Category Archives: Leadership

10 Questions to Ask Yourself Before Moving into Management

I went looking for a post to help someone decide if they should move into management, but couldn’t find one that I really loved.  These three posts aren’t bad.  Nor is this HBR article.  But since I couldn’t find a post that I thought nails the spirit of the question, I thought I’d write one myself.

So here are the ten questions you should consider before making a move into management.

 1. Do you genuinely care about people?  

Far and away this is the most important question because management is all about people.  If you don’t enjoy working with people, if you don’t enjoy helping people, or if you’d prefer to be left alone to work on tasks or projects, then do not go into management.  If you do not genuinely care about people, then do not go into management.

2. Are you organized?

While a small number of organizational leaders and founders can get away with being unstructured and disorganized, the rest of us in management need to be organized.  If you are naturally disorganized, management will be hard for you — and the people who work for you — because your job is to make the plan and coordinate work on it.

This is why one of my managment interview questions is:  “if I opened up your kitchen cabinets what would I see?”

3.  Are you willing to continuously overcommunicate?

In a world filled with information pollution, constant distractions, and employees who think that they can pay continuous partial attention, you’d be amazed how clearly you need to state things and how often you need to repeat them in order to minimize confusion.  A big part of management is communication, so if you don’t like communicating, aren’t good at it, or don’t relish the idea of deliberately and continuously overcommunicating, then don’t go into management.

4.  Can you say “No” when you need to do?

Everybody loves yes-people managers except, of course, the people who work for them.  While saying yes to the boss and internal customers feels good, you will run your team ragged if you lack the backbone to say no when you need to.  If you can’t say no to a bad idea or offer up reprioritization options when the team is red-lining, then don’t go into management.  Saying no is an important part of the job.

5. Are you conflict averse?

Several decades I read the book Tough-Minded Management:  A Guide for Managers Too Nice for Their Own Good, and it taught me the importance of toughness in management.  Management is a tough job.  You need to layout objectives and hold people accountable for achieving them.  You need to hold peers accountable for delivering on dependencies.  You need to give people feedback that they may not want to hear.  If you’re conflict averse and loathe the idea of doing these things, don’t go into management.  Sadly, conflict averse managers actually generate far more conflict than then non-conflict-averse peers.

6. Do you care more about being liked than being effective?

If you are someone who desperately needs to be liked, then don’t go into management.  Managers need to focus on effectiveness.  The best way to be liked in management is to not care about being liked.  Employees want to be on a winning team that is managed fairly and drives results.  Focus on that and your team will like you.  If you focus on being liked and want to be everyone’s buddy, you will fail as both buddy and manager.

7. Are you willing to let go?  

Everybody knows a micromanager who can’t let go.  Nobody likes working for one.  Good managers aim to specify what needs to be done without detailing precisely how to do it.  Bad managers either over-specify or simply jump in and do it themselves.  This causes two problems:  they anger the employee whose job it was to perform the task and they abdicate their responsibility to manage the team.  If the manager’s doing the employee’s job then whose doing the manager’s?  All too often, no one.

8.  Do you have thick skin?

Managers make mistakes and managers get criticized.  If you can’t handle either, then don’t go into management.  Put differently, how many times in your career have your run into your boss’s office and said, “I just want to thank you for the wonderful job you do managing me.”  For me, that answer is zero.  (I have,  however, years later thanked past managers for putting up with my flaws.)

People generally don’t complement their managers; they criticize them.  You probably have criticized most of yours.  Don’t expect things to be any different once you become the manager.

9.  Do you enjoy teaching and coaching?

A huge positive of management is the joy you get from helping people develop their skills and advance in their careers.  That joy results from your investment in them with teaching and coaching.  Great employees want to be mentored.  If you don’t enjoy teaching and coaching, you’ll be cheating your employees out of learning opportunities and cheating yourself out of a valuable part of the management experience.

10.  Are you willing to lead?

Managers need not just to manage, but to lead.  If stepping up, definining a plan, proposing a solution, or taking an unpopular position scares you, well, part of that is normal, but if you’re not willing to do it anyway, then don’t go into management.  Management requires the courage to lead.  Remember the Peter Drucker quote that differentiates leadership and management.

“Management is doing things right, leadership is doing the right things.”

As a good manager, you’ll need to do both.

The Opportunity Cost of Debating Facts

I read this New York Times editorial this morning, How the Truth Got Hacked, and it reminded me of a situation at work, back when I first joined Host Analytics some four years ago.  This line, in particular, caught my attention:

Imagine the conversation we’d be having if we weren’t debating facts.

Back when I joined Host Analytics, we had an unfortunate but not terribly unusual dysfunction between product management (PM) and Engineering (ENG).  By the time the conflict got to my office, it went something like this:

PM:  “ENG said they’d deliver X, Y, and Z in the next release and now they’re only delivering X and half of Y.  I can’t believe this and what am I going to the customers and analysts who I told that we were delivering …”

ENG:  “PM is always asking us to deliver too much and we never actually committed to deliver all of Y and we certainly didn’t commit to deliver Z.”

(For extra fun, compound this somewhat normal level of dysfunction with American vs. Indian communication style differences –including a quite subtle way of saying “no” – and you’ll see the real picture.)

I quickly found myself in a series of “he said, she said” meetings that were completely unproductive.  “We don’t write down commitments because we’re agile,” was one refrain.  In fact, while I agree that the words “commitment” and “agile” generally don’t belong in the same sentence, we were anything but agile at the time, so I viewed the statement more as a convenient excuse than an expression of true ideological conflict.

But the thing that bugged me the most was that we had endless meetings where we couldn’t even agree on basic facts.  After all, we either had a planning problem, a delivery problem, or both and unless we could establish what we’d actually agreed to deliver, we couldn’t determine where to focus our efforts.  The meetings were a waste of time.  I had no way knowing who said what to whom, we didn’t have great tracking systems, and I had no interest in email forensics to try and figure it out.  Worse yet, it seemed that two people could leave the same meeting not even agreeing on what was decided.

Imagine the conversation we’d be having if we weren’t debating facts.

In the end, it was clear that we needed to overhaul the whole process, but that would take time.  The question was, in the short term, could we do something that would end the unproductive meetings so we take basic facts in evidence and then have a productive debate at the next level?  You know, to try and make some progress on solving our problems?

I created a document called the Release Scorecard and Commitments document that contained two tables, each structured like this.

release-scorecard

At the start of each release, we’d list the major stories that we were trying to include and we’d have Engineering score their confidence in delivering each one of them.  Then, at the end of every release, PM would score how the delivery went, and the team could provide a comment.  Thus, at every post-release roadmap review, we could review how we did on the prior release and agree on priorities for the next one.  Most importantly, when it came to reviewing the prior release, we had a baseline off which we could have productive discussions about what did or did not happen during the cycle.

Suddenly, by taking the basic facts out of question, the meetings changed overnight.  First, they became productive.  Then, after we fully transitioned to agile, they became unnecessary.  In fact, I’ve since repeatedly said that I don’t need the document anymore because it was a band-aid artifact of our pre-agile world.  Nevertheless, the team still likes producing it for the simple clarity it provides in assessing how we do at laying out priorities and then delivering against them.

So, if you find yourself in a series of unproductive, “he said, she said” meetings, learn this lesson:  do something to get basic facts into evidence so you can have a meaningful conversation at the next level.

Because there is a massive opportunity cost when all you do is debate what should be facts.

Win Them Alone, Lose Them Together

It was back in the 1990s, at Versant, when my old (and dearly departed) friend Larry Pulkownik first introduced me to the phrase:

Win Them Alone, Lose Them Together

And its corollary:

Ask for Help at the First Sign of Trouble

Larry told me this rule from the sales perspective:

“Look, if you’re working on a deal and it starts to go south, you need to get everyone involved in working on it.  First, that puts maximum resources on winning the deal and if — despite that effort — you end up losing, you want people saying ‘We lost the Acme deal,’ not ‘You lost the Acme deal.'”

