Innovate, Adapt, or Die

Innovation“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you lead them, and how much you get it.

This quotation from S. Jobs was floating through my mind as I perused the enjoyable read of the recently published “Adventures in Innovation: Inside the Rise and Fall of Nortel” by John Tyson. The book is a fascinating personal account by one of the key R&D executives who has been there for most of the ride since 1966 until 2001, almost the end. There are many facets to his story but at the heart of it is one of universal interest to anyone in the high-tech community: the eternal tension between creativity and innovation on one hand, and the need to maximize revenue and profits.

It does not matter whether you are a start-up or a billion dollar company. All for-profit organizations powered by innovation experience this built-in tension. There is nothing wrong with it, quite the opposite. Its existence is healthy and helps to right the ship as it sails through turbulent waters of the forever changing business seas – as long as it is constructive, kept in balance and supported by the trust and mutual respect of the members of the crew.

This tension, between, as Tyson calls it, “pinstriped executives driving sales and white-coated lab engineers pursuing ideas for products a decade away”, is not difficult to maintain in balance as long as both camps talk to each other and the top leadership listens. But it is easy to stop listening as sales grow through the roof, the stock price is exploding and you are in the midst of a wild binge of acquisitions and hiring waves.

Putting R&D spending under the control of the operating businesses focused on immediate products and profits carries a huge risk that research will become just another cost, rather than an investment in the future. In the battle between the operating, money-making arm of the organization and the R&D operation, the scales are tipped towards the former. At the end it will win this unless there is a strong structural protective cocoon around R&D and the enlightened top leadership which does not waiver. Arguably, Nortel collapsed because the conversation stopped  between the two camps.

In one of his recalled stories, Tyson asks Scrivener, Nortel’s CEO at the time, about managing business strategy and tactics. It is instructive, that as CEO he owned the strategy and the vision, and considered the operating and marketing plans to be tactical. Consequently he advised aspiring executives to learn to manage the strategy and delegate the tactics. Even more memorable, when asked for his planning horizon, he answered: “10 years.”

Now, this is truly mind-boggling stuff in today’s business environment when very few business leaders have the guts to think that way without quickly giving up to the pressures of short-term expediency. In terms of planning with 10 years horizons, well…, possibly, just possibly the Politburo of China might be able to afford it 🙂 And yet, one feels this inner itch, a tiny voice whispering that he was right and that’s the way to do it…

When a CEO loses it and falls prey to the short-term expediency rather than viewing R&D as long-term investment, that delicate tension balance will break-down and the internal fighting will start over marketing as an expense versus an investment. This leads to a waste of a lot of money, resources, and time. Ultimately, the collapse will be in sight.

Under these circumstances, there is only one more potential saviour: the enlightened, competent Board of Directors which takes seriously its fundamental responsibility to proactively set the strategic direction of the company. However, if the Board allows itself to become too remote from the corporate culture, shielded by executives who consider the directors a necessary evil, it will turn itself into ineffective caretakers as in Nortel’s case towards the end when “Board members were little more than well-meaning, part-time sophisticated  contractors who were well compensated to meet the minimal legal requirements.”

There are many valuable lessons from Nortel’s story – the biggest tragedy in Canadian high-tech – which are worth pondering to help other tech organizations, Blackberry and re-modeled NRC come to mind, avoid snatching defeat from the jaws of victory. After all, “Those who do not learn from history are doomed to repeat it.”

Advertisements

Start-up CEOs Attributes – Hard Lessons

If you were an experienced hang-glider pilot could you fly a Jumbo Jet? Of course, not. Surprisingly though, some folks hesitate when asked: would the reverse be true? Actually, in my younger days I was a glider (motor-less aircraft) sports pilot. It took a lot of professional training and practice to master that skill. Later on, after many years of being away from this sport, I went to a local flying club for refresher flights with an instructor. While spending a day at the airfield I bumped into another trainee, a former F-15 fighter pilot. I was awed: “Gee, it must be a piece of cake for you to fly gliders!” I said. Only it wasn’t. “Hardly anything from flying fighter jets is applicable, I have to un-learn a lot and develop entirely different skills – it really feels awkward.” 

NOTE from Paul: The guest post below is written by Bob Hebert and originally appeared on his site.

I spent time recently with a prominent venture capitalist who has reflected a fair bit on the talent issue in the start-up game.Our discussion focused to the importance of certain attributes for start-up CEOs and how easy it is to misjudge their importance. To this VC, start-ups are like clay of varying grades which, in the hands of talented artisans, sometimes become art of considerable value. The creative process by which that art emerges however is a blend of inspirational, improvisational, experimental and professional activities. The finished product often bears little resemblance to what was envisioned at the outset. The irony of the start-up game is that detailed blueprints get funded while decidedly non-linear alchemy is often where the money is at.

