Some of my unique learnings over the past few months

The purpose this update is to share my learnings and unlearnings, with the expectation that some will be of value to you.

Personal Update:

  • My mentoring program with 1st year Rotman Business School MBA students, for the 2022-2023 school year is underway. Many students in consulting hope to work for McKinsey, Bain, or BCG with a starting salary of over $200,000/yr.
  • Devoting significant effort learning about and be part of the Toronto startup ecosystem, which is global in scope. It is critical to understand how early stage companies are disrupting and destroying traditional established companies.
  • Mentored a startup this past summer at the University of Toronto Department of Engineering – Hatchery.
  • Being an advisor at the Holt Xchange, a global fintech fund and accelerator.
  • Being a member of the Angel One Investor Network, which is a member of Equation Angels.
  • Being a Patient Family Advisor at the Odette Cancer Centre – Sunnybrook Hospital.
  • Continuing my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 16 years family, friends, neighbours, and colleagues have contributed over $251,000. There is a contribution link at the end of this email. So far his year $7,300 has been contributed.
  • Continuing as: Member of the Angel One Investor Network, Advisory Board member at the Shaughnessy Group, and Board Director at Computer Aid Canada.
  • Continuing to share with you, and on my website, some of what I’ve learned with the intent that some of you will find value. The learnings are applicable to any size company, ranging from an early stage startup to large global enterprises.

My biggest learnings in the past three months

  • I don’t know the explanation for the following: the vast major of leaders of businesses that are struggling do not want to understand their potential customers. I keep advising them to talk to their potential customers to understand why customers are not buying and why customers are leaving.  Most leaders refuse to do so. I can’t figure.
  • There has been a fundamental change in the PE (Private Equity) world. In Wave 1, profits were made by cost cutting and financial engineering.  Wave 2 was M&A and operational improvement.  Wave 3 has been underway for the past 5+ years. PE portfolio companies are now threatened by the rapid growth of small firms and startups. The rapid growth is financed by the massive amount of capital available these days.  These growing companies know more about customer problems and needs than the existing companies.  In Wave 3, PE portfolio companies will have to also improve their understanding of customers.
  • Traditional approaches to business transformation, risk management, and governance often exclude the talent required at the board of directors and C-Suite. This is reflected  in the fact that most major changes destroy company value and most companies have poor or moderate performance and disappear within 10 years.
  • The core reason for company failure is talent. Success requires competitively differentiated talent.  It is very hard for most board directors and C-Suite members to recognize and admit that they are the reason for their company failing.
  • I learned the phrase “life style company”. It refers to founders who want to create (or have created) and early stage company that provides an income they are content with – and the founders have no interest in either growing the company or selling the company. As a result, investors avoid these companies, because the investors will never get their money out.  However, I’ve noticed that the boards of directors and C-Suites of many long-established established companies are “life style” leaders.  Often, these companies become prime targets for activist investors or end up disappearing.

 Sharing my learnings

My website (https://koorandassociates.org/) contains my points-of-view regarding key issues and questions regarding value creation and growth in for-profit businesses. Each point-of-view is a brief article designed to enable discussion among founders, owners, shareholders, investors, CEOs, boards of directors, and advisory boards. I do not address not-for-profits, government, or other non-profit oriented organizations.

 Below are links to my website containing: new and revised points-of-view since my last update in July.

Links to my points-of-view artiles:

Traditional business transformation dooms your company to failure

Traditional risk management dooms your company to failure

Traditional corporate governance dooms companies to failure

Why will your company fail?

Society’s trust in corporate leadership and political leadership is low V2

 To support the Geoff Carr Fellowship at  Lupus Ontario

Link to my Geoff Carr Fellowship fundraising page

My annual fundraising campaign for Lupus Ontario is underway

My annual fundraising campaign for Lupus Ontario is underway.  Over the past 16 years, family, friends, neighbours and colleagues have contributed over $251,000.

 Why am I fundraising?

My daughter was diagnosed with lupus in 1996, and I have personally experienced the challenges of this complicated disease.

 How does your donation help improve the lives of people living with lupus?

100% of the funds we raise are being directed towards the $65,000 Lupus Ontario Geoff Carr Fellowship. This Fellowship is offered annually to a qualified doctor to work under supervision at an accredited Lupus Clinic in Ontario.

The Fellowship also provides the recipient opportunities to conduct research in either adult or paediatric lupus, to gain additional in-depth knowledge of diagnosis and treatment options for the disease, and to provide patient care and education.

 For more information and to make a secure financial on-line donation, visit my fundraising page:

https://sna.etapestry.com/fundraiser/LupusOntario/research2022/individual.do?participationRef=12744.0.303532049

Stay safe.  Stay well.

Tom

Traditional business transformation dooms your company to failure.

What is the purpose of this article?

Help shareholders, investors, founders, the board of directors and C-Suite discuss and improve business transformation.

You may download a PDF of this article from: Traditional business transformation dooms your company to failure

What are the critical learnings in this article?