It’s a great rule.  Why?  Because it’s simple, it engages the team on winning, and most of all — it combats what seems to be a natural tendency to hide bad news.  Bad news, like sushi, does not age well.

Twenty years later, and now as CEO, I still love the rule — especially the part about “the first sign of trouble.”  If followed, this eliminates the tendency to go into denial about bad news.

  • Yes, they’re not calling me back when they said they would, but I’m sure it’s no problem.
  • They did say they expected to be in legal now on the original timeline, but I’m sure the process is just delayed.
  • Yes, I know our sponsor seemed to have flipped on us in the last meeting, but I’m sure she was just having a bad day.
  • Well I’m surprised to hear our competitor just met with the CIO because they told us that the CIO wasn’t involved in the decision.
  • While the RFP does appear to have been written by our competitor, that’s probably just coincidence.

These things — all of them — are bad news.  Because many people’s first reaction to bad news is denial, the great thing about the “first sign” rule is that you remove discretion from the equation. We don’t want you to wait until you are sure there is trouble — then it’s probably too late.  We want you to ask for help at the first sign.

The rule doesn’t just apply to sales.  The same principle applies to pretty much everything:

  • Strategic partnerships (e.g., “they’ve gone quiet”)
  • Analyst relations (e.g., “it feels like the agenda is set for enemy A”)
  • Product development (e.g., “I’m worried we’ve badly over-scoped this”)
  • Financing (e.g., “they’re not calling back after the partner meeting”)
  • Recruiting (e.g., “the top candidate seemed to be leaning back”)
  • HR (e.g., “our top salesperson hated the new comp plan”)

I’ll always thank Larry for sharing this nugget of wisdom (and many others) with me, and I’ll always advise every manager I know to follow it.

The Three Golden Rules of Feedback

I was speaking to my executive coach the other day and we had a great discussion of feedback.  I’m going to adapt what she said into some pithy advice for managers on how to give feedback.

Here are the three golden rules of feedback

  • It has to be honest
  • It has to be kind
  • It has to be timely

Honest Feedback

When you give someone feedback it has to be authentic.  It has to be what you really feel.  It can’t be candy coated.  It has to be what you honestly feel about the situation, tempered by the humility that you may not necessary be “right” — or that right and wrong may not even have meaning in a given situation.

Example:  “I felt disrespected when you arrived late at my meeting.”

I provided a concrete situation in which something happened; I am not generalizing or pattern-matching.  I indicated a specific behavior that I observed.  I described the impact on me — how I felt about it (which is fairly incontrovertible) — without trying to speculate why you did it or what you intended.

This form of feedback is called situation-behavior-impact, and it’s a great template for giving honest feedback.

While awesome, it’s quite hard to do and (given how things went when I’ve been trained on it) seems to come naturally to few people.  While I would never claim to be a great SBI feedback-giver, I nevertheless continue to aspire to be one –because it does work.

Always be honest.

Kind Feedback

While not something I’m necessarily known for, I love my coach’s second rule of feedback.  If you’re like me, the honest part of feedback isn’t hard.  Example:

That’s the worst proposal I’ve ever seen.  You never said what you wanted to do, what it would cost, or why we should do it.  Other than omitting the three key elements of a proposal it was great.

(Or, as Larry Ellison was reputed to have often said:  “That’s the stupidest f**king idea I’ve ever heard in my life,” sometimes rather amazingly followed by, “Say it again!”)

While “honest” comes naturally to me, I really like the “kind” principle.  I stand behind the vast majority of feedback I’ve given over the years.  It’s always been honest and usually been accurate.  I’ve been unafraid to put hard issues on the table that other managers were afraid to confront.  I am proud that I have helped people identify and eliminate issues that would have otherwise limited them and/or developed strengths that helped propel them.