The art of managing start-ups is the ability to feign being in total control while figuring out the company’s technological and market sweet spot (in real-time). This requires the ability to manage stakeholder expectations, implement scalable processes, manage people etc while trying to stay alive on the marketplace autobahn. These are decidedly different skills which organizations nonetheless seek to find in one CEO.

Because execution skills are more linear and easier to evaluate in candidates than the entrepreneurial je ne sais quoi, and because start-ups and their investors are often overly optimistic about the compelling logic of the blueprints they have funded, there is a tendency to skew selection decisions towards execution and scaling skills at the expense of the more entrepreneurial skills required to position the company to be scaled.

The VC spoke of the painful experience of hiring one person who had an impeccable track record of building the Canadian subsidiaries of large US or international tech firms. Because the person had launched these subsidiaries from scratch, she considered herself a ‘start-up’ person. And because several of these firms had become runaway successes, she had the swagger of someone who attributed at least some of that success to herself.

However, as the VC came to realize, this person had never taken raw technology and built a company from it. She had never really contemplated or adapted business models, searched for markets for a new technology or developed ‘go-to-market’ strategies in no-name start-ups. Instead, this person had always been handed technologies with large referenceable accounts in hand, well developed positioning statements, messaging and collateral. Her job was always tactical and full-steam ahead execution. This was a totally different game.

The VC talked of how he has learned that CEOs must be akin to entrepreneurial scientists. They must develop hypotheses, experiment, validate via feedback, adjust, shift and go forward, fast. With so many potential paths before them, they benefit by an entrepreneurial nose that will draw them to where the real opportunity is, and they must move fast while adjusting just as quickly. While company building, execution and scaling are important, without these other abilities the CEO will pick a path and die of starvation on it.

About the Author

Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements.

On the Virtues of Controlling Your Ego

Oh, the pleasures of having your ego tickled! Who is immune to that? I bet even the pope upon election cannot suppress an inner smile from having all those impressive titles bestowed upon himself. However, the trouble with startup founders is that it is so easy to ingratiate yourself with a grandiose feel-good title which often leads to unforeseen difficulties in the future.

I have been recently working with a tech startup founded by a brilliant engineer with a strong research background and interests, who adopted himself a couple of co-founders:  another engineer and a sales guy. For several years they were pursuing a bootstrapped advanced engineering design services business with its usual ups and downs, but were recently ready to turn it into a product-focused venture. As I started to work with the company a number of issues popped up related to the deceptively innocent sins from the early days of company setup.

The use of self-awarded job titles in an early-stage company could be a problem if the real qualifications do not correspond to the scale of the job title. It all starts quite innocently. The newly formed company needs formal management, so the main founder becomes the President & CEO,  a technical expert becomes VP of Engineering and the sales guy naturally becomes the VP of Sales & Marketing. This might be fine if the startup is moving at the speed of Hyperloop and the calibre of folks involved is adequate to the task – but this is rare with early-stage companies.

In this particular case, the individuals involved were all very talented but simply did not have the management or business experience to occupy these positions as the company started to grow. The problems manifested themselves at several levels:

·        Fundraising – the quality of the management team is key in any investment decision, and in this case was not passing scrutiny, but just becoming a major hurdle in raising the sought $2M round

·        Customer relationships – as the company typically had large organizations as its customers, the imbalance  of titles in the intense customer interactions was creating awkward situations when our “VPs” were often dealing either with junior corporate managers or with true senior executives; not good in either case!

·        Internal operations – with the business growth came the increase in staff hiring, HR issues, etc. and it became clear that being a brilliant engineer does not necessarily translate into a “titled” manager

·        Shareholders – having individuals as subordinates, while at the same time being major shareholders, creates tricky problems which could easily de-stabilize the company; reasonable measures and safeguards need to be put in place to protect against catastrophe

It took me, as an appointed company Chairman, quite a while and a lot of tip-toeing and gentle maneuvering to rectify this situation. We ended up re-classifying job titles as CTO, Director of Sales, and, a face-saving, Chief Designer. This created room to bring in more experienced talent to help steer the company. It goes without saying that nobody likes to feel “degraded” and it was not easy on all the fragile egos involved. It all worked out for the better but could have been avoided if only we learned to control our egos!

Take-aways from this post:

·        Members of the Founders team should go easy on the job titles and avoid loftiness incommensurate with experience

·        As a controlling Founder, be careful with the use of fancy titles, in lieu of adequate compensation, as a bait to attract talent  – it could be difficult to undo it

·        Expect and plan to bring along experienced new hires while having org chart room and job titles available

·        Don’t confuse shareholders role with the employment function; build safe guarding measures to protect from interference

%d bloggers like this: