Tag Archives: Built to Last

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The Difficult and the Daunting

You may have heard recently that Amazon is pulling back a bit on hiring and warehouse space. With all their vast resources in strategic planning, the executive team there overshot on leasing square feet their forecasts no longer support. I suspect they will manage through this just fine in the long run with little impact on earnings, but it is a powerful reminder of how difficult it is to predict future business both when you’re in an up-market and a down one.

We all get this wrong now and again. It’s normal and usually navigable. The problems come when balancing present challenges heavily compromises a company’s future, or betting only on the future sours a company’s current performance to the point where no one cares about the future.

I am often humbled by the nagging paradox of making tough business decisions every day at the relentless pace of 24x7x365. Running a company in response to everyday circumstances in the present will always be difficult, Running a company for an opaque future will always be daunting.

We have to do both well to accomplish our current goals and set the table for the next generation of growth prospects. Favor either the present or the future too heavily and the question becomes whether you want to lose now or later. While that’s not an option any leader wants to consider, if we don’t see the delicacy in how one affects the other, our intentions can be undermined by our outcomes.

We often hear about the pressures of being a public company, how corporate leaders make choices to focus on quarterly earnings from which they financially benefit immediately over building strong companies for the long haul. I do think this happens at some companies where short-term stock performance can dramatically impact executive compensation. Too often those companies fall prey to what Clayton Christensen famously has called The Innovator’s Dilemma and allow their long-established norms of success to be fully disrupted by more nimble competitors.

There’s a more ironic take on this notion, where equity markets sometimes forgive emerging companies for failing to produce earnings at all in the near term in the hope that someday they will have gained so much market share that they will prove invincible. This all-or-nothing strategy has paid off handsomely for companies like Amazon that didn’t produce earnings for years, reinvested heavily in their growth, and today reap the benefits of that bet. Sadly, this example has been exploited by too many newly public companies that don’t even consider near-term profitability a goal, allowing lazy business models to overshadow unfounded optimism that someday their customers will reward them with enviable positions.

A company that bets only on the future, never becomes economically successful, and runs out of cash can be train-wrecked just as decisively as a once successful company that fails to address The Innovator’s Dilemma. If the executives steering either of those failures happen to be selling shares along the way to a company’s demise, a feast of lawyers will follow.

Inflation and rising interest rates make the cost of doing business higher for everyone. We painstakingly decide how much of these costs we pass along to customers and how much we absorb. The benefit of preserving current operating margins is always tempting, but the rewards of long-term customer loyalty and lifetime value speak for themselves. How do we decipher the balance between current and future financial results? Data will often shine a light on the path, but there are no conclusive textbooks with clear answers to these calculations.

It truly is hard to run a company both for today and tomorrow. We have to consider the staff sizes we need, the leases we’ll require, the stability of our supply chains, price elasticity, and the promise of our brands. We also carefully must watch cash flow, our balance sheets, compensation, incentives, technology advancements, and investments in future product cycles. What works today may or may not work tomorrow. It is seldom that what works perfectly in one set of conditions works just as well in another.

There are no perfect answers, but the fluidity of making a decision now for its short and long-term impact usually weighs heavily on those who wrestle with the impossible crystal ball.

Covid-19 has been a good reminder of how difficult and daunting decisions can be. We were all blind during Covid and it was easy to misread fluctuating data. No leader had substantial experience with stay-at-home working conditions. No one knew how long the pandemic would last, how it would impact supply and demand, or how it would impact investor sentiment. If that wasn’t enough of a challenge, most of what we thought going into Covid proved to be wrong, and most of our assumptions about how employees, customers, and investors would behave post-Covid have been equally wrong.

If you want to be humbled, try making decisions that address the unknown with this level of frequency. You’ll likely realize you’re wrong more than you’re right, but the less tangible skill we develop is how to rethink and react quickly when we discover we are wrong. That’s why the rewards for creating a company that is “built to last” are immense, but the odds of lasting fifty years are long.

When it comes time to decide short or long, know you have to do both, and do your best you to keep dialogue and debate flowing among diverse opinions. The decisions we make have an impact we might be able to see today, but unless you know someone who has a gift the world has never seen, we are almost always speculating on the impact a year or more from today. Sometimes it’s decades before we find out if we were right or wrong.