But I am equally certain that I could almost always have found a better way of expressing my feedback had I known about and applied the kind principle.

Being kind forces the feedback giver to focus not just on the validity of his/her feedback, but on the appropriate timing and expression of it.  It provides a second, important test — particularly for well-intentioned managers too blunt for their own good.

To be clear, being kind doesn’t mean avoiding hard issues or candy-coating conversations.  It does mean that you should challenge yourself, even during very difficult conversations, to find a way to communicate such that the other person leaves feeling respected and with their dignity intact.

Even the ultimate hard conversation — terminating someone — can be conducted in a way that leaves feeling respected as a person and with their dignity intact.  While many fearful mangers bungle termination into a personal tear-down, it doesn’t have to be that way.

Before a comment-outcry develops, I’m the first to admit that I’m not the King of kind feedback.  I am, however, going to work on it for three reasons:

  • It’s nicer.  I’d like people to want to work for me because of my feedback — not despite it.
  • It’s a challenge — that will make me a better manager.
  • It’s more effective — I can’t tell you how frustrated I get when people spend more time reacting to how I said something than I what I said.

You can generate big distractions and waste hours by giving feedback without adequate consideration for its impact on the recipient.  It’s far more effective to think up front for 30 minutes about both what to say and how to say it than to hastily offer feedback only to spend hours in damage control afterwards, simply working your way back to zero on the relationship — with most of the actual feedback long-forgotten in the process.  It happens.  I’ve been there.

Always be kind.  (Hey, I’m working on it.)

Timely Feedback

The last rule is that feedback needs to be timely.  Feedback, like sushi, does not get better with age.

Timeliness matters for several reasons:

  • Both sides are in a better position to discuss recent events than ancient history.  Memories fade and the best feedback is usually quite specific.
  • Letting feedback get old tends to bottle up anger or dissatisfaction on the part of the giver.  The manager might start treating someone differently — e.g., being curt, assigning core projects to others — without them having any understanding of what’s going on.
  • Delaying feedback often leads to “pattern matching,” where instead of discussing specific situations (e.g., when you were late to my staff meeting on Tuesday) the giver generalizes to patterns (e.g., you are always late to my staff meetings) which wrecks the SBI process and results in factual disputes (e.g., no I’m not) instead of impact discussions (e.g., it made me feel disrespected).

Being timely doesn’t mean delivering a real-time stream of constant criticism.  (I’ve tried that too and it doesn’t work.)  Nor does it mean confronting hot issues immediately when tempers may still be high.  But it does mean giving feedback within a timeframe when memories are still fresh and when the recipient doesn’t feel like “why did you wait so long to tell me this?”

Finally, if you’re going to start giving periodic constructive feedback you better get ready to give a lot more positive feedback if you want to preserve the overall quality of the relationship.  Research shows that the ideal ratio of praise to criticism is 5 to 1.  This applies not only at work, but also at home —lasting marriages have a 5 to 1 ratio of praise to criticism while marriages ending in divorce have a 0.7 to 1 ratio.

I better go buy some flowers on the way home tonight.  I love you guys.

Always be timely.

We’re Not Buddies:  Thoughts on Managers Too Preoccupied with Being Liked

I always cringe when I hear a young parent say something like, “Hey Buddy, don’t forget your toy shovel.”  I feel the same way when I hear managers call subordinates “buddy” or when I see managers who are, in general, too preoccupied with being liked.

One day I wish the toddler would reply:

You are not, in fact, my buddy, but my father.  I will have many buddies over the course of my life and you will not be one of them.  I have but one father and you are it.  If you’ve not checked lately, the roles of ‘father’ and ‘buddy’ are quite different and as my father you have a number of responsibilities that I’m counting on you to fulfill, so let’s please stop muddying up the waters with this ‘buddy’ business before it does irreparable harm to our budding parent/child relationship.

I’d love to see a buddy-dad reply to that one.