  • Most transformation efforts fail and destroy company value.
  • The failure is due to leadership flaws with the company leadership: the board of directors, CEO, and C-Suite.
  • The leadership has limited understanding of employees and how to gain employee commitment to transformation.

What are some definitions of business transformation?

#1 “Transformation is about improving performance, not just cutting costs. Companies boost the odds of achieving breakthrough results when they simultaneously improve their operating discipline and make portfolio moves that collectively redefine their business.”1

#2 “Transformation spans your entire organization, to address all the changes needed to reach your full ambition.“2

#3 “…rapid, visible, and sustainable step-change improvement in business performance; strengthen their organizations to win in the future; and turn their companies’ upside potential into radical performance gains.” 3

#4 “Business Transformation is the process of fundamentally changing the systems, processes, people and technology across a whole business or business unit, to achieve measurable improvements in efficiency, effectiveness and stakeholder satisfaction. As such, a business transformation project is likely to include any number of change management projects, each focused on an individual process, system, technology, team or department”4

 What is the Oxford Dictionary definition of transformation: “a thorough or dramatic change in form or appearance.

“its landscape has undergone a radical transformation”

Transformation usually fails.

  • Major changes almost always fail. 12% achieve their target; 20% are total failures; 68% diluted the value of the company.5
  • Efforts to recover a poor business (i.e. transformation) typically fail. Fortune 500 (1998-2013). 33% of the companies grew; 35% went bankrupt or were acquired; 32% stalled.  Only 10% of the stalled companies recovered.  Of the recovered companies, 75% returned to the core business and 25% redefined their business model.6
  • Roughly 70% of transformations fail.7
  • More than half of M&A deals destroy value for investors.8

What is one consulting firm’s perspective on why most transformations fail?9

I have paraphrased the comments from the article.  Any misinterpretation is my fault.

  • CEO doesn’t set a sufficiently high aspiration.
  • CEO unable to persuade the C-Suite regarding the need for transformation.
  • CEO and the leadership team doesn’t address skills needed to drive transformation.
  • The organization doesn’t buy in.
  • The organization won’t make the effort to make the change happen.
  • Lack regular performance management discussions.
  • Lack leadership oversight meetings.

Why do I think transformation efforts fail and doom your company to failure?

  • The consulting firm above points out the leadership flaws, especially with the CEO and C-Suite.
  • But where was the board of directors? Did they appoint and retain the right CEO? Did they approve the transformation plan?  Did they monitor the ongoing execution.  Did the have the appropriate skills to make decisions regarding: CEO appointment & retention, transformation plan approval, and monitoring of the transformation plan?
  • The board of directors and C-Suite are excluded from the transformation. The culture, skills, processes, values morals, and ethics of the board of directors and C-Suite do not change.
  • Major change results in major resistance to change.
  • The CEO and C-Suite have not built the urgent need for transformation and ensured that every employee understands and will support major change. g. Telling employees that they need to make major changes in order to increate company profit and C-Suite compensation ensures failure.
  • The board of directors and C-Suite don’t understand the employees and therefore don’t have the understanding necessary to craft a successful transformation plan and communication’s plan. McKinsey research shows that companies who disregard analysis of employee mind-sets never have an extremely successful transformation.10
  • The C-Suite does not have good two-way communications with the company.
  • The transformation does not make the talent and processes changes to ensure that future transformation will not be required. The transformation does not create a company which is continually changing and improving, driven by deep understand of the customers, employees, competition and how the company’s ecosystem is evolving.
  • A continuously successfully evolving company does not need two sets of organizations structure i.e. does not need a Chief Transformation Officer, Transformation Office, and transformation managers/teams throughout the company.
  • The word “Transformation” is usually misused and thus causes confusion. Many large projects are called “Transformation” when all they actually are is a large project.
  • The Transformation is not driven by the future scenarios for customers and the company ecosystem, but is rather focused internally. One major consulting firm (I won’t share the name) states that their approach to transformation is “Start with the balance sheet and then profit and loss statement.”

 What are your next steps?

#1 State the facts as to what is driving your need for transformation:

  • Declining customer and employee satisfaction, declining market share, declining profits, declined return-on-equity, ecosystem pressures, etc.?
  • Passion to increase customer and employee satisfaction, increase market share, increase profits, increase return-equity, position company to succeed in more of the future scenarios, etc.

If all you have is assumptions and opinions, get facts.

#2 Review the purpose of the company.  Survey all employees to assess the alignment of company purpose with personal purpose and to determine their urgent needs and problems.  Also do some employee focus groups and individual interviews.  This process should include the board of directors and C-Suite.

#3 Estimate the impact and degree of change required to your: customer relationships, ecosystem relationships, talent (at all levels), technology, and processes.

#4 Based on the above facts and analysis, assess the degree of resistance to the transformation e.g. if the transformation will result in the termination of employees, why would the current employees support the change?