We choose to sign up for the difficult and the daunting. The longer I do this, the more humbling it is.

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Photo: Pixabay

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Staying Alive

This will be the third post in an unintended trilogy following my last two on why companies that might appear to be “built to last” may suddenly evaporate before your eyes. In response to those stories (Gone So Soon and 8 Warnings That Your Company Is Toast), I received several inquiries wondering if there were ways to spot an imminent mudslide while there’s time to escape.

Executive turnover is something to watch closely, especially the C-suite. Either too little or too much turnstile rotation can be a warning sign. With no leadership change over long periods of time, a company might become entrenched in its plodding, convinced it knows how to do things so well no seismic shift in the landscape requires reinvention of the company’s ways. When executives are repeatedly jumping ship in under a year, the lack of stability in teamwork, embrace of new ideas, or core strategy might be signaling a torpedo crater in the ship’s hull that can’t immediately be seen underwater. Certain presidential administrations come to mind.

An escalating executive dump of equity holdings will usually light up an analyst’s eyes, but what about yours? If top management is seeking liquidity while proclaiming they are simply reducing concentration and balancing their holdings, ask yourself why now. It’s good to be loyal when there’s a reason to be loyal. Ignoring the siren to go down with the ship will never seem as noble when your colleagues have departed in first class and you are left treading ice water. Much of the dot-com bubble unraveled this way, with most of the stock prices dropping swiftly to zero.

Ever sit in a meeting, listen to a colleague or team of co-workers present an innovative, visionary solution to a core concern the company has long identified as critical to its survival, only to see the framers of the big idea summarily dismissed without adequate explanation? Sure you have, most of us have. Perhaps those framers then quit, go across town and put their concept to work for a competitor, of course without violating their nondisclosure or trade secret agreements, modifying their ideas to a variation on the theme. If you believe they are as smart as they think you are, consider following them. That’s how companies like Intel started.

Do you observe evidence that your company understands its core competency, protects it through a culture of learning, and openly admits its weaknesses as opportunities for improvement? When you go to an offsite, is the point of that retreat an honest evaluation of the company’s strengths and threats, or is the current leadership pontificating on how unlikely it is that your competitors can take your market share? Sears has been dying for decades. I wonder when in each of the past years they thought they were winning.

Are you building a project or a company? A lot of people aren’t sure. Most startups begin with a product offering, but if the company building that product defines itself too narrowly, it may soon cease to be a company when it is folded into a larger company with a lot of “synergies” found in the combination. If the word “synergies” doesn’t ring a bell for you in the world of mergers and acquisitions, it usually means overlapping functions that are removed as redundant costs, possibly you. Look at the string of product builders that companies like Microsoft and Google synergized throughout their history. How many of them can you still name?

Are analytics, diagnostic evaluation, empirical assessment, and primary research core to your company’s self-evaluation? Are key decisions made on gut instinct or debated with facts? Ask yourself if that’s what the top leaders in your company say they want to do or if it’s what they really do. That which gets measured gets done. That which gets quantified gets fixed. If you’re in the room where people are swapping stories rather than interpreting data, you’re probably better off gambling in a casino where the odds are at least known.

Another way to think about this is whether you believe top management in a company is truly focused on staying alive, and whether you can help overcome the challenges to a company you love or want to love. If the decision-makers around you are people you trust who are committed to vetting solutions, perhaps you can be as well. Too often when the axe falls, we acknowledge in hindsight what we should have applied in advance thinking. There are artifacts of knowledge all around you—both positive and negative—if you choose to pay close attention to the reality of your situation.

You can always be pleasantly surprised or devastatingly rocked by good or back luck on the job. Predicting the likelihood of an outcome is a learned task that is likely more tangible than you think.

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The Many Lessons of Andy Grove

Time 1997We lost a great business leader earlier this year. His name was Andrew S. Grove, known to many as Andy Grove.

He survived Nazi-occupied Hungary as a child, then Soviet-controlled Hungary, immigrating to the United States at the age of 20 in 1956.

He received a Ph.D. in chemical engineering from U.C. Berkeley and became a star engineer at Fairchild Semiconductor.

