Published in the San Diego Union-Tribune, May 9, 2022
by Neil Senturia
We all know about the Nigerian prince. He has to get the money to someone immediately, and somehow because of my excellent reputation as a dummy/rube/chucklehead/rollover/financial novice, I got picked. My lucky day.
But lately, my inbox has shown an increase in deals that seem to make little sense. And I am wondering if this is a harbinger of a future financial meltdown. I have a more than passing interest in Ponzi schemes, and the question that is always asked — after the fact — is how could you be so stupid?
Herewith is the latest incarnation, a High Return Non-Fungible Token, called an HRNFT. I will not go into the details, but the magic words are “phenomenally successful, 50 percent annual return, a swap of debt for NFTs, no Federal regulations prohibiting this incredible opportunity, guaranteed returns,” etc. My only question is, what is the address so I can get there with my check before the deal is gone?
But promising outsized financial success is not a crime (might brush up against it, but for now, it still seems to be buyer-beware). And in the startup game, after a discussion of how we are going to change the world, there is always the slide in the deck that has the financials. And it is always the case that the financials go up — not down — resembling the infamous hockey stick of the Stanley Cup. The Wall Street Journal is littered with stories of companies that “pump and dump” with rosy projections, with an optimistic backlog of revenue only to sink back to earth when reality (and the SEC) rears its ugly head. Think SPACs, perhaps.
Now, let me be fair. Every startup/deal tells a tale of success. There are no downward-facing hockey sticks on the powerpoint pitch. But financial projections are different from an aspirational vision. You can’t write the income statement on cotton candy.
So what role does corporate culture play in the double hustle of the entrepreneurial startup game? How does it evolve and what are the unspoken and unwritten norms of behavior? Is it a culture that sends a message about management honesty and integrity with a firm grasp on a commitment to truth and fair dealing? In other words, when does the employee know the company is running a con?
A company’s management style seems to fall on a spectrum of “loose” to “tight” with respect to how they operate. In her book, “Rule Makers, Rule Breakers,” Michele Gelfand says that tight cultures have “little tolerance for deviance,” while in contrast, the “loose culture” is more highly permissive. OK, no cigar for that alone, rather the question should be which culture is more relevant to the creation of innovation and the successful execution of ideas?
Your classic startup with a foosball table is at one end of the spectrum. In contrast, consider a company like Bridgewater Associates where the CEO, Ray Dalio, has created a very buttoned-up, rigorous, principled, take-no-prisoners environment. Twenty-five percent of their employees leave within 18 months. Year after year. But Bridgewater also has one of the highest ratings for investment returns.
Gelfand compares the loose vs. tight cultures as the “difference between a gathering of buttoned-up churchgoers and a barbecue in Bushwick, Brooklyn, on Saturday night.” But which group is better at getting it done?
What she finds is that cultures tend to tighten in the face of threats. Think about the behavior at your company when your team knows that they will run out of money in six months. High focus on high alert. But as the leader do you implement a tighter control or do you continue to support the loose norms even in the face of the looming disaster? And will that looseness be the key to getting the financing or signing the deal?
Gelfand poses the answer as the delicate balance beam problem of “structured looseness” and “flexible tightness.” Here is what I know. Even when failure is highly visible on the horizon, the great leaders and the great performers continue to play the game with flair and abandon and confidence, even though the clock is ticking down. They appear fearless, in the clutch, they stay with the blow and go.
How to infuse that style into your corporate culture — that is the magic trick.
Rule No. 712:
He shoots, he scores.