  • Resistance to change can occur at all levels e.g. will board directors and C-Suite support the company being bought if this results in the directors and C-Suite losing their jobs?

#5 Determine if this transformation is in reality a change which can be planned, executed, and benefits achieved by the existing board of directors, C-Suite, organization talent, and processes.  If not, what needs to change to ensure an ongoing organization can succeed.

#6 Determine if you need an interim Transformation Officer to enable the creation of a future organization which will be constantly evolving i.e. no future need for a Transformation Officer.

Footnotes

1 McKinsey, “The truth about transformation”,

https://www.mckinsey.com/featured-insights/the-truth-about-transformation

2 Bain, “Business Transformation”

https://www.bain.com/consulting-services/transformation

3 Boston Consulting Group, “Business Transformation”

https://www.bcg.com/en-ca/capabilities/business-transformation/overview

4 Change Associates, “What is business transformation?”

https://changeassociates.com/what-is-business-transformation/

5 Patrick Litré, David Michels, Sebastian Walter, Melissa Burke, “Soul searching: true transformations start within” Bain

https://www.bain.com/insights/soul-searching-true-transformations-start-within/

6 David Jacquemont, Dana Maor, Angelika Reich “How to beat the Transformation Odds”, McKinsey

https://www.mckinsey.com/~/media/mckinsey/business%20functions/people%20and%20organizational%20performance/our%20insights/how%20to%20beat%20the%20transformation%20odds/how_to_beat_the_transformation_odds.pdf

 7  Harry Robinson ,“Why do most transformations fail?” McKinsey

https://www.mckinsey.com/capabilities/transformation/our-insights/why-do-most-transformations-fail-a-conversation-with-harry-robinson

8 John Kotter, “Leading Change: Why transformation efforts fail”, John Kotter, Harvard Business Review, January 2007

https://hbr.org/2007/01/leading-change-why-transformation-efforts-fail

9 “Why do most transformations fail? A conversation with Harry Robinson”

https://www.mckinsey.com/capabilities/transformation/our-insights/why-do-most-transformations-fail-a-conversation-with-harry-robinson

10 Scott Keller, Bill Schaninger, “Getting personal about change”, McKinsey Quarterly

https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/getting-personal-about-change

Traditional risk management dooms your company to failure.

What is the purpose of this article?

Help shareholders, investors, founders, the board of directors and C-Suite discuss and improve risk management governance.

You many download a PDF of this article from: Traditional risk management dooms your company to failure

What are the critical learnings in this article?

  • Traditional risk management in many companies does not address some of the fatal risks:
  • The talent in the board of directors and C-Suite.
  • Understanding of the cash paying customer problems and needs.
  • Understanding the company’s ecosystem.1
  • Enabling company growth and value creation.

What are some definitions of risk management?

#1 “Risk management is the process of identifying, assessing and controlling financial, legal, strategic and security risks to an organization’s capital and earnings. These threats, or risks, could stem from a wide variety of sources, including financial uncertainty, legal liabilities, strategic management errors, accidents and natural disasters.” 2

#2 “Dynamic risk management has three core component activities: detecting potential new risks and weaknesses in controls, determining the appetite for risk taking, and deciding on the appropriate risk-management approach” 3

#3 “ERM (Enterprise Risk Management) is a forward-looking management discipline designed to provide board and senior leaders a top-down, strategic perspective of the portfolio of risks they need to proactively manage to achieve business strategy, financial objectives and, as of 2019, corporate purpose.”4

 What are the fatal risks not addressed in many approaches to risk management?

Driving growth and profitability are not highly important risk management goals in companies. McKinsey did a survey of what goals companies had for enterprise risk management.5Two industries were examined. The companies scored goals from1:low to 4:high.

Energy company scores:

  • Drive profitability and growth 1.8
  • Ensure regulatory compliance 2.2
  • Protect value: 3.4

Advanced company scores (high tech and assembly)

  • Drive profitability and growth 1.0
  • Ensure regulatory compliance 4.0
  • Protect value: 2.5

The greatest risk to a company is not having competitively differentiated talent.  It is talent that understands the company’s ecosystem, provides value to key ecosystem members (e.g. cash paying customers and users), creates competitively differentiated solutions, acquires the necessary technology, make decisions, executes decisions, etc.

Many company leaders (board directors and C-Suite) believe that the only talent issues lie deeper in the organization and not with themselves.  Few have asked “Am I the right person”.  I recall a wonderful meeting with a board director who had great self-awareness.  He resigned from a large company board.  He told me why he felt his value to the board had dropped.

The second greatest risk is not understanding the cash paying customers problems and needs, as well as the perceived value of meeting those needs.

The third greatest risk is not understanding the company’s ecosystem5 or even realizing that the company has an ecosystem.

What do I observe about traditional risk management?

  • Traditional risk management is focused on secondary risks, many of which are addressed by management and staff below the C-Suite.
  • The above fatal risks, especially the talent and capabilities with the board of directors and C-Suite, are often not addressed.
  • Companies controlled by hedge funds, private equity, venture capital, and sophistical family office often do address the above fatal risks, especially the talent.