He left the stability of Fairchild Semiconductor with Silicon Valley legends Robert Noyce and Gordon Moore when they co-founded Intel. Together they later entirely reinvented Intel from a manufacturer of memory chips to the dominant producer of microprocessors.

He was Intel’s CEO from 1987 to 1998, the famous “Intel Inside” years when personal computing exploded from the hobby to the consumer market.

He wrote the legendary book Only the Paranoid Survive, published in 1996 and still a must-read for anyone who wants to understand innovation and the power of creative destruction.

For many years he co-taught a course in strategy with my dear friend Robert Burgelman at the Stanford Graduate School of Business.

If you think everyday people always had the internet, email, streaming video, and smart phones, you have a loose grasp on current events, let alone history. Andy’s leadership at Intel took us from the 8086 to the Pentium chip, from monochrome to color displays, from floppy to CD disks, from no hard drive to software that could be installed.  If you didn’t live through the transformation of the universe from analog to digital, from buying hardware and software at Computerland and Electronics Boutique to Best Buy and Costco, it’s hard to explain the magnitude of this growth cycle. Andy is one of those guys who really changed the world.

Okay, you get the point, about 0.001% of mortal beings have a resume close to his. You can read his full bio on Wikipedia. I want to share something more personal about him, the key takeaways from the few times I met him in person during roadmap briefings at Intel in the 1990s. Among the many lessons I learned from Andy Grove, here are five that continue to guide me daily:

  1. Creative Destruction Is Real – Whatever product you ship today is already obsolete, no matter how well it is selling. If you are not working on the replacement for it, someone else is. That is why you have to be paranoid. You will always be correct if you presume you are about to be outperformed in the marketplace of goods and service. Never get comfortable, never rest on your laurels, or you will be gone in a heartbeat, wiped off the map while you are collecting your awards for last year’s success. I learned from Andy that almost every startup that presumes it is built to last is almost certainly on a crash course with obsolescence, that the vast majority of even robust corporations today last about half as long as a human life. Companies don’t reinvent themselves, they are reinvented by courageous, visionary people.
  2. Beware the Strategic Inflection Point – By the time a market has fully morphed at scale, it’s way too late to react. You can’t see a strategic inflection point coming, you can only acknowledge it in hindsight while confessing your memoirs. Sorry, Monsieur Business Plan, the landscape changes in real time! Because you have learned to be paranoid, you are going to figure out one dreary morning that something you are doing in your company is hugely wrong. Some product you are readying for release is going to tank no matter how much you spend on marketing. Remember when Bill Gates discovered the internet? Remember when Mark Zuckerberg discovered mobile? Those were Intel-inspired moments. They turned their companies on a dime the same way Andy helped turn Intel on a dime when they realized the market for memory chips had commoditized and microprocessors were the way forward. I learned from Andy to always remain nimble, that sunk cost is always sunk cost, eat it and move on. Achieving competitive advantage before others see it coming is where your investments must be all the time.
  3. Science Is Inescapable – No matter what your market cap might be, you can’t fake math. Pithy slogans don’t make better computers, engineers do. For Moore’s Law to work (roughly twice the computing power will be available every 12 to 24 months for the same cost) staggering volumes of calculations have to take place on a tiny silicon chip without the transistors melting down. If you want to win at the engineering game, it takes the boldest and brightest team of advanced engineers you can assemble. They need the time to do the math, which is why Intel was already designing the 486 chip while shipping the 286. You can’t predict when the equations will be solved, you can only form a thesis and test your working models until they clear quality assurance. I learned from Andy that there are no sustainable shortcuts in quantifiable outcomes, the minimum viable product be damned! If you try to cheap your way through a poorly constructed algorithm, science will have its way with you and the result won’t be a proud moment.
  4. Constructive Confrontation Works – A lot of people who didn’t grow up in the Intel culture found it an impossible place to survive. Intel was a place where undisciplined, random conversation was never the norm. Almost anything anyone said could be challenged directly and aggressively by anyone in the hierarchy. Even when you were visiting Intel as a channel partner, anything you said could get shoved down your throat as instantly as you said it. Was this nice? It wasn’t meant to be nice. It was meant to improve products, driving ceaselessly toward unattainable perfection. That was how Intel maintained design and manufacturing leadership for a generation, by always challenging assumptions, never accepting compromise or forging an unholy consensus simply to move on. It isn’t the right culture for everyone, but at Intel, you bought into it or got your walking papers. I learned from Andy that in constructive confrontation, it’s always the idea that gets attacked and never the person. You might feel that you are being attacked, but you aren’t. Your ideas are being made better or mercifully eviscerated.
  5. Resilience Is a Mandate – Imagine a guy who made it from the Holocaust to the highest level of American thought leadership—all the obstacles, all the challenges, all the knock-downs, all the reinvention. To embrace the example of Andy Grove is to embrace the notion of resilience as the single greatest motivator available to anyone at any stage of emergence. You don’t give up, you don’t give in, you don’t quit. You always expect more from yourself. You learn from your mistakes, you study your failures, you learn from your adversaries. Want to survive? Want to triumph? Want to leave a legacy? There is no other way. I learned from Andy that you stay in the game, you look forward at opportunity, and you try again—only harder. Resilience isn’t a nice-to-have. Resilience is fuel for the soul.

