In Defense of the Founding CEO
In Part 1, an approach to leadership was presented to guide the founding CEO’s scaling of a company from white board drawing to greatness. At every stage, CEO effectiveness is determined by the ability to crack the right riddle at the right time. As a company scales there are key riddle stages: prove the idea, prove the product, prove the market, prove the business model, prove the vision and prove the industry. The first two stages are characterized by scarcity, demanding of the CEO a leadership style oriented towards control. As a company scales, resources become ample, teams expand, customer counts increase and products diversify. Here, success depends on unleashing the power of the team: the CEO’s leadership style must shift from control to empowerment. As riddles move from deadly simple to numbingly complex, the successful CEO constantly adapts her approach to leadership to ensure she can continuously detect, define, prioritize and crack the right riddles at the right time. Here in Part 2, the focus is on how to crack riddles.
In the quest to crack a riddle, a CEO must consider five key domains:
- Business strategy
- Funding (investment is an act of belief)
- Go-to-market strategy
- Unit economics / financial plan
- Tools / information architecture
- Messaging Schema
- Top / Mid / Bottom Funnel, on to Closed Won
- Launch / Stabilize / Expand
- The visionary-leap hypothesis
- Build / measure / learn
- Workflow Design
- By segment / by product
- Automate where possible, populate where necessary
- Where people: tight process, powerful tools and effective training
- Find / retain talent
- Organize talent: flat, bottoms-up, efficient, flexible and workflow-supporting
- Integrate people, tools and workflows into integrated systems
- Systems are a part of all other domains
- Systems are central to the workings of key functions such as IT, financial, legal and HR
- Systems ensure cross-company collaboration and analysis
The “Q” guides the “Quest” for successful riddle cracking. In this quest, all five domains must be considered. It’s at the intersection of these design domains that the best solutions emerge.
What are your mission, vision, values and strategy?
When Sergey Brin and Larry Page were computer science graduate students at Stanford they designed the page rank algorithm, a superior search methodology. The day they launched, they fulfilled their initial mission — to reinvent and radically improve search. But they quickly adopted a much bolder mission: “to organize the world’s information and make it accessible and useful”. Soon they had begun to define the values that would guide them, particularly as it pertained to delivering objective search results. Company values became encapsulated in the slogan, “Don’t Be Evil”. Their mission and values evolved based on the interaction of their product with customers, the marketplace and employees. I like to say that belief “bent towards truth”, due to the company’s growth from the hypotheses of the founders to real team / product / market experience.
It was initially Google’s strategy to entirely avoid advertising. Brin and Page wanted a clean, entirely objective search experience — unprecedented at the time. Eventually advertising became the core revenue stream, but AdWords ads were kept text-based and consigned to the right rail, with the page dominated by objective search results. This “results objectivity plus design simplicity” approach was a hit, rapidly garnering almost ubiquitous market adoption. Since then, building on ad-supported search, Google’s business strategy has steadily evolved — to today’s constellation of products and services (including their productivity suite, office suite, cloud storage, social and photo sharing, mobile operating systems, and even broadband). But some key things have remained constant since the beginning:
- Search at the core
- Simple design
- Users first
- Engineers first / technology-centric
Google is a good example of how belief bends towards truth. After enough iteration of theory and experience, it solidifies, becoming a reliable foundation for the scaling of an ever-expanding team, strategy and customer base.
Who is your customer?
When Caterina Fake and Stewart Butterfield were down to a couple months of runway in their gaming company “Game Neverending,” they realized they had one final pivot available to them. The game software included a capability for gamers to build, buy and sell virtual items online. They realized that the underlying object sharing software could be redeployed to share photos. Over a weekend, Flickr was born.
What a change in customer: from gamers (skews male) to socially active, photo-sharing users (skews female). In an interview, Fake acknowledged the degree of attention she gave the first Flickr users: she would “spend 24 hours, seven days a week, greeting every single person who came to the site. We introduced them to people, we chatted with them. This is a social product. People are putting things they love — photographs of their whole lives — into it. All these people are your potential evangelists. You need to show those people love.”¹
This maniacal focus on understanding the customer is just what it takes. The question “who is your customer” is simple, but the complete answer takes passionate work. It requires that you deeply understand the customer’s segments, personas, user needs and product usage patterns. Only by deep user-level understanding can you deliver simple product design and resonant brand architecture, value proposition and messaging.
The components of the revenue engine include:
The revenue engine’s purpose is to maximize repeatable, scalable, ROI-positive revenue and profit growth. You drive ROI by maximizing your customer lifetime value (LTV), and minimizing customer acquisition cost (CAC). You drive growth by optimizing your pursuit of prospects, working within CAC boundaries. No matter whether your company is a B2C marketplace or e-commerce site, or a B2B SMB SaaS, or B2B Enterprise SaaS, or something in between — the fundamentals of a well-designed revenue engine are the same.
Revenue generation is achieved through coordinated activity across the enterprise, starting with a clearly defined strategy and resulting in finely tuned acts of customer engagement, day in day out, across the prospect and customer journey. Best practice revenue engines are built as whole systems, bounded by unit economics, with end-to-end workflows and data flows that support and orchestrate customer engagement, tracked by metrics at every step. Every component of a best practice revenue engine is optimized via continuous improvement projects.
As you scale, you move through stages of revenue engine maturity — from a collection of disconnected, hastily designed processes, to redesign of the most broken processes, to whole system workflow redesign, to instrumented measurement of all workflows across the whole system, to a state where all teams actively use data to continuously improve all workflows across the system. By this path, you design and optimize your revenue engine. As you do, you capture value for your investors and team — your just reward for the value you have created.
How do you reward your customer?