What are your next steps?

  • Determine who is accountable for ensuring the appropriate talent is on the board of directors, along with the necessary processes for: assessment, recruitment, development, and exiting.
  • Determine who is accountable for ensuring there is a shared understanding of customer problems and needs among the board of directors, C-Suite, and the rest of the organization.
  • Determine who is accountable for ensuring there is a shared understanding of customer problems and needs among the board of directors, C-Suite, and the rest of the organization.
  • Determine who is accountable for ensuring that there is a shared understanding of the company’s ecosystem.
  • Assess how the above items drive your company’s short and long-term actions.
  • Identify who is accountable for the improvements and the results of the improvements.

 Footnotes

1 “A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, board of directors, C-Suite, employees, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.” Adapted from Investopedia 2021 Jan 20

 2 IBM Risk Management article – 2022 August 22

https://www.ibm.com/topics/risk-management

3 McKinsey 2022 August 22

https://www.mckinsey.com/business-functions/risk-and-resilience/our-insights/meeting-the-future-dynamic-risk-management-for-uncertain-times

4 Ernst & Young

https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/home-index/ey-alm-pacesetter-research-enterprise-risk-management-2020-2021-full.pdf

5 Enterprise Risk Management Practices: Where’s the evidence? February 2014

https://www.mckinsey.com/business-functions/risk-and-resilience/our-insights/enterprise-risk-management-practices-where-is-the-evidence

Traditional corporate governance dooms companies to failure

What is the purpose of this article?

Enable the board of directors, CEO, C-Suite, founders, investors, and shareholders to discuss the degree to which your company is positioned to fail.

You may download a PDF of this article from:  Traditional corporate governance dooms companies to failure

What is the purpose of this article?

Help shareholders, investors, founders, the board of directors and C-Suite discuss and improve corporate governance.

What are the critical learnings in this article?

Many definitions of governance:

  • Focus on legal requirements and processes rather than the outcomes of governance.
  • Are not clear on what the purpose of governance is and its relationship to the purpose of your company.
  • Are of limited value to successfully growing companies with controlling shareholder(s) or with a unanimous shareholders agreement.

What are some definitions of corporate governance?

#1 “Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community.

Since corporate governance provides the framework for attaining a company’s objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure1

#2 The Globe and Mail Board Games survey of corporate governance produces a score of a company’s governance based on 38 sets of criteria in 4 areas: 2

  • Board Composition
  • Shareholding and compensation
  • Shareholder rights
  • Disclosure

#3 OSFI (Office of the Superintendent of Financial Institutions), the Canadian Federal Government Regulator of Financial Institutions, has published it’s guidelines.  There are 4 major areas:3

  • The Board of Directors
  • Risk Governance
  • The role of the Audit Committee
  • Risk Appetite Framework

#4 Law firms often discuss corporate governance in terms of government laws, regulations, and court rulings.

What are the fatal flaws with many approaches to corporate governance?

  • The focus is on the processes and the degree to which processes are carried out. The impact on profitability and value creation for members of the company’s ecosystem has little or no consideration. Two examples; a) a company could score very highly on the Globe and Mail Board Games, while at the same time losing market share and shrinking profits. b) Facebook has transformed the world and generated enormous profits, while not being a great example of corporate governance.
  • Talent requirements often have little or no consideration in corporate governance. Competitively differentiated talent is the key to the company’s value creation for ecosystem members and for the company’s very survival.  The talent criteria and talent assessment of board directors and the C-Suite often have a limited role in corporate governance.
  • Following all the laws, regulations, and court filings do not result in large numbers of cash paying customers. Many rapidly growing companies are in areas with limited laws etc.  Innovation often is far ahead of government regulation.
  • Corporate governance objectives and practices in a public company with no controlling shareholders are very different from those with a controlling shareholder or in private companies, especially those with unanimous shareholder agreement.

What are your next steps?

  • Define what your company’s current and future success looks likes to the key members of your company’s ecosystem.
  • Outline the urgent problems and needs of your company’s cash paying customers and users.
  • Agree upon the purpose of your company.
  • Agree upon your company’s definition of governance and the purpose of governance.
  • Assess your company components (talent, knowledge, processes, technology) relative to your definition of governance and the purpose of governance. This includes the board of directors and C-Suite.
  • Prepare your plan to improve governance.

Footnotes

1 Investopedia 2022 August 22

https://www.investopedia.com/terms/c/corporategovernance.asp

2 Globe and Mail Board Games – 2022 August 222

https://www.theglobeandmail.com/business/careers/management/board-games/article-article-canada-corporate-boards-ranked-2021/

3 Office of the Superintendent of Financial Institutions – Corporate Governance – Sound Business and Financial Practices – September 2018

https://www.osfi-bsif.gc.ca/eng/docs/cg_guideline.pdf

What further reading should you do?