Andy was a living example of realizing possibility through discipline. It is extremely rare to find an innovator with startup DNA who can personally evolve into the CEO of a multinational corporation. It is equally rare to find a top-notch engineer who embraces consumer marketing as a key strategic initiative. Andy championed the “Intel Inside” campaign as a branding mechanism that made an otherwise invisible component a necessity for personal computer manufactures to tout. When the consumer press seized upon an obscure failing in a sample of Intel microprocessors, Andy accepted the criticism as a byproduct of his brand promise. He insisted his team correct the deficiency with renewed quality assurance rather than defend the company’s position with arguments the consumer would never understand. He was book smart, business smart, and street smart all at the same time. He gave back way more than he ever took off the table in every way imaginable.

If you ever worked on one of my teams, I probably bought you a copy of Only the Paranoid Survive and quizzed you on it a week later. Andy’s words, thoughts, and ideas remain that important to me. He was an industry icon and a human being impossible for me to forget. I hope none of us ever forgets Andy. He remains a truly one-of-a-kind inspiration.

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This article originally appeared on The Good Men Project.

Photo: Time Inc.

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Built to Launch?

I aspire in this post to be among the elite—one of the few business bloggers on the planet currently not commenting on Marissa Mayer becoming CEO of Yahoo. I have never met Marissa, but her reputation speaks strongly for her. I wish her well because I always want good people to succeed, and in this case I also want to see Yahoo succeed. I hope she reads my article about Yahoo from last year that predated her last two predecessors and figures out a way to restore much-needed competition to the landscape of search. Hmm, seems I’m writing about her. Okay, enough said. Got get ’em, Yahoo! Stop.

Now my real topic for the week—not surprisingly, also about succession.

Venture investors Marc Andreessen and Ben Horowitz have been steadfast in their support for keeping Founder/CEOs at the helm of the companies they back, from early blog posts on their site that state their philosophy to more recent comments in the Wall Street Journal that reinforce their sometimes contrarian assertions. Not only do they believe most deeply in the Founder/CEO success model, they have championed multiple class shares that keep CEOs in authority with majority control even without majority ownership. Their point of view is clear, consistent, and well-argued—and thus far their financial returns in aggregate have been extraordinary. They want vision, they want independence and long-term creative thinking, and they want continuity.

I am not sure I have an absolute opinion yet on absolute power for a start-up CEO; we’ll have to see how those play out over the next ten or twenty years. I do worry that without senior team loyalty and continuity, it may not matter whether a CEO stays or goes. Teamwork is what matters in today’s intellectual property centric companies, and if your team is not stable, I wonder if your company can remain so. Surely new blood is a great infusion when parsed appropriately, but it needs to be in balance, at equilibrium with a set of players we can count on.

What about the top-tier executives, perhaps a level down, who seem to jump freely from ship to ship, following their own personal muses, particularly after liquidity gives them the ability to set themselves free? Is this good for companies and long-term shareholder value, for companies with massive capitalization that are taking on investment—public or private—ostensibly with some hope of being Built to Last?

