you want to take a temperature of the team dynamic) but if you are geographically dispersed then make the best of it. Go around the room (or call) and ask the team to speak to the following in 5 minutes or less:
Introduce themselves (how long they have been at the company and something personal like what they enjoy doing in their free time).
The top 3 things they must get done in the next 30 days and who on the leadership team they are working with on the task- no detailed explanation for each or discussion (only clarifications if necessary).
Something they want to know about you.
You should go last and provide as many answers to their ‘something to know about you’ questions as possible and then explain how you will proceed with your next 30 days of learning. Your goal is to get introduced to the team dynamics, understand some of the cultural norms and help lay some groundwork so they understand how you think and what the next few weeks are going to look like. You might also find that there are a couple of surprises hidden in the team’s top 3 priorities that you need to understand more clearly in a 1-on-1 discussion.
Third Step: Schedule 1-on-1’s
Start collecting data ASAP. Start with your management team, then meet with as many individual sales representatives as possible as they will have the best understanding of the market, then meet a minimum of 10 customers and partners (see the ‘be careful’ section above…). Try to get a true idea of the culture –not just what you read on https://glassdoor.com. The culture is made up of all the stories employees, customers and partners talk about when you’re not around–so it takes time to understand.
Be consistent with the questions you ask–Here are some suggestions:
The remaining steps are in no particular order. Your goal is to get enough information to begin to understand the culture, the people, the customers, the partners, the issues, the opportunities, and the risks.
— “Once the information is in the 40 to 70 range, go with your gut.” – Colin Powell
Go over all the standard financials (Income statement, balance sheet, P&L, budget, forecast etc.) in detail looking for anything that does not meet the standard KPIs.
For Software as a Service (SaaS) businesses leverage all the well-known metrics and KPI’s (CAC, LTV, MRR, Churn etc..)–you can find all the metrics and KPIs here. Specifically look for any KPI’s that are out of range such as a low LTV to CAC ratio (LTV should be >3x CAC) or when months to recover CAC < 12…. Great site for deep dive on SaaS financials here.
For traditional businesses leverage old school KPI’s found here.
Finance: Go deep on expenses
Review 20% of the expenses that make up 80% of the spend. Tag each expense with its corresponding revenue impact and its significance as best you can… With an immature team, this may be difficult but give it a go.
Then chart out the expenses and prioritize quadrant’s A and B so you know what the team can cut if they either needed to invest in something more important OR had to ensure a minimum of 2 months of working capital available for payroll.
Finance/Sales: Go deep on current contracts
Look at the 20% of the contracts that equate to 80% of the revenues. Dig into as many as possible and look at their profitability, % of business, terms, risks, upside and most important their significance to the company.
Chart the contracts out so you can visually see how they map to the organization.
Contracts in Quadrant A you should understand the issues and determine if there is any way to renegotiate. Quadrant B – How can we get the cost down ‘per account’? Quadrant C – How can we get the cost down ‘overall’. Quadrant D – Ask: How do we do more of these?
Finance: Go deep on AR and AP
Accounts Receivables (AR) and Accounts Payables (AP) – You want to ensure you understand any large outstanding receivables or payables that are behind and could impact near-term cash flow.
Finance: Break up the P&L
Break out the natural categories of a P&L and look into the company’s performance per sector, per vertical, per product/service. If professional services are sold break out into separate P&L (more). You need to understand where the company is financially strong and where they are struggling.
Finance: Budget vs. Actuals
You need to figure out the budget process and how well the team has done. Are they always behind budget? are they always exceeding? Or are they on target? Each result tells you something different.
Finance: Understand banking, legal, accounting, tax and insurance relationships
These third parties should be consultants to the company–you need to gauge if they are being used in this way.
Sales: Do a deep dive on sales stages
Start with the stages outlined in the CRM but realize there may be other stages that have not been programmed into the CRM for a multitude of reasons. Do a deep dive on every stage looking for people involved… processes involved… business logic… and data.
What are all the ways a lead finds its way into the CRM? How long does it take a lead to be contacted? Who contacts? What do they say? How is this recorded? What analytics are available? What business logic is used to turn a lead into an opportunity? Who makes this decision and why? How long does this take? What stages does an opportunity go through in the company? Who all touches an opportunity from the time its created to the time it’s closed? When does an opportunity become a ‘dead deal’? Why? Who makes this decision? Are there analytics on how many opportunities die and why?
This list will be long but it will uncover many hidden gems.
Sales: Do a pipeline review
…of each appropriate segment (example: Enterprise versus Small & Medium Business (SMB))
For the Enterprise segment you want to figure out how well the team understands their customers’ business, the competition, how tight of a solution sales process exists and to get a general sense of the potential of the organization.
Try to review the top 80% of the revenue opportunity by account representative. If possible also look at history (closes since start) to see how well they have done for the company and what types of discounts are being applied. Comparing that history to the current velocity/deal revenue is also key.