  • What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

  • What is corporate governance?

https://koorandassociates.org/corporate-governance/what-is-corporate-governance/

  • What are the decision making challenges faced by directors?

https://koorandassociates.org/corporate-governance/what-are-the-decision-making-challenges-faced-by-directors/

  • How can the board of directors create value?

https://koorandassociates.org/corporate-governance/how-can-the-board-of-directors-create-value/

Why will your company fail? V2

What is the purpose of this article?

Enable the board of directors, CEO, C-Suite, founders, investors, and shareholders to discuss the degree to which your company is positioned to fail.

You may download a PDF of this article from: Why will you company fail V2

What are the critical learnings in this article?

  • Leadership talent is the reason your company will fail, regardless of the size or stage of your company.
  • Competitively differentiated business success requires competitively differentiated talent.

Most venture-backed start-ups will fail.1

  • Three quarters of venture backed firms in the U.S. don’t return investors capital.
  • 30-40% of high potential start-ups lose all of the investors money.

Leadership is the underlying cause of start-up failure.

The top nine reasons for start-up failures were identified by CB Insights. 2 I’ve shown below my point-of-view as to why leaders and leadership were the root cause.

  • 42% no market need – not obtaining facts as to customers and their needs.
  • 29% ran out of cash – poor management of cash flow and poor reputations with investors.
  • 23% not the right team – unable or unwilling to assemble the right team.
  • 19% get outcompeted – not aware of the competition and customer needs.
  • 18% pricing/cost issues – not aware of customer needs and the competition.
  • 17% poor product – poor ability to design and build a product meeting customer needs.
  • 17% need/lack business model – not understanding that a business model is needed or unable to define one.
  • 14% poor marketing – poor marketing skills.
  • 14% ignore customers – fatal flaw.

Founders are often the cause of start-up failures3

65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income. More than 50% of founders are replaced as CEO by the third round of financing.  In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down. The founder’s passion, confidence and attachment to the start-up is initially a great strength. Founders often refuse to revise their strategy4 and business model underestimate and misjudge the need for additional skills, and make decisions that don’t reflect the current situation.

Narrow focus and too much funding can lead to start-up failure5

“Start-ups often fail because founders and investors neglect to look before they leap, surging forward with plans without taking the time to realize that the base assumption of the business plan is wrong.  They believe they can predict the future, rather than try to create the future with their customer.  Entrepreneurs tend to be single-minded with their strategies – wanting the venture to be all about the technology or all about the sales, without taking time to form a balanced plan.”

“The predominant cause of big failures versus small failures is too much funding. What funding does is cover up all the problems a company has. ….it enables the company and management to focus on things that aren’t important to the company’s success and ignore the things that are important.”

Lack of an advisory board

The above points illustrate the need for an independent advisory board to challenge the thinking of both the CEO and board of directors. Many founders are not willing or able to create and work with a group of challenging advisors.

Most public companies have a short lifespan

Most public companies will not survive.6

  • A Fortune 500 company will survive an average of 16 years.
  • The typical half-life of a North American public company is 10 years.
  • Global public companies with $250 million+ market cap have a typical half-life of 10 years.
  • 50% of all U.S. companies survive for 5 years.

Companies do not recover from crisis.7

  • 20% of companies grow from insurgency to incumbency, but then two-thirds of them stall out and less than 1 in 7 stall-outs recover.
  • At any given moment, 5%-7% of companies are in free fall or about to tip into it. Only10%-15% of companies pull out of free fall.
  • 94% of large company executives site internal dysfunctions as their key barrier to continued profitable growth.

During turbulent times, the number of sinking ship companies increases 89%.8

Leadership is the foundational reason most public companies have a short lifespan

#1 The board of directors is weak.

The board of directors lack the knowledge to make decisions.9 A McKinsey survey of 772 directors revealed a lack of comprehension of their companies. Only 16% said directors strongly understood the dynamics of their industries; 22% said directors were aware of how their firms created value; and 34% said directors fully comprehended their companies’ strategies.

The board of directors lack the background and experience to make strategic decisions. I’ll use a car analogy.

  • Most people learn to drive cars. People join companies and learn to use processes.
  • People have a problem with the car and go to the mechanic. Management runs into problems and brings in consultants/advisor to fix the problems.
  • A small group of people design cars and figure out how to build cars. People join the board with no experience in designing or figuring out how to build a company, yet make decisions regarding who the CEO should be and what strategy to adopt.

#2 Corporate leadership10 is weak

Corporate decisions and actions are not fact-based.

  • Corporate leadership does not talk about reality.11
  • Leadership cannot learn from other organizations.
  • Leadership is focused on internal vision and metrics rather than customer needs and external benchmarks.
  • There is no questioning of strategies and plans.
  • There is no personal accountability.
  • Crisis decisions are driven by liability lawyers and public relations experts.

Corporate leadership does not have three critical sets of facts, and does not believe they need these facts:

  • Who are the target customers?
  • What are the target customers needs?
  • Why are the target customers buying from the company rather than the competition?

