Published in the San Diego Union-Tribune, February 22, 2021
Ownership and motivation and financing are inextricably linked in any effort to create a significant company, and fitting all the pieces together neatly is as much an art as a science.
Recently, a client came in to prepare for his roadshow to raise some serious money. He was able to tell his company story coherently, he understood his customer, he had a rational grasp of revenue, and a reasonable plan for how much money to raise and a pre-money that was in the game. Then, at the end (most epiphanies come at the end of psychoanalytic sessions, don’t ask me why), I asked him how much of this company he owned personally. Less than 2 percent. Needless to say, there may have been product-market fit, but there was definitely not board/CEO fit. I may need a crowbar to help him pry additional stock from someone’s “cold, dead hands.” (Charlton Heston).
Now consider for a moment the venture capitalist’s concern about fit and financing. They want the CEO to have a significant enough stake to make sure that when they bet on that horse, he doesn’t go out to pasture or end up in a glue factory.
I have another situation in which the majority owner of the common stock can be difficult and stubborn (he does not share that opinion), and there is tension on the board and in the C-suite. They have revenue and a chance, but they are stuck in the “this company isn’t big enough for the two of us” syndrome. I suspect darkness will enshroud them sooner than they wish. Again, the story here is about fit and financing. All investors want stability as well as vision and innovation. If you can’t have “no drama,” at least let’s shoot for collegial disrespect.
What is so hard about playing in a sandbox together, with the simple goal of building a sandcastle, that makes people crazy and destined to destroy what they want to build before they finish building it?
This puzzle leads to one of my favorite venture firms, NFX. One of the partners, Pete Flint, recently sent out some thoughts on the behavior necessary to build a powerful company. He calls it the intersection of being an “insider,” with cognitive entrenchment, a domain expert, and on the other axis, the need to be an “outsider,” which is someone unencumbered by previous assumptions.
That tiny space where those two behaviors intersect in the Venn diagram is the 10X zone, populated by open-minded, world-class founders. Everyone wants to be there, and the question is what thinking will increase your chances.
Flint calls out one theme: “Doubt what you know, be curious about what you don’t, and update your views based on new data.” Flint then goes deeper and brings us the best of the best, Adam Grant and his new book, “Think Again.”
Grant models four founder types — preacher, prosecutor, politician and scientist. If you are a preacher, you are in the mode of proselytizing the truth to the group. Cue up Jim Jones and the Kool-Aid cocktail. This behavior does not leave open any door to questioning, disagreeing or even at a minimum, being curious.
The next type is the prosecutor who wants to prove everyone else wrong. Whatever you say, the prosecutor has a rebuttal. Finally, you give up and confess to being the mass murderer, and on the way back to your cubicle, you consider for just a moment another one that might now be warranted.
The next is the politician. That is someone who gives the audience what they want to hear, even though they don’t really believe it, and then on the way back to their office, they turn around and do something different. No further comment is necessary.
Finally, the scientist. That is the personality type who develops a hypothesis, then does observation and after that, reaches a conclusion. The scientist remains flexible, willing to pivot when new data arrives.
In the end, Grant wants founders to be willing to “adjust your beliefs as the world around you changes.” Elegantly rational. What’s so hard about that?
When you get the answer to that one, I’ll see you in Oslo.
Rule No. 656
“I’m right and you’re wrong.”
— Roald Dahl