Month: August 2018

Successful CEOs Share These Six Attributes (hint: Communication is Key)

Successful CEOs Share These Six Attributes (hint: Communication is Key)

Successful CEOs possess each of the attributes described below. This is an unscientific analysis based upon my prior experience covering and acquiring companies (equity research analyst; M&A executive) as well as my current role as founder of CEORater.
It is important to recognize that while these attributes are qualitative in nature they do impact the bottom-line.

1.) Communication:

Effective communication is the most important attribute for CEOs to embody. Our lead photo is that of Steve Jobs, the Great Communicator.  

  • Great CEOs are great communicators: Great CEOs communicate effectively to shareholders, customers and most importantly – employees!
  • Get your reps in: Jack Welch used to say that when he got sick of hearing himself repeat a particular message he knew that message was starting to take root with employees. Rocky Marciano knew the best way to maintain his edge on fight night was hard sparring during training camp.
  • Coach the coaches: Want a force multiplier effect in your organization? Coach your direct reports.

2.) Accountability:

Great CEOs hold themselves and direct reports (and by proxy all employees) accountable. Do not confuse accountability with intolerance for it is important to encourage smart risk.  

Don’t shoot to kill: Sales person misses sales target. OK fine, no variable compensation reward for the period. What behavior will change as a result?

  • Is there a communication breakdown in the sales process?
  • Where is the pipeline weak?
  • How are we engaging with customers and subsequently ingesting and disseminating that sales intelligence? Is that information circulated not only across the Sales organization but with Product Management?

If behavior changes for the better – i.e. improved communication – the miss may have been worth it.

3.) Employees First:

The tried and true principle of taking care of your own first. In return employees will take care of customers. The benefits trickle down to shareholders. 

Past and present CEOs that put employees first:

  • Sam Walton, Walmart;
  • Aron Ain, Kronos;
  • Jack Welch, GE;
  • Tony Hsieh, Zappos;
  • Bernie Marcus and Arthur Blank, Home Depot;
  • Reed Hastings, Netflix;
  • Scott Scherr, Ultimate Software 

Don’t confuse “taking care” of employees with free lunch, coffee bars and foosball tables. Those trivial items may help at the margin, but at the end of the day employees want to be recognized and rewarded for successful missions – both large and small.

4.) Intellectual Curiosity:

Intellectual Curiosity is an attribute we have paid increasing attention to as of late as we began our CEO Personality Analytics effort this May (“Personality Analytics: Technology CEOs Analyzed“)

Our experience is that intellectually curious CEOs are never satisfied (that’s not to say they are perpetually dissatisfied). They are relentless about “what comes next?” and “what aren’t we doing that we ought to be?”

  • Intellectually curious CEOs are more likely to solicit feedback from direct reports.
  • They are motivated to find the truth, not to have their opinions validated.
  • Intellectually curious CEOs are more likely to consider and deploy creative strategies and tactics to deliver customer value.
  • They view obstacles as opportunities rather than impediments.
  • Intellectually curious CEOs create “adaptable” cultures capable of flexing their business model as customer dynamics and competitive landscapes change.

5.) Long-Term-Oriented:

We consider long-term to mean 10 years or more. Similar to the “time value of money” principle where investment decisions made today can have an enormous impact in the out years, capital allocation decisions made today can impact a given company’s competitive positioning and operations in significant and unimaginable ways 10-20 years in the future.

  • Amazon (AMZN): As recently as a few short years ago analysts beat up Amazon for re-investing profits when AMZN appeared to be close to achieving operating profit break-even. Those investments made over a 24-year period (primarily in physical distribution) have paid off handsomely, enabling Amazon to offer same-day delivery service for a mind-boggling number of products. A competitive “moat” if I’ve ever seen one.
  • SS&C Technologies (SSNC): Founder, CEO Bill Stone and his team have taken a measured, strategic approach over the years to augmenting the “core” business with a series of reasonably valued strategic acquisitions. This strategic approach has enabled the company to build the deepest and broadest product and services portfolio across the financial services industry in non-discretionary product areas such as portfolio accounting. Early in the company’s life-cycle certain acquisitions may have seemed somewhat inconsequential. However, 30-plus years and $13 Billion of market cap later the company is the leading Financial Technology provider with solutions that address back, middle and front office workflows across the Financial Services industry.