COVID-19 has dramatically changed customers’ view of their problems and needs, leading to dramatically changed buying behvaiour.12

Corporate leadership does not understand the difference between risk and uncertainty.13

  • Risk-based decisions are determined by probability determined from analysis of historical facts.
  • With uncertainty, there are no historical facts from which to derive a probability.

The confusion between risk and uncertainty results in leadership believing they are making fact- based analytical decisions when the decisions are actually based on guesses and hopes.

Corporate leadership has poor decision-making behaviours.

  • Good analysis done by good managers with good judgement produces poor strategic decisions.14
  • Only 28% of executives thought good strategic decisions were frequently made. 53% of business improvement is due to the quality of the decision-making process, only 8% is due to the quality and detail of the analysis.
  • The strategic decision-making process is much different form the normal day-to-day decision-making process.

Corporate leadership has five biases resulting in poor decision-making.15

  • Insufficient thought before action.
  • Tendency towards inertia, if uncertain.
  • Misaligned incentives, misunderstanding of strategies and objectives, and emotional attachments to personal perspectives.
  • Preference for harmony over conflict, leading to group think.
  • Recognizing patterns that do not exist.

Companies that have financial success develop behaviours leading to their decline.16

  • Success leads to entitlement and arrogance, believing success will occur no matter what happens.
  • Corporate leadership neglects focus, understanding, and renewal of the root causes of success.
  • “What” replaces “Why” (“We’re successful because we do these specific things.” Replaces “We’re successful because we understand why we do these specific things and under what conditions they would not longer work”. Corporate leadership is no longer inquisitive and learning.
  • Corporate leadership believes success is entirely due to their superior capabilities, and that luck had no role.

#3 The appropriate VME (Values, morals, and ethics) are not understood or agreed upon.

  • Inappropriate VME can result in:
  • Your company losing your social license to operate.
  • Your ability to attract and retain appropriate talent.
  • Reputation damage which impacts sales
  • Legal action by governments and others.
  • etc.

#4 The Corporate Leadership selection and development processes are flawed.

Poor selection of corporate leadership leads to company failures, as shown above.

Executive leadership development programs are also broken.  A survey of more than 500 global executives showed that only 11% strongly agreed their leadership development programs achieved results. What were the program flaws?17

  • Not specific to the companies’ strategic plans and drivers of business performance (e.g. turnaround, multiple M&As, organic growth, etc.).
  • Not organization-wide and not at all levels within the organization.
  • Not using digital learning embedded in day-to-day work flows. Too much use of the old teacher and classroom model.
  • Leaders did not use social media (blogs, video messages, etc.). to communicate with staff.
  • Senior leaders did not act as sponsors, mentors, and coaches.

I do not have facts regarding the effectiveness director development programs, but the degree of business failures would indicate director development programs also have issues.

#5 Missing the appropriate third party support.

  • Corporate leadership does not have the appropriate strategic advisors and coaches.
  • The terms-of-reference for consultants are not aligned with long-term company success.
  • Training programs are not appropriate.

What are your next steps?

  • Assess you company (regardless of size or stage) relative to the reasons for failure outlined above.

What further reading should you do?

“Your company will fail”, koorandassociates.org

“What is the value of a for-profit advisory board?”, koorandassociates.org

“Why are values, morals, and ethics important?”, koorandassociates.org

Elite talent – what is the purpose

https://koorandassociates.org/creating-business-value/elite-talent-what-is-the-purpose/

Ray Dalio, the founder of Bridgewater Associates(hedge fund) describes his business principles in his book:

Principles, by Ray Dalio, 2017

 Footnotes

1 “The venture capital secret : 3 out of 4 start-ups fail”, Deborah Gage, Wall Street Journal Small Business, September 19, 2012  discusses research by Shikhar Ghosh, Harvard Business School

2 “Top 20 reasons start-ups fail”, CB Insights, Oct 7, 2014

3 “The Founder’s Dilemmas”, by Noah Wasserman.

4 Strategy definition: What your successful company will look like in the future. What does future success look like to: customers, shareholders, other stakeholders, third parties, and society? What will be the future business model? What are your facts, assumptions, and scenarios?  An integral part of this strategy definition is: What will be the roles and capabilities of corporate leadership, i.e. board of directors, CEO, advisory board and C-Suite? The CEO and board chair each have a part of the strategy and must co-ordinate their integration.

5 “Why companies fail – and how their founders can bounce back”, Carmen Nobel, Harvard Business School, March 7, 2011

6 “Corporate Longevity”, Credit Suisse, February 7, 2017

7 “The founders mentality”, by Chris Zook and James Allen, 2016

8 https://www.bain.com/insights/the-new-normal-is-a-myth-the-future-wont-be-normal-at-all/

9 “Corporate Boards need a facelift”, Eric Kutcher, (McKinsey Partner) McKinsey website, May 4, 2018

10 Corporate leadership definition: Board of directors, CEO, and C-suite. If there are controlling shareholders, they to are part of the corporate leadership.