Dig into the deal dynamics and see if the team understands (Pain) i.e. what is making the customer buy? (Power) How well does the rep know the person empowered to write a check? If the deal is 40% or higher do they have a written commitment in email? (Vision) How well the rep knows how our solution would fix the problem and by when. (Value) Does the rep know how much our solution would this save (or make) the customer? (Control) What are the next steps w/dates? …and if the company is using Solution Selling read a few of the ‘Sponsor Letters’ & ‘Evaluation Plans’
For the SMB segment, look more at velocity and the process surrounding the business. Compare the rep history to the pipeline. Spot check a few of the bigger deals. Understand the link between marketing and the SMB sales team–are there any gaps (example: when a prospect fills out a form how long before an action). Understand the automation, the CRM and all the tools surrounding the process.
For channel deals you want to understand the registration process (if one exists) and how well the channel opportunities are managed and if there is ever any negative competition between the channel and the sales teams. Compare the history to the current deals and stack rank the top partners to ensure you know who they are and setup exec to exec meetings as soon as possible.
Sales: Pipeline Post Mortem
Identify why we are losing/winning and find the trends… Understand customer churn. Understand the number of deals (and revenues) we lost in the past 12 months and why. Understand who (competitor) we are losing to (or winning against) consistently.
Marketing: Conduct a simple Customer, Employee, and Partner anonymous satisfaction survey
Have your marketing team pull together 3 quick surveys using Google Survey or another tool like SurveyMonkey. Add your own personalized message to each of the outgoing messages introducing yourself.
If the company already does these surveys that is a great sign. If so, there is no reason repeat these surveys just dig into the feedback AND also understand how the feedback is incorporated into leadership/management strategy, product planning and HR/Sales/Marketing/Support process changes.
Marketing: Marketing Review (Product, Place, Promotion, and Price)
It will take time to learn how well your marketing team is managing the website, the social networking presence, event marketing, landing pages, and paid advertising. However, it is always eye-opening to find the gaps in the data (“we don’t track that…”).
Find out how traffic is getting to your website and what is it costing the company:
Understand the social networking activity:
Understand how much events are costing the company and how the team is tracking success:
Understand Google/Bing ad spend and ROI:
Understand what landing pages are the most successful and why:
Here is an example of how one group measured how many companies in the USA were potential targets (dark blue) based on employee count and vertical industry–just using US Census data.
Sales/Product/Marketing: Understand the competition
Read everything you can about your competitors. If you can afford Gartner research buy it… You need know your enemy.
Know your strengths and weaknesses: if you know the enemy and know yourself, you need not fear the result of a hundred battles.
–Sun Tzu “The Art of War”
Product: Product Review
Learn as much about the product(s) as you can… Take training, use the product(s), read any patents etc… There is no need to be an expert, but you should understand the nuances of what your customers are purchasing, complaining about and why.
You need to also understand the product development and DevOps processes as they currently exist (high level). What tools (Atlassian, Jenkins, Kubernetes, Docker etc…), what hosting providers (AWS, Azure, Google etc..), what languages (C, golang, etc..), what third-party services are integrated into the solution (CRM, Database, OpenSource projects etc..).
Assuming the team leverages Agile (if not, you need to dig into why) you should understand the sprint cycle (1 week, 2 weeks etc.), burndown, and velocity. Does the team use LEAN startup practices such as the MVP concept?
You should understand how well the team is performing Agile (how long are standups, are they documented, how retrospectives are done, does the team use business value points). You should also get a view on how well the team is doing continuous delivery and if they are measuring items such as ‘Commit to Deploy’ metrics. It’s important to also understand how the team manages with defects and bugs.
Finally, if some of the team is offshore, or part of a third party, it’s important to dig into how well those groups are integrated into the teams to get a sense of productivity.
Product: Review Product Backlog with Product Owner
Now that you understand the product, go deep on what the Product team is working on and why. Try to get insight on how well the plan correlates to the market needs. If the team is using Story (Business) Value points validate these with what you are learning from the rest of the team and from customers (If not, then clearly understand how they are prioritizing the market needs as this is SUPER critical for success).
Support/Product/Sales: Review Customer Support Issues
Customer support excellence can be the key to customer renewals, product backlog prioritization and upsell/cross-sell sales if used appropriately. Dig into the issues, the timeliness and quality of resolution and understand how those issues are used in the organization.
“Your most unhappy customers are your greatest source of learning.” — Bill Gates
Human Resources: Understand Employee Performance and Rewards
Your Human Resources team should be able to provide you a list of roles in the company and their compensation bands and then a list of employees for each role with their date of last performance review (and rating)–if not, you have more work to do… You’re looking for how mature the HR processes are… How people are rewarded… Are you paying market rates… and most importantly turnover rates.
Human Resources: Understand Recruiting
Hiring qualified employees is hard and hiring the best is difficult. Hiring the best is going to be key to future performance gains. How well is your team set up to hire the best?
Human Resources: Understand HR Policies and Procedures
Review the employee handbook and all policies and procedures. Some examples: Logical access policies, Incident response plan, disaster recovery plan. If the organization is SOC 2 certified review the audits.
