Lessons From Open AI: Get Your Structure Right, Confront The Brutal Facts & Compound Execution

26 November 2023 Newsletter

“Be a doer not a talker. You have these people who want to dabble in a wide range of different projects, but are never all in on one. I think that’s bad, because history belongs to the doers.” Sam Altman, Open AI CEO

Hope you’re Thriving!

It’s been a productive week with three workshop days, many meetings and a lot happening — love it!

Of course, whilst I’ve had a lot happening, I’ve had nowhere near as much happening as the team at OpenAI. For this past week at OpenAI, the events have been so tumultuous that business schools will write case studies in the future.

Here are a few significant events this week (which will probably change again when you read this) in the fastest-growing company ever.

* The board fired the CEO (Sam Altman)
* 710/770 employees threatened to quit
* The value of the company risked going from $86 billion to $0 when it looked like Sam Altman and the team would move to Microsoft
* The board that ousted the CEO were all fired
* The CEO was reappointed along with a new board

With that, here are three lessons that we might be able to draw from the remarkable week at Open AI.

Get Your Structure Right

OpenAI is a non-profit. Considering they only came onto the public radar earlier this year and now have around $1.3 billion in revenue, I don’t think many people see them as a public charity.

When you look at the original introduction to OpenAI, from its launch on 11 December 2015;

“OpenAI is a non-profit artificial intelligence research company. Our goal is to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return. Since our research is free from financial obligations, we can better focus on a positive human impact.”

Then, shortly after, they realised that instead of the $1 billion they hoped to raise to fund the non-profit, they only raised $130m.

So they devised a structure whereby the not-for-profit would own a for-profit, which could raise capital. Yet, an organisation has only one balance sheet. It has only one profit per X. It has only one core purpose.

The structure that was established was destined to fail from the outset. Getting alignment from all the people in the business was impossible because the structure wasn’t right. And so the non-profit people on the board were doing non-profit things, and the for-profit people were doing for-profit things. And over time, that lack of alignment became very expensive.

Ask yourself: Is your business aligned around one purpose, one single economic denominator (profit/x) and compounding one balance sheet?

Confront The Brutal Facts

On 11 December 2015, the strategy made sense. The team believed that only a not-for-profit could protect humanity from the risks posed by AI. And it would be expensive, needing $1 billion to fund it.

So, having only raised $130 million, they set up the new entity and raised money. Sure, this wasn’t aligned with the mission and purpose of the organisation, but the team believed it was the right thing to do.

And it worked until it didn’t.

At some point, something happened, and perhaps something felt wrong. Facts started emerging that there were problems that were not going away.

Whatever those facts were, the team did not confront those brutal facts, and they were left to fester and create cultural problems and politics.

Ask yourself:

What is the mechanism that you use to regularly confront the brutal facts?
In our work with teams, we discuss the brutal facts every quarter so that they do not become giant elephants that no one wants to address.

Compound Execution

If you were fired from your company, would 92% of the staff threaten to quit unless you were rehired?

This story is about the board versus the CEO (Sam Altman). But it also might be a story about the thinkers versus the doers.

Please take a look at the tweets (X’s) in the image below from Helen Toner, a board member and Greg Brockman, the co-founder and President of OpenAI, when it was announced that Sam Altman was returning and there was a new board.

Next, have a quick read of this excerpt from a recent interview with Sam Altman.

“Execution is the hard part of the business. It’s the relentless waking up every day and just sort of banging your head against the wall until things work. Everyone thinks they can hire someone to do this — you know, founders always think we’ll hire a CEO, and he or she will manage the operations for the company, and I will get to go off, and I’ll just think about strategy and meet with investors and go to conferences, and it’ll be great.

Obviously, that fails 100% of the time.

The value gets created by compounding execution for years and years and years, and it never gets easier. But this is what you’re signing up for as a founder. Very little of the value gets created by the idea.”

Ask yourself: How consistently do you execute? How many consecutive quarters have you achieved revenue and profit goals?

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Keep Thriving!

Brad Giles

Originally published at https://evolutionpartners.com.au on November 26, 2023.