11 “Why smart executives fail”, by Sidney Finkelstein

12 https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-great-consumer-shift-ten-charts-that-show-how-us-shopping-behavior-is-changing

13 Adapted from “20/20 foresight: Crafting strategy in uncertain times”, by Hugh Courtney

14 “The case for behavioural strategy”, McKinsey Quarterly, 2010 Number 2

15 “Think again: Why good leaders make bad decisions”, by Sidney Finkelstein, Jo Whitehead, and Andrew Campbell, Harvard Business Review Press, 2009

16 “How the mighty fall”, by Jim Collins

17 “What’s missing in leadership development?”, Claudio Feser, Nicolai Nielson, and Michael Rennie, McKinsey Quarterly, August 2017

https://www.mckinsey.com/featured-insights/leadership/whats-missing-in-leadership-development

Society’s trust in corporate leadership and political leadership is low. V2

What is the purpose of this article?

What are the critical learnings in this article?

  • The majority of people believe government and business leaders purposefully try to mislead people.
  • 40% of the American public believes problems with their social institutions cannot be fixed and to just “let them burn”.
  • Approximately half of young American ages18 to 29 believe that both the Democrats and Republicans care more about serving the interests of the elite rather than those of young Americans.
  • Globally, 64% of people disagreed with the statement “Most elected officials care what people like me think”.

How many people trust CEO, business leaders, and the government?

The 2022  Edelman Global Trust Barometer1 has disturbing statistics:

  • 52% of people agree capitalism as it exists today does more harm than good.
  • 85% of people worry about job loss.
  • 57% experience prejudice or racism.
  • 66% believe government leaders are purposefully trying to mislead people by saying things they know are false or gross exaggeration. 63% feel the same way about business leaders.
  • 42% trust government leaders.
  • 48% believe government is a dividing force in society.
  • 81% believe CEOs should be personally visible when discussing public policy with external stakeholders or work their company has done to benefit society.
  • 60% of employees agree with the statement “When considering a job, I expect the CEO to speak publicly about controversial social and political issues that I care about.”

The 2022  Edelman Canadian Trust Barometer2 show Canada is similar to the rest of the world.

  • 48% of people agree capitalism as it exists today does more harm than good.
  • 34% of Canadians believe they and their families will be better off in 5 years time,
  • 74% of people worry about job loss.
  • 42% experience prejudice or racism.
  • 58% believe government leaders are purposefully trying to mislead people by saying things they know are false or gross exaggeration. 60% feel that way about business leaders. 61% feel that way about journalists and reporters.
  • 43% trust government leaders. 36% trust CEOs.
  • 45% believe government is a dividing force in society.
  • 78% believe CEOs should be personally visible when discussing public policy with external stakeholders or work their company has done to benefit society.
  • 54% of employees agree with the statement “When considering a job, I expect the CEO to speak publicly about controversial social and political issues that I care about”

How many Americans believe that their political institutions should be burned to the ground?

6 surveys done in 2018 by Professors Michael Bang Petersen, Mathias Osmundsen, and Kevin Arceneaux3 revealed:

  • 24% of the American public agreed “society should be burned to the ground”
  • 40% of the American public agreed “we cannot fix the problems in our social institutions we need to tear them down and start over” and “when it comes to our political and social institutions, I cannot help thinking ‘just let them all burn’”.
  • Key findings include: people are so discontent that they do not care about truth; people deliberately share false and hostile rumours on social media with the goal ”to mobilize the audience in pursuit of chaos.”

What are some key findings from Harvard’s Spring 2022 survey of U.S. youth, 18-29 years of age4

  • 49% of young Americans believe that things in the nation are off on the wrong track. 13% say they are heading in the right direction.
  • 39% of young Americans believe the Democratic party cares more about serving the interests of the elite. Only 28% believe the Democratic party is serving the interests of young Americans.
  • 51% of young Americans believe the Republican party cares more about serving the interests of the elite. Only 21% believe the Republican party is serving the interests of young Americans.
  • Among likely young voters, 74% of Democrats and 68% of Republicans saw the other party as a threat to democracy.
  • 59% of young Black Americans believe people of their racial background are under “a lot” of attack.
  • 70% of young Democrats were supportive of political candidates who support teaching K-12 students that racism is a fixture of American laws and institutions. 23% of young Republicans were supportive of those candidates.
  • 52% of young Americans reported feeling ”down, depressed, or hopeless” in the past two weeks.
  • 24% of young Americans reported having thoughts at least several times in the past two weeks that they would be “better off dead” or of “hurting themselves”.

 What are some key findings from the Pew Research Center’s Global Public Opinion survey regarding democracy, published December 7,20215

This report contains findings from several surveys.