Buddy-managers make the same basic mistake as buddy-parents.  They don’t understand their role.  While it might sound nice to be buddies with all your team members, it’s just not possible.

  • Either you are going to be buddies, just one of the guys/gals, and treated as such when it comes to work matters.
  • Or you are going to be an authority figure, someone up the hierarchy and with some power distance as a result.

Hierarchies exist for a reason and love them, curse them, or both – virtually every company today is organized on some variation of a hierarchy.  Buddy-managers abdicate their responsibility to be leader in charge in favor of trying to be everybody’s friend and risk losing their leadership positions as a result.

Just as in sports, your coach is your coach and not your buddy.  Your coach may like you.  Your coach may get to know you really well.  After you’ve left the team you may one day end up buddies with your coach.  But a good coach won’t try to be your buddy and your coach at the same time.  Why?

  • It’s favoritist and ergo divisive – “Joe gets to play infield not because he’s better than I am, but because he’s the coach’s buddy.” Divisiveness can kill the team, so the coach can’t tolerate it – let alone foster it.  Managers should never have favorites or protégés for this reason.  Who’s my favorite salesperson?  The one who sold the most last quarter.  I love that guy or gal.
  • It impedes feedback. You don’t give feedback to someone you see as “a player” and “a buddy” in the same way.  If you’re like most people, you temper the latter.  If a coach does have buddies on the team, this does them a disservice – they don’t get the same level of feedback that everyone else does.  Buddies don’t react the same way to feedback either.  (Think:  “who the heck are you to say …”)
  • It complicates matters of discipline. It’s harder to make your “buddies” run 20 liners than it is to make your “players” do it.  It’s also divisive as the coach will invariably be seen as softer on his buddies when it comes to discipline.
  • It eliminates the healthy bit of fear that exists in every coach/player (and every boss/subordinate) relationship. Am I going to start today?  Will I get to play mid-field or will I be stuck on defense?  Am I going to get picked to work on the exciting new project?

Now, if you are a buddy-manager (or a manager who anoints protégés or has favorites), you have probably managed to convince yourself of the truth of a line of absolute bullshit that goes something like this.

“Yes, I have a favorite, but I’m harder on him/her than everyone else.”

You might believe it.  You might want to believe it.  Believe away.  But I can assure you of one thing:  no one else does.

Don’t have protégés.  Don’t have favorites.  Don’t be buddies with your employees.  I once went so far as to suggest that managers should view employees as AWUs (asexual worker units) which was a bit over the top.  But the spirit wasn’t entirely wrong.  We’re here to do a job and my role is leader.

If you want a friend, as they say in Washington, get a dog.

Manager is simply a different role than buddy.  Don’t try to be both at once.  And don’t try to “switch hats.”  If you’re going to work for a friend (and I have) then during the entire employment period, that person is your boss, not your friend.  Once you stop working for them, you can be friends again.

This is not to say that we shouldn’t be nice, shouldn’t get to know about our employees lives and families, what makes them tick, how to adapt your style to theirs, what motivates them, and their personal and professional goals.  Of course you should do these things.  But don’t confuse why you’re doing them – in order to be a good manager, not to try and make a new buddy.

The saddest part about buddy-managers is they typically fail as both managers and buddies.  I want my employees to like and respect me because I’m driving results that benefit the company, the stock price, and the team’s careers.  Not because I bought four rounds of beers and yacked it up with the team for three hours.  Buddy-managers often end up with dysfunctional teams that fail to drive results.  The lack of results can drive fights that then break up the buddy relationships.

Buddy-managers fail to see that the best way to be liked as a manager is to not try to be.  It’s to do a good job in leading the team and to be a reasonable person while so doing.   Managers who try too hard to be liked often end up not only disliked but not respected, and sometimes even fired.

Whose Team Is It Anyway? The 90 Day Rule.

Say you’re an experienced executive joining a new company.  When you start, you inherit a team of people.