6.) Trustworthy:

No love without trust. One could also use the word “transparent” to describe a CEO that exhibits consistent behavior whether engaging with a senior executive, a front-line staffer or a customer. We opted for the word “trustworthy” because at the end of the day employees typically describe their CEO as someone they “trust” or don’t trust.

Why is it important for CEOs to be trustworthy? If employees don’t believe you “have their back” – they are less likely to break theirs – for you or for the company.

Communication Breakdown

 

 

Centralized Operating Models Don’t Work. Even for The Narcissist CEO.

Centralized Operating Models Don’t Work. Even for The Narcissist CEO.

To Centralize is to Oppress

This article focuses on centralized business models and why they don’t work. Ben is our anti-hero who learns this lesson the hard way.

We Detest Centralized Business Models for Several Reasons:

1.) The centralized model assumes that corporate headquarters knows best.

Could there be a more arrogant assumption? For any company of size (let’s say $500 million of revenue and greater) – especially those with multiple business units – how could the remote C-Suite possibly know what is best for customers, product managers, product designers, engineers, customer service reps..?  Answer: it doesn’t. The men and women who eat, sleep and drink their business 24x7x365 know best.

2.) The myth that centralized models are more efficient and productive.

Sure, just like the federal government is efficient and productive. Let’s run an experiment.

Scenario 1 – Decentralized Model:

  • Peter, Head of Robotics Sales, reports exclusively to Amy, GM of the Robotics business unit.
  • Donna, Head of Cloud Services Sales, reports exclusively to James, GM of Cloud Services.
  • Richard, Head of Enterprise Software Sales, reports to Lisa, GM of Enterprise Software.

Scenario 2 – Centralized Model:

Meet Ben, Tyrell Corp. CEO. Advocate for Centralized operating models.

Tyrell Corp’s new CEO – Ben – decides he wants to reorganize the company in an effort to boost operating efficiency. Rather than hold his GMs accountable and raise performance expectations, Ben decides one day while riding his stationary bike (complete with VR headset), that centralization is the silver bullet that will lead Tyrell to glory. Heck, it worked at ACME Command & Control where he was CEO until the Board ousted him.  “ACME’s demise wasn’t my fault” Ben told himself.  How could he know that within a year of reorganizing ACME around a centralized operating model all of ACME’s best people would leave? Surely this was an unfortunate coincidence.

Once implemented, Ben has no doubt that Tyrell Corp. will be well on its way to having best-in-class revenue growth, EBITDA margins and a soaring stock price. Surely CNBC, Bloomberg and Fox Business will want Ben to participate in the media car wash of meaningless 7-minute interviews to tell the world how he did it. Ahhh, Ben will have his day in the sun with a sizable equity grant on the other side.

  • Under this new centralized operating structure, Peter is the Head of Sales for all three business units and reports to Ben. Only, there are no longer three distinct business units. Boundaries, the corporate reporting structure, responsibility and accountability are either amorphous or non-existent.
  • Donna and Richard are no longer with Tyrell as their positions were eliminated. Peter is smart, energetic and has a promising future thinks Ben. If he dedicates himself Peter will undoubtedly generate superior Sales performance compared to Donna and Richard. “After all, how valuable could Richard’s 12 years of Enterprise Software experience be? He was expensive. So what if Donna helped launch AWS (as one of its original employees). Nobody understands the cloud anyway. She was expensive overhead as well.” Ben tells himself.
  • Amy, James and Lisa are also gone. “Who needed three GMs? They were glorified, overpaid administrators” Ben complains to his wife Confida.