Effective product design accomplishes a big jump in the prevailing value curve. This usually starts with a “visionary leap” — the founding team’s eureka insight that inspires the company. Invariably, the visionary leap proves at least somewhat wrong: it doesn’t quite hit the bull’s eye. And so the second key aspect of product design kicks in — the build / measure / learn, iterative optimization slog. The methodology for this was encapsulated well in Eric Ries’ book Lean Startup.² Steve Blank’s book Four Steps to the Epiphany also provides a practical framework.³ This optimization work is essential. It can be slow and tedious, but it’s critical.
Truly great products are simple. And simple is hard. A professor of design once told me that the path to simple goes from simplistic, to complex, to simple — and few make the complete journey. To do so requires a level of caring and quality that demands all a team has to give, sustained relentlessly until you’re done — and you’re never done. This uncommon level of quality commitment must always start with the CEO.
None has done it better than Steve Jobs — across so many things. Jobs’ relentless search for excellence (his unification of cutting-edge technology, flawless performance and breathtaking aesthetics) was unparalleled.
Just consider the Macintosh. The first WYSIWYG experience. The first mouse. The first fonts. On and on and on. I remember sitting in the stands at Stanford Stadium for the 1986 Super Bowl. Suddenly at half time, displayed on the huge stadium screen, was that famous Macintosh commercial — the only time it ever played. A Viking woman crashes into the hall. She’s swinging a Thor-like hammer as she runs past row after row of Big Blue zombies. Caution to the wind, she flies past the startled throng and flings the hammer into the heart of the Big Brother Machine. Kaboom. Finally, the screen dissolves into a simple picture of that first Mac. I still get chills down my spine.
How do you fulfill your promise to your customer?
The revenue engine is a system. So too is product development and management, accounting, control, HR management, cash management and corporate development.
Other systems that support these systems — they are called the ‘systems of systems’:
- Strategic planning
- Data Ops
In optimized systems, workflows are designed to maximize the customer experience and company effectiveness. The ideal workflow is fully automated. Where people are required, great workflows have been thoughtfully designed to simplify and minimize steps. Each step is supported by the right tools and data. The right talent is matched to each task, prepared to successfully execute the task via effective training and incentives.
Aaron Levie at Box has taken this to a whole new level. Box is focused on a variety of enterprise customer segments, differentiated by the number of seats the customer has purchased. Each segment has different levels of support, requiring different workflows. These workflows are automated where possible, tools-supported and efficient where people are necessary. “It’s a machine,” one Box employee told me.
Getting systems right usually requires frontline participation in workflow design. It’s the frontline employee who best understands where workflows work and where they don’t. Get it right. The benefit of tight, efficient workflows is not just a healthier P&L — it’s a happy customer.
What team selection and organization best positions you to scale at every stage?
Smart people design is about finding and keeping the right talent at the right stage, and then organizing that talent into a flat, flexible, efficient, bottoms-up, workflow-supporting system. At a fairly early stage, your organization will begin to differentiate by function. As it does, it becomes important to manage the key power partnerships. There are 10 power partnerships in a company. Tend to these partnerships well, and you build muscle to confront every business challenge.
The first four power partnerships pertain to the primary constituencies the CEO must manage:
- CEO / Employees
- CEO / Customer
- CEO / Board
- CEO / Exec Team
The next six power partnerships are functional:
- Marketing / Sales
- Product / Marketing
- Product / Engineering
- Operations / Sales
- Operations / Finance
- Sales / Finance
Set these partnerships up for success. If the four key CEO partnerships are strong, you have alignment. If the six functional partnerships are healthy, it’s a sure bet the exec team — and the company — will be healthy too.
Key structure and selection decisions can transform a company. Take the example of Microsoft. In the beginning, Microsoft was a custom software development company. Bill Gates, Paul Allen and a small team built the first programming language for the Altair 8800. They did projects for Texas Instruments and Ricoh. But somewhere along the way, with lots of one-off projects and a team of 35 people, they began to hit their capacity. Bill Gates realized that to fulfill his objective to jump into the emerging personal computer marketplace, he’d need to break free of daily operations. So he reached out to his friend from Harvard Steve Ballmer, now working at Proctor and Gamble. Ballmer was brought in to run daily operations, freeing Gates and Allen to work on new technology and business development.
This move was pivotal. Gates successfully pursued a contract with IBM to build their PC. Gates and Allen were able to be intimately involved in the PC’s development, working side by side with the IBM team. MS-DOS became the operating system, and Gates successfully negotiated the right to sell MS-DOS to other PC manufacturers. The IBM PC came to dominate the exploding PC market, other PC manufacturers adopted MS-DOS, and the rest is history — all because of an organization design decision that freed two key players to do big new things. To this day, Microsoft limits work groups to 35 people.
And so we have issued a call to arms. Founding CEOs, take up your armor: this model’s for you. If you are so fortunate as to have created a product and a company that resonates in a large enough market, then you possess a ticket to greatness. Don’t lose it: become a riddle cracker.
Remember that you earn the right to the helm every single day by the effectiveness of your leadership. Each stage of growth demands something new. Bring the right thinking style to each stage. Understand the shift in leadership requirements demanded by each stage. Know how to detect, define and prioritize riddles. Then solve them via the proper selection of tools from the solution toolkit.
This is the riddle cracker’s model. Founding CEOs, take note and thrive.
- Stewart Butterfield and Caterina Fake, “How We Did It: Stewart Butterfield and Caterina Fake, Co-Founders, Flickr,” Inc.com, December 1, 2006, https://www.inc.com/magazine/20061201/hidi-butterfield-fake.html.
- Eric Ries, The Lean Startup, (New York: Viking, 2011).
- Steve Blank, The Four Steps to the Epiphany: Successful Strategies for Products that Win, 2nd ed.(K&S Ranch, 2013).