The first thing you must realize is that over time, “the team” will silently transform into “your team.”  Warts and all, you’re going to fully own that team at some point in time.  In the beginning, you might boast about the stars you’ve inherited and gripe about the clowns.  But at some point they’re not your predecessor’s clowns any more. They’re your clowns.  You own them.

The second thing you must realize is how quickly that will occur.  Typically, I’d say it takes about 90 days before the organization — e.g., your boss, your peers — perceives “the team” as “your team.”

That’s not a long time, so you need to use it well.

A key part of any new executive’s job is not just to assess the business situation, but also to assess his or her team.  You may have inherited some great people and some weak ones.  You might have great people who are in the wrong roles.  You may have some great people who are beaten down and need to be uplifted.  You may even have some people who really need to go pursue that career in real estate that they’ve always wanted.

Whether you’ve inherited The Bad News BearsThe A Team (fool), or something in between, you don’t have a lot of time before that team becomes your team.

So, what should you do about it?

  • Invest a lot of your early time in understanding your team.  Their strengths and their weaknesses.  What their internal customers think of them.  What you think of their work.  What coworkers think.  Understand their backgrounds, interview them, and go review their LinkedIn profiles or CVs.
  • Remember that it’s not black and white.  It’s not as simple as “good person” vs. “bad person.”  Oftentimes, it’s about the role — is that person a great product manager who’s over his head in a director role?  Is that person a great customer success person, but she’s currently struggling with a direct sales job?
  • Remember that it’s about the climate.  Maybe the team is a bunch of great people who are just feeling down.  Or maybe they’re good people, on fire and already performing at 98% of their potential.  The climate can turn stars into dogs, and vice versa, so you need to figure out who’s sailing into a headwind and who’s benefiting from a tailwind.
  • Remember that it’s about direction.  If the team executed a bad strategy really well and failed, that’s quite different from executing a great strategy poorly.  To what extent was the team aimed well or aimed poorly in terms of direction?
  • Remember that it’s about personal wants and needs.  Where do your team members want to be in a few years?  Do they see a way to get there from here at your company?  Are they happy with short-term constraints or are they struggling to get out of meetings in time to hit childcare before those draconian fines kick in?

Once you’ve gathered that data, then sit down with your manager, deliver the assessment and make a proposal.  Because after about 90 days it’s not the team any more.  It’s your team.  So you better focus on having the right people sitting the right chairs on day 91.

The CEO Should Be the Most Bullish Person on the Future of the Company

“I am 100% behind my CEOs up until the day I fire them.” — Don Valentine, Sequoia Capital

I’ve always loved that Don Valentine quote although, like many great quotes, it took me a while to really understand it.  In short, it means that the board of directors should either support the CEO or replace them – there is no third option.  There is no board-runs-the-company option.  The CEO runs the company and the board’s only operating duty is to decide who is CEO.

Over time, I developed my own corollary:

“The CEO should be the most bullish person on the future of the company, up until they’re gone.” — Dave Kellogg

Fair weather or foul.  Making plan or missing plan.  Whether a megavendor just introduced a free directly competitive product or whether you just got a patent on a fundamental industry-enabling technology.  Whether the CEO is quite certain things are going to end well or whether they have some serious doubts.  It doesn’t matter.

I’m not saying CEOs should lie to people.  I am saying that no matter the situation they should always be the most bullish person in the room:  whether atop the mountain’s peak or neck-deep in shit, the CEO should always see the stars.  Why?  Because it’s their job.  The CEO’s job is to find the best path forward, period.  Regardless of whether that path looks easy or hard.

I’m not saying that CEOs shouldn’t be 100% realistic in situation assessment when devising their strategies.  While I’m not a huge fan of the book for many reasons, Good to Great produced an awesome rule that captures the spirit exactly in the Stockdale Paradox:  you must confront the brutal facts of your current reality and combine that with an unwavering faith in an eventual positive outcome.