Ben contemplates recruiting his former ACME colleague Marcel to Tyrell to fill a president or COO role Ben is thinking of creating. The rationale for recruiting Marcel was two-fold:

  • One, Marcel likes to get his hands dirty in the operation. “The Devil is in the details”, “Communication is critical” “I’d love to meet for a drink but I’m flying to Omaha to check on the new widget line”… Marcel enjoyed doing the things that Ben didn’t care to do. All of the little things that employees and customers appreciated but that weren’t terribly sexy, that didn’t lead to glossy puff pieces in Fortune magazine.
  • However, the real reason Ben wanted to recruit Marcel – although he didn’t want to admit it to himself – was because what if the centralized strategy were to take a bit longer than anticipated? What if the unthinkable were to happen and the strategy ultimately failed? What if it was ACME all over again? “Marcel could take the fall” Ben thought to himself. He had a contingency plan for everything. Ben grabbed his phone and made haste for the elevator. The Vanity Fair party was about to start. It would be a great photo op, especially now that his hair transplant had filled in nicely.
Tyrell Corp.
3.) Centralized models lack accountability:
  • Who reports to whom is never clear in a centralized model.
  • Who to reward is never clear in a centralized model.
  • Who to hold accountable is never clear in a centralized model.
Aftermath

Needless to say things didn’t work according to plan for Ben.

Marcel did join Tyrell, but left three quarters later when the significantly larger Wallace Corp. recruited Marcel for the newly opened CEO post. Wallace’s Board had recently removed its CEO who had deployed a centralized strategy similar to Tyrell’s. After 12 consecutive quarters of deteriorating results the Board had enough. Marcel implemented a decentralized operating model at Wallace. Sales flourished. EBITDA margins even more so. Customer NPS scores were through the roof. Two years later Wallace used one quarter’s free cash flow to acquire floundering Tyrell Corp. Wallace also had Robotics, Enterprise Software and Cloud Services divisions. Post acquisition close, Tyrell was absorbed into those divisions.

Coincidentally, Donna, Richard, Amy, James and Lisa were all now thriving at Wallace Corp. Even Peter bailed ship on Ben. Although rather than jump to Wallace he decided to form a new company – Omni Consumer Products – which would one day spin out Cyberdyne Systems and the vaunted Skynet AI.

Wallace Corp Towers (Tyrell Corp. in foreground)
Disruption – It’s the Punch You Don’t See that Hurts

Disruption – It’s the Punch You Don’t See that Hurts

Disruption Rarely Announces Its Arrival

Ask Curtis Stevens – the gentleman who was knocked on his posterior by Gennady Golovkin in our header image – if he saw the punches coming.  Ask former Microsoft CEO Steve Ballmer if back in the early 2000’s he knew SaaS/cloud-based service delivery models would dominate the software landscape.  Ask any of the Auto industry CEOs if they thought Tesla and EVs were here to stay 15 years ago. Ask the former CEOs of Motorola, Nokia and Blackberry (then Research In Motion “RIM”) if they anticipated the touchscreen iPhone. They will all tell you the same thing: it’s the punch you don’t see coming that does the most damage.  We can’t defend against that which we don’t see.

Last week we wrote about the new holographic phone from RED – the RED Hydrogen One – which is essentially a high-end camera that’s capable of making phone calls. The camera seems to be the feature that people care about most in our video and image-obsessed world. So, while Apple is busy enabling mobile payments, deploying facial recognition technology and curating the app store, RED is focused on the feature/functionality we care about most. What does that mean for Apple and the iPhone?

Past as Prologue?