Clearly within our pressured and fragile economy, the bonding relationships between employers and employees have become increasingly tenuous. “At-will employment” is not just boilerplate in an offer letter, it means what it says, that jobs are temporal. Employees not under contract may depart a gig when they wish without much obligation, and employers may equally freely dismiss them (to the extent those decisions are not discriminatory) without much warning or explanation. Companies are predisposed to protect earnings and cost-cutting can be a tactic to achieve those goals, the favor of which gives employees good reason to always be in the market. Although there are any number of topics I can extract from that thread and will do so in the future, that is not my key focus here. This is not about everyday turnover and the anxiety it creates, it is about senior level turnover as a litmus test for investors.

Reality is, a lot of high-profile employees in high-profile start-ups seem to jump ship early these days. I am not so sure that they are cashing in as much as their attention spans or personal desires lead them from one thing to the next. Some examples:

• Two of Twitter’s co-founders who served as CEO left the job and their day-to-day roles, although one returned, not as CEO, but as head of product. The third co-Founder also left day-to-day responsibilities.

• Facebook’s most recent CTO, who joined the company in 2008, departed voluntarily almost immediately following the IPO. Facebook also lost an extremely high-profile CFO in 2009, and a number of other prominent C-level executives have churned through in the years leading up to the IPO.

• Groupon’s former COO, a Silicon Valley veteran brought in to steady the ship, spent about a year on the job day-to-day before moving to an advisory role.

• Yahoo continues to make headlines with five CEOs in five years, although the situation here is different. The last one to leave on his own timeline was media veteran Terry Semel, who preceded the five. Perhaps more curious at Yahoo is the level below CEO, where the turnover has been even more active, voluntary or otherwise.

• Google is now being celebrated as iCEO University, for which it has reason to be proud with strong executives like Sheryl Sandberg, Tim Armstrong, Dick Costolo, and now Marissa Mayer all willingly accepting significant challenges. My sense is this is sustainable as long as founders Larry Page and Sergey Brin stay on the job (guided by the advice of Eric Schmidt), but at some point the spinning off of entrepreneurs may take a toll as it did at once great legendary giants like Sun and Silicon Graphics (also keep an eye on HP).

It is hard to fault someone with talent and wealth for leaving a position with an “old company” to tackle a brand new start-up concept. They have the creativity, they have the yearning, and they can absorb the personal risk. Yet these aren’t exactly old, mature companies they are leaving, even in internet time. If talent retention is critical to continuity and leadership is demonstrated by example, what does it say about loyalty to the “rank and file” millionaires of Silicon Valley hungry to pursue their dreams when so many of the top dogs or near top dogs are endemically antsy?

Can you build a company that is Built to Last when many of your brightest employees—especially those made wealthy with capital they can reinvest—are thinking Built to Jump? Should shareholders in emerging high-valuation private and public companies be concerned with the New World of high turnover that is largely viewed as the way things are? There is already risk enough in holding stakes at the high valuations these companies will need to grow into, but if these are essentially knowledge-based companies where the key assets go home to their families each night, how much should owners worry whether they come back tomorrow or start a new company that’s more fun? Are these companies Built to Last or Built to Launch—launch themselves to early prominence, and launch the careers of the stars who emerge from their ranks?

Retention and the war for talent are surely talked about a lot, but I wonder if these are just buzzwords now, if key stakeholders really are losing sleep over the next spun-off employee or just prepared to roll with the punches. For anyone who has ever led a company, the notion of culture is no small issue, and companies where the culture is strong have a heritage of continuity that gives them a shot at longevity. Do we now assume Creative Destruction is such a powerful force that short-lived companies are a norm, regardless of culture and continuity? I wonder, and look forward to checking the Fortune 500 again for a few more decades to see how this plays out—not to mention the long-term trend on aggregate net job creation we so desperately need for our economy to go the distance.

I am not suggesting that employees should stay past their welcome or interest level, and in no way would I ever want (or tolerate as a manager) any form of stagnation in the form of tenure-based retention or retention for continuity’s sake. The case I am trying to make is for a tiny bit of balance in an Old World concept known as loyalty—which has been very good to me on both sides of the desk for most of my years on the job. It has been said that in today’s world loyalty is between individuals, not within companies, and there is every reason to understand how that has come to be. Yet if companies are not loyal to employees and employees are not loyal to companies, can these kind of companies really be long-term investments for shareholders? Said another way, if the system and talent are not demonstrating loyalty and commitment, should investors?