The last thing a CEO wants is a bullishness inversion.  Imagine a scenario where the board felt much better about the future than the CEO.  You can almost hear them saying:  “gosh, I just don’t think Dave believes in the future of the company as much as we do.” That, by the way, is the boardroom equivalent of, “gosh, I think we need to invoke the Don Valentine rule and get a new CEO.”

I decided to write this post when I read the New York Times story on the sale of Good Technology to Blackberry.  While I think it’s a must-read story that makes some important points about unicorns, excess financing, dilution, and the potential divergence of interest between preferred and common stock, I think the story was a bit too hard on the Good Technology CEO and took some cheap shots that reflect a failure to fully understand the situation and the job of the CEO.

Before diving in, let me tell you a true story about the scariest flight I ever had.

I was bound for Paris, departing from SFO.  I was tucked nicely in my window seat, eager to dive into the latest Harvard Business Review.  Just after wheels-up I noticed that we took a steep angle of ascent.  I looked out at the wing and noticed little nozzles that I’d somehow never noticed before, and wondered “what are they for?”  Seconds later there was a loud thud and a big bump and white spray was flying out the nozzles.  “Oh yes,” I remembered, “those nozzles are for dumping the fuel IN AN EMERGENCY.”

Seconds later an absolutely nonchalant, The Right Stuff voice came over the intercom, “Ladies and gentlemen, this is Captain Smith up in the cockpit and we’ve had a little problem with the right engine — which has overheated — so we’re going to take a loop around, dump a bit of fuel, and land back at SFO in a few minutes.”

After an emergency briefing from the flight attendants and adopting the brace position, we had a perfect landing at SFO.

“Ladies and gentlemen, this is Captain Smith again.  You may have noticed the people on tarmac spraying foam on the landing gear.  That’s because we couldn’t thrust-reverse to slow down with only one engine, so we had to work the brakes extra hard and now they’ve overheated as well.  This is just a precautionary measure and we’ll have you at the gate in a few minutes.”

That sounded reasonable until I looked out the window and saw (roughly) this:

Fire_fighters_practice_with_spraying_equipment,_March_1981

“OK,” I think, “so the Captain’s telling me everything’s fine but the guys on the ground won’t come within 50 yards of the plane while wearing a full-body silver flame suit.”  But nevertheless, given the Captain’s calm, I didn’t panic.

I thought it was a great example of professional communications keeping everyone both informed and calm in a critical situation.  Now maybe I’m a bad capitalist, but it never occurred to me to call Schwab while we were circling to buy some put options on UAL stock.

Imagine if the pilot had said:

“The right engine has exploded and we are a roman candle full of fuel that we have nowhere near enough time to dump, but we’ll dump what we can while we circle around, and then we are going to land way, way heavier than you’re supposed to, and I won’t be able to slow us down with the thrust reversers so the brakes are going to catch fire, and if they can put that fire out before any fuel leaks on it, then we’ll all be OK.”

Maybe then I’d have thought to buy those put options.  But maybe three people on the plane would have had heart attacks, too.

The pilot’s duty is to get the aircraft through the situation while informing the passengers in such a way that does not make the situation worse.  Whether the pilot knows the odds of success are 95% or 40%, they’re going to deliver roughly the same message.  The pilot’s job, notably, is not to offer financial advice — no one would posthumously sue the pilot for misrepresentation in saying “we’re going to get through this” when they didn’t and for thus denying passengers the opportunity to sell (or buy puts on) the airline’s stock.

Now, let’s flip back to the Good Technology story.  Look at these excerpts:

At a May company meeting, Ms. Wyatt said the company missed financial projections and addressed an email from a competitor that said Good would soon run out of cash …

At an all-hands company meeting in June, Ms. Wyatt again said Good was spending responsibly. Thanks to the cash from a recent $26 million legal settlement, she added, the company had “a ton of options”

I’d argue she was actually pretty transparent.  She told employees they were missing plan and that were it not for a one-time legal windfall they’d be in cash trouble.  She even gave them idea of the scale.  (A $200M breakeven company spends about $50M/quarter which means they were within about half a quarter, or 6 weeks, of running out of money.)