All Teams: Understand the risks
Risk management is something that must be done continually. Doing it well can be the key to success if you need to make a quick pivot in the future. If the team is not doing this already you need to add it to your 60 to 90 days list.
You: Report card
After 30 days you’ve learned a great deal and hopefully formed some opinions about the people, processes, and product(s). It’s a good idea to record it all on a report card–not to be shared but to refer back to periodically and reflect. Write down why you rated each group the way you did as it will be helpful to use this as you continue your journey.
Now it’s time to lead! You and your team now have to determine what actions are required to grow the business.
Reference the figure below–You’ve likely been brought into the company in the ‘production stage’ either in A (the company has not achieved Product-Market Fit and is surviving on Professional Services revenues or Other People’s Money) or in B (the company has reached Product Market Fit and it’s time to tune the organization for growth). Likely it’s going to be somewhere in between, however, the key is to now have a good idea on where to focus your energy for the next 60 days because you can’t do everything (A. Innovation management and Product/Program management or B. Leadership and Sales/Marketing management).
It’s easy to be overwhelmed at this point–the business is going to start coming at you fast. Customers, prospects, managers, partners, analysts, board members, bankers, attorneys etc… will all want a piece of your time. The issues at hand will require time… Scheduled event and meetings will require your time. Your job–not to become reactive to the demands on your time (remember the ‘Big Rocks’ story from Stephen Covey?)–project manage your schedule to where you continually reprioritize the demands on your time and STAY PROACTIVE. Remember, you have a job to do and that is to ignite growth in a company that has not been growing–that means doing something different and if you become reactive to these demands you will become part of the problem.
I’d recommend 2 actions now–Schedule a leadership team offsite and get into the right frame of mind by re-reading that old book on your shelf called The Five Dysfunctions of a Team. You’re also going to feel like diving right in and starting to provide guidance and poking harder at the items you rated low in your report card–just recognize how disempowering this may seem to the team. You have to get your hands dirty–that’s required but at this point in your journey, you need to lead vs. manage. The next 60 days are going to be difficult. You may need to tighten up the people, processes, and temperament of your leadership team. You and the team will need to determine what to prioritize and de-prioritize… and then change management comes with its own cultural challenges.
A preliminary view of the next 60 days in the role…
Communicate with the board – As you develop your boardroom relationships, you must view the directors as neither friends nor confidants, but as bosses who hold you personally accountable for the success of the company. By actively investing in director knowledge and relationships—through one-on-one contacts, e-mail updates of corporate progress, and distribution of background material, for example—the best CEOs turn board meetings into participatory discussions rather than show-and-tell sessions by management. A new CEO who is open with—and creates the opportunity to collaborate with—their directors will be more likely to garner support from these bosses. – HBR
Help your managers understand your expectations in regards to ‘leadership’. If Management is about systems, processes, policies and resources and Leadership is about vision, inspiration, values, and people then the basic premise is that ‘Leaders deal with management shortfalls’. Basically, leadership is required when the systems & process do not work…. Leadership is required when the policies are not applicable or do not exist… Leadership is required when there are not enough resources to accomplish the task… (more)
Begin to introduce your team to innovation planning (if necessary) — Perhaps leverage Blue Ocean Strategy
If you find that the company is competing head to head with others and losing share it may be time to look at creating uncontested market space that can create new demand or break the value-cost tradeoff.
Depending on where your team scores on the report card it may be time to begin to introduce a new way to approach the business. Here are some of my favorite tools:
Introduce your team to SCRUM (not just the product team)
I was helping a friend today work through some issues with his company and the topic of management versus leadership came up. The subject made me think about a great discussion I had with an Army Colonel a few years back. I have summarized my notes from that conversation below.
If Management is about systems, processes, policies and resources and Leadership is about vision, inspiration, values and people then the basic premise is that ‘Leaders deal with management shortfalls’.
Basically, leadership is required when the systems & process do not work…. Leadership is required when the policies are not applicable or do not exist… Leadership is required when there are not enough resources to accomplish the task…
So what do good managers do?
They match resources to taskings…
They measure, set goals and compare…
They are accountable… Failure to hold people accountable will create a culture of mediocrity.
They organize around the product (mission) and not the processes (functions)… Keeping in mind that organizational structure can—by itself—preclude success, but it cannot—by itself—ensure success.
They recognize that micro-information is not the same as micromanagement. They are not afraid to engage the tough problems themselves.
They watch out for systems that tend to punish the excellent in order to reward the mediocre.
And… what do good leaders do?
They create more leaders–constantly doing leadership development by identifying potential leaders and mentoring / grooming them along…
They spend their time doing things only they can do for the organization…
They are principled, transparent and their values become institutional values…
Their character is built from the cross section of courage, integrity and perseverance…
They avoid issuing orders, preferring to request, imply, or make suggestions… They use storytelling to make points…
They ignore petty attacks and fight back when it is important enough to make a difference…
They are consistent…
They don’t lose confidence in their people when they fail…