The Most Powerful Lesson I’ve Ever Learned In Business

How to lead by first principles when everything is at stake

One morning in the depths of the 2001/2002 recession, a decision was looming large at a crucial strategy meeting I had hurriedly called at our offices in Mountain View. It was one of those company defining decisions that come along every so often. And it was clear to all of us in the room that what we decided here would very likely determine whether our startup, Tellme Networks, would live or die.

I turned to one of my team members, a bright Harvard-educated business leader, and asked for his thoughts. He gave a crisp answer on why we should decide in the affirmative. I turned to another team member and asked for her thoughts. She had similar credentials and gave an equally thoughtful explanation of why we should decide in the negative. Two team leaders I respected, each more experienced than I was, were passionate about going in two totally different directions. Everyone turned and looked at me. The pressure was on and my team was divided.

We had been burning cash quickly and Tellme, a service we were well known for that let anyone pick up a phone, say what they wanted and get it (like Siri and Cortana today), was not going to get us to profitability anytime soon. As a result, we focused on selling access to the platform that powered Tellme. We became the world’s first cloud-based speech recognition platform for enterprises and carriers.

After months of hard work and focus we had won accounts like AT&T, Merrill Lynch, American Airlines, and FedEx. But this success inevitably caught the attention of AT&T, our single largest customer and early investor. They decided to compete with us and their executives presented us with an opportunity/ultimatum: license the Tellme platform to AT&T, switch from a cloud model to a software model and focus on the carrier market. They proposed a large upfront payment with an ongoing revenue commitment that would almost certainly swing our startup to profitability.

The decision was stark: finally reach profitability by drastically changing our business model OR double down on a nascent cloud-based business model, lose our largest customer, burn more cash and face a fearsome competitor. Complicating matters further, this was bound to be a deeply controversial situation internally and we risked fracturing our team no matter what we decided.

“You can question my judgement but not my integrity.” — Bill Campbell

There are a variety of ways to make a decision like this. Some leaders, especially founders, use a combination of instinct, passion, and force of personality. Other leaders rely on their sheer intellect, calmly espousing facts and figures that support the direction they think they should go. Still others rely on the power of their position (“I’m CEO so this is what we’re going to do”).

But there’s another way. It was taught to me by Bill Campbell, former CEO of Intuit and legendary coach to Steve Jobs, Larry Page, Ben Horowitz and many other founders. Bill had been coaching me on how to make decisions faster and better. This was a major area I needed to improve on. How could I make a decision when my team members had far more experience than I did (I don’t have a college education and this was my first venture-backed startup), especially when they disagreed with each other? How could I avoid endless debate? How could I break a tie in a credible way? How could I get everyone to support a decision once it was made, even if some didn’t agree with the outcome? How could I avoid my team thinking, “How does Mike know any better than us? He’s never been in this situation before.”

Bill said, “Well, look: I used to tell people, you can question my judgment, but you can’t question my integrity.” He explained that in rare cases you may have to make a judgment call but first you should start by agreeing with your team on what is definitively true about the situation and then let those facts guide your decision.

First principles are a bigger, more powerful force than anyone in the company, including the founders and CEO.

Meanwhile, John Giannandrea, our founding CTO at Tellme (now head of search at Google), had taught me about the power of first principles in science. First principles are not opinions. They are immutable facts, which, once known, can be built upon to enable further discoveries.

John helped me better appreciate what Bill was saying: when faced with a tough decision, seek out the first principles. You can build on each first principle to parse a complex decision into its core elements. If you do this, the right choice often becomes clear to everyone. In a sense, you can let the first principles make the decision for you. First principles are clinical, emotionless and a bigger, more powerful force than anyone in the company, including the founders and CEO.

For this approach to truly work, you as the leader have to act in service to first principles. You have to be totally open to supporting whatever the first principles dictate, no matter how difficult. After all, integrity is all about upholding principles… And principles only matter when they’re hard to keep. It’s not about what you think, what you feel, who gives the most convincing argument, or what your title is. It’s about seeking out and staying true to first principles, especially in the darkest of times.

Ask your team: “What do we know to be true?”

Back in Mountain View with my team, my heart was pounding and I was incredibly uneasy about the building momentum in the room to take the cash, get to profitability, and avoid a potentially catastrophic competitive situation. Abandoning our unique business and becoming yet another software provider to carriers was a huge price to pay for guaranteed profitability. Were we really destined to be a profitable company that nobody really cared about except for a few carriers? Is this what our team signed up for?

Remembering Bill’s advice, I resisted the impulse to argue passionately against the AT&T deal. Instead I asked, as calmly and clinically as I could muster, “What do we know to be true here? For example, can we be both a cloud provider and a software provider?” The answer from the team was swift and unanimous: No, we can’t be both. It would be foolhardy to try and run a cloud service while also trying to be a world class software provider, especially as a startup; we must pick one or risk failing at both. First principle No. 1.

Then I asked, “Assuming we opt to go with this deal, how long will we need to operate our cloud service for our current customers while we build the software for AT&T?” Again the team was quick to answer unanimously: It would likely take two years or more to complete the transition. That would mean being both a cloud service and a software provider for at least two years, an eternity for a startup. See first principle No. 1.

By now bright rays of clarity began to shine in the room. Everyone could sense where this was going. For good measure I asked, “Assuming we elect to compete with AT&T, when could they match our accuracy levels?” (A swing in recognition accuracy of just 1% translates into millions of dollars either spent or saved for enterprises.) Again, the answers came quickly: Even if AT&T could match our software, it would take years more of daily tuning to match our accuracy levels. For the foreseeable future, no customer would be able to financially justify running on AT&T instead of Tellme… not even AT&T. First principle No. 2.

Astonishingly, after 45 minutes of conversation and with only two first principles, we had arrived at the answer to one of the most consequential decisions we had ever faced. Our CEO, whom I had hired a year earlier (I demoted myself to COO but that’s a topic for another post) looked at me and said, “OK, I’ll give AT&T a call and tell them to go pound sand.” The team left the room emboldened and energized. As the years ticked by, AT&T tried and failed to build a competitive service while we continued to rack up win after win. Soon enough a new executive team took hold at AT&T, their competing service was cut, and our partnership grew stronger as they became an even larger, more satisfied customer. I’m proud to say that AT&T is still running on Tellme to this day… try calling 411 from an AT&T phone.

Success is genuine when you stay true to your principles.

So to all you new founders out there, think about Bill’s advice next time you have a critical decision to make with your team. If you seek out and uphold the first principles you will not only make a good decision, you’ll do it in a way which strengthens your team rather than splintering it. Even in the rare case where the decision still doesn’t become obvious and a judgement call must be made, everyone will understand how that call was made and, whether they agree or not, they will be ready to support it.

More importantly, remember this: Years from now, when you look back on your career, and your life, success or failure will matter a lot less than whether you got there by keeping or compromising your principles.