My question is simple:  what do you want her to say at those meetings?

Well that competitive email does some valid math and there certainly are scenarios where we run out of cash, which means we’ll probably have drastic layoffs.  We’re basically almost out of money now — we got lucky with that windfall from the lawsuit so we’re still able to make payroll.  Boy, the board and I sure feel stupid for declining that buyout offer from CA, but with a bit of luck we might get through this.

What happens then?  The employees start looking for jobs, the best ones find them first, so you start losing your best people — who you need to get out of the situation.  You also start losing deals to the competitor who is spraying FUD on you, which means you will have lower cash collections.  You make the situation worse.

But her job is to get the company through the situation, so if she sends the scarier message and makes the situation worse, then she’s not doing her job.  In addition, because her job is find a way through the maze, she probably genuinely believes that she can get the company to a reasonable outcome — and if she doesn’t believe that then, per my rule, maybe she shouldn’t be running the company.  You want a pilot in the chair who thinks they can land the plane.

This wouldn’t be much of a paradox were it not for the fact that Good was a private company that had an active secondary market in its stock.  This is the problem.  In short, we have a company following private-company communications practices with a public-like market in its stock.

Public companies have precise rules about what gets communicated, when, how and to whom, when it comes to financial information and future guidance.  Public companies have trading windows which prohibit trading the stock during sensitive periods.   Public companies have detailed safe harbor disclaimers when it comes to discussing forward-looking  statements.

Private companies don’t.  Historically they haven’t needed them because historically there were no secondary markets for private company stock.  In the old days, employees exercised options (1) when they left the company, (2) when they wanted to play a (dangerous) ISO buy-and-hold tax strategy that takes a year execute and is thus insensitive to short-term news, and (3) through a same-day sale once the company was public.

But with an active secondary market, employees can decide to either sell (or not sell) shares to a third-party at pretty much any time.  There is a complete dearth of information for buyer and seller in these secondary markets.  Most companies won’t release financial information to either party both because they want it kept private and they don’t want liability for any errors it might contain.  So they trade on rumor and hearsay.

And to think all this has happened as a result of the government trying to protect investors post-bubble and post-Enron with regulations like SOX.  In this case, pretty much the opposite has happened. Remember Ronald Reagan’s quote about the nine scariest words in the English language:  “We’re from the government and we’re here to help.”

If I were common stockholder of Good Technology, I’d be unhappy but not surprised about the outcome — when a company that’s raised $300M sells for $425M, it’s clear that they’ll be at most $125M for the common shareholders and quite possibly less:  if there’s debt to repay, multiple liquidation preferences, or if the preferred stock is participating.  I’d be upset about the board declining the buyout offers from CA and Thoma Bravo — but such mistakes happen all the time (e.g., Yahoo declining the Microsoft offer).

But I wouldn’t be mad at the CEO for being a calm pilot and trying to navigate through a difficult situation without making it worse.  She was doing her job.  Even neck-deep in shit, as she apparently was, she needed to be the most bullish person on the future of the company and find a way to a successful outcome.

Finally, should private companies start adapting internal communications to the new reality of private companies with public-like stock?   Yes, no doubt.

And, in my opinion, in a perfect world, we’d roll back to the days when companies could go public at $30M (as we did at Business Objects) and eliminate a lot of problems created by pushing IPOs out much further out into a company’s lifespan.  For that is the root cause of the problem.

Postscript
Let me help my readers avoid some problems that Good Technology employees faced .  First, remember the dangers of ISO buy-and-hold strategies that many learned that hard way in Bubble 1.0.  Second, if you have stock-related compensation, you should learn the important basics about it by reading a book like Consider Your Options.  Third, you should always get advice from your tax and finance professionals before making any stock option moves.  Finally, remember that I am not offering financial advice and you should go here for a reminder of this and other Kellblog disclaimers.