Let’s pop into the TEK2day time machine and see what history suggests:

Microsoft

Microsoft’s former CEO Steve Ballmer is an easy target. What didn’t Microsoft miss? Mobile, the cloud and social media to name several. Perhaps the fact that Microsoft disrupted IBM gave the former a false sense of bravado – that it was the perpetual disruptor, the conqueror, not the disruptee. Perhaps the dominance of Microsoft’s Windows OS in the 90’s led to an air of invincibility. After all, the desktop would always be the dominant form factor – wouldn’t it? I mean, this new iPhone thing just wiped out Nokia, Motorola and Blackberry/RIM overnight, but it’s 2008 and we think the next big thing will be our $15,000 touch screen coffee table:

A hail mary attempt to get into mobile late in the game didn’t work out when Microsoft acquired Nokia under Steve Ballmer.  Satya Nadella, who has worked wonders for MSFT stock, later unwound that deal. Microsoft clearly underestimated the traction that mobile phones and the iPhone in particular would have on its legacy OS business as the mobile OS – particularly iOS and Android – became the dominant mobile platforms.

Microsoft was also famously slow-moving to the cloud after Salesforce.com took itself public in 2004 on the waves of its SaaS/cloud-based service delivery model in the CRM space. Salesforce was quite effective in taking share from legacy on-premise CRM providers including Siebel/Oracle, SAP and yes, Microsoft. Ray Ozzie did his best to push Microsoft into the cloud in the 2005-2010 timeframe but lacked Ballmer’s full support. Here too, Microsoft hadn’t a clue that SaaS/cloud-based platforms would become the dominant service delivery model for most every use case that traditionally had been satisfied by on-premise, behind the firewall applications.

To complete the trifecta, Microsoft famously missed on acquiring Facebook, but took home the bronze medal years later when it acquired enterprise social media platform LinkedIn for $26 billion in June 2016.  We could mention Microsoft’s failed attempt to build/acquire a search business after the company realized that Google was “a thing” (Microsoft offered to pay $46 billion for Yahoo!. Sometimes the best deals are those that you don’t do). To re-hash MSFT’s search trials and tribulations would be cruel however.

One could debate whether Microsoft was 100% blind to the fact or late to the game (or in some cases both) with regards to the above examples. It’s safe to say that early in the cycle Microsoft didn’t fully appreciate the disruptive power of mobile, the cloud, social media and search.

Tesla

Tesla. Need we say more? GM actually got there first with its EV1 which was produced from 1996-1999:

Now, automakers can’t build electric vehicles quickly enough:

Circling back to Apple, while the company may have disrupted the mobile phone industry on that grand day in January 2007…

…its horribly lagging AI (Apple has a Siri problem) and over-engineered (some would say over-priced) iPhone put Apple at risk of being disrupted.

As Al Pacino said in “The Devil’s Advocate” (one of the worst movies ever made), “Don’t ever let ’em see you coming.”

Apple – From Innovator To Fast Follower

Apple – From Innovator To Fast Follower

Apple no longer innovates. Look no further than its cash cow iPhone. Prior to the iPhone’s initial launch in January 2007, Motorola, Blackberry and Nokia ruled the mobile phone universe.

Today, rather than driving innovation, rather than striving to leapfrog the competition, Apple is content to play a feature/functionality cat and mouse game with Samsung, Google and upstarts such as OnePlus.

Heck, serial entrepreneur Jim Jannard, founder of Oakley (eyewear) and RED Cinema (mobile, cinematic high-definition cameras) will be first to market with a holographic phone this August/September when RED launches the RED Hydrogen One. Jannard has deep pockets, but his personal balance sheet of $2-3 Billion doesn’t begin to rival Apple’s $244 Billion cash war chest (including short and long-term marketable securities).

So what gives? Certainly Apple doesn’t have to put itself into financial dire straights in order to truly innovate. Apple’s corporate personality – and its lack of innovation – is related to the risk-averse personality of its non-founder CEO Tim Cook. This is consistent with our thesis that technology founder CEOs are better equipped to drive innovation than are hired CEOs. Technology founder CEOs embrace smart risk, push for perfection and don’t shy away from conflict in the pursuit of excellence. They are motivated to build, not to maintain, to extend market leadership positions, not run with the pack.