Before being in the management consulting business, I was a Partner at Allegis Capital, a Palo Alto-based early-stage VC firm with $500M under management. The firm was capitalized by 33 large corporations as Limited Partners, who provided the capital we invested. It was an impressive list of multi-national, mega billion-dollar companies including:
I remember one day, walking into a Board meeting for one of our portfolio companies and the CEO was clearly exhibiting some discomfort as he had to explain why he missed sales for the quarter that just ended by 18%. An instinctive reaction to that problem is what I call the “self defeating blaming circle” and to quickly put the burden on sales. So, our CEO asked his VP of Worldwide Sales to present and his VP defended his upsetting results by citing the lack of quality of the leads, which led to much lower than expected conversion rates. The VP of Marketing then came in and complained that the product did not have all the features and functionality that were required for the market segments the company was targeting. When the head of product finally came, he explained that no one gave him the right product roadmap and the exact specifications of what customers really wanted, so he and his team built what they thought had the best feature set.
You get the picture: the board meeting was a circus of finger pointing:
Unfortunately, this scenario happens quite frequently in Boardrooms. To us, at Blue Dots, this is the perfect symptom of external misalignment. It is very hard to shoot at your companion-in-arms if all the weapons are pointing in the same direction (the hill the company is trying to take) as opposed to shooting each other.
When I meet with early-stage VC firms, I often hear the following opening statement from the Partner I am meeting with: “All our portfolio companies are doing really well, growing fast and we don’t need your help.” I remind them that I was a VC for close to a decade and that I know that somewhere between 30% to 60% of their portfolio companies are not growing as fast as the investors would like. This is part of taking risks and a fund will suffer a large number of casualties, as seed and early-stage investing is a risky business with inherently uncertain outcomes. It is the one big winner (the home run) that makes a fund. Two home runs and you are a top VC fund like Accel, Andreessen Horowitz, Benchmark, Greylock, Kleiner Perkins, Lowercase Capital, Sequoia, Union Square Ventures, and others.
Then comes the second salvo from the VC Partner: “If one of our portfolio companies is not growing as fast as we expect, we fire the CEO”. While firing the CEO is at times the right, reasonable and legitimate thing to do, we do not believe that it is the right approach to solving the growth problem and here is why:
1. It creates all kinds of unintended consequences, including massive disruption to the rest of the organization.
2. It does not answer the question: “Why aren’t we growing as fast as we’d like?” Growth could have stalled because of an A2 misalignment: the messaging is not aligned with the perception. In that case, the person responsible might be the VP of Marketing. Of course, ultimately, the buck stops at the CEO’s desk, but the problem in this case can be addressed by other means than firing the CEO.
3. It takes 4 to 6 months at best to find a new CEO, then another 3 months or so for the new CEO to get his or her bearings and start to deeply understand why growth has stalled. In the end, it may take one year to get to the bottom of it and start fixing the real misalignment issues.
Don’t get me wrong, I am not suggesting that firing the CEO is always a bad thing to do. However, I would argue that if the core issue is slow revenue growth, then approaching the problem along the four independent axes that we devised is a much more effective, pragmatic and disciplined approach.