  • Does the political system need to be completed reformed? 42% of Americans said yes, and 8% of Canadians.
  • Does the political system need major changes? 43% of Americans said yes, and 39% of Canadians.
  • The political system doesn’t need to be changed. 2% of Americans said yes, and 12% of Canadians.
  • In eight of the 17 countries, roughly half or more of those polled say the political system needs major changes or a complete overhaul andsay they have little or no confidence the system can be changed effectively.
  • Globally, 78% felt representative democracy was a good way to govern their country. 49% believed that having experts make decisions rather than elected officials would be good. 26% felt having strong leader the decisions would be good.
  • The % of people who felt the following was very important to have in the country: a fair judiciary 82%; Regular elections 65%; free speech 64%; press freedom 64% opposition parties can operate freely 54%.
  • 89% – not including the U.S. – say discrimination against groups based on their race or ethnicity is a serious problem in the U.S.
  • Just 17% consider American democracy a good model for other countries to follow. A median of 57% think it used to be a good example but has not been in recent years. About a quarter say the U.S. has never been a good example. The belief that democracy in the U.S. has never been a good model for other nations is especially common among young adults.
  • Median of 64% disagreed with the statement “most elected officials care what people like me think.

My personal observation

  • If people believe their interests are not being looked after by institutions and society, then the sense of frustration can lead to tearing them down. I wonder if politicians, CEOs, and boards of directors understand the long-term implications of their deliberate or accidental actions to destroy the public’s trust in them.
  • The 2021 Jan 6 United States Capital attack and the 2022 February Freedom Convoy in Ottawa, Canada are examples of the outcomes of large parts of the population not trusting their leaders.

What are your next steps?

  • Conduct an anonymous survey of your board of directors, CEO, and C-Suite to learn their perception of: the degree to which others (including their employees) trust them.
  • Survey employees and other members of your company’s ecosystem, learn the degree of trust in the board of directors, CEO, and C-Suite.
  • Determine if your board of directors, CEO, and C-Suite believe it is urgent to improve trust. The question to consider is: “Can your company be successful in the long-term in a society where people don’t trust government leaders, business leaders, or your company leaders?”
  • Think about what actions you and your company can take to improve the trust that the public has in our political and government leaders.

What further reading should you do?

  • Read each of the 5 articles in the footnotes below, to understand further details regarding the lack of trust and the perceived issues with capitalism and democracy.

Footnotes

1 2022 Edelman Trust Barometer – global report

https://www.edelman.com/sites/g/files/aatuss191/files/2022-01/2022%20Edelman%20Trust%20Barometer%20Global%20Report_Final.pdf

2 2022 Edelman Trust Barometer – Canada

https://www.edelman.ca/trust-barometer/2022-edelman-trust-barometer-trust-canada

3 Professors Michael Bang Petersen, Mathias Osmundsen, and Kevin Arceneaux  “A ‘Need for Chaos’ and the Sharing of Hostile Political Rumors in Advanced Democracies”.  In 2019 won the award for best paper in the Political Psychology division of the American Political Science Association.

4  https://iop.harvard.edu/youth-poll/spring-2022-harvard-youth-poll

5 https://www.pewresearch.org/global/2021/12/07/global-public-opinion-in-an-era-of-democratic-anxiety/

My regular update regarding my learnings and unlearnings

The purpose of staying in touch with you is to share my learnings and unlearnings, with the hope that some will be of value to you.

Personal Update:

  • My mentoring program with 1st year Rotman Business School MBA students, for the 2022-2023 school year is in the planning stages. Many students in consulting hope to work for McKinsey, Bain, or BCG with a starting salary of over $200,000/yr.
  • Devoting significant effort learning about and be part of the Toronto startup ecosystem, which is global in scope. It is critical to understand how early stage companies are disrupting and destroying traditional established companies.
  • Mentoring a startup at the University of Toronto Department of Engineering – Hatchery. Helping them think through how to disrupt and transform the world.
  • Being an advisor at the Holt Xchange, a global fintech fund and accelerator.
  • Being a member of the Angel One Investor Network, which is a member of Equation Angels.
  • Being a Patient Family Advisor at the Odette Cancer Centre – Sunnybrook Hospital.
  • Continuing my long-term fundraising for the Geoff Carr Fellowship at Lupus Ontario. Over the past 16 years family, friends, neighbours, and colleagues have contributed over $251,000. There is a contribution link at the end of this update.
  • Continuing to share with you, and on my website, some of what I’ve learned with the intent that some of you will find of value. The learnings are applicable to any size company, ranging from an early stage startup to large global enterprises.

My biggest learnings in the past three months

  • The distribution of people performance follows a power law. The top 1% of workers generate 10 time the output of the average worker.
  • The distribution of company economic profit follows a power law. The top 20% of companies earn 90% of economic profit. 60% of companies earn little economic profit.
  • The best way to determine how someone will perform in a job is a work sample test e.g. assess a potential board director in an observer role for 1 year, prior to putting them forward for election. Years of experience are a poor predictor of job performance.
  • The major of founders of companies which achieved a $1 billion U.S. valuation had less than two years of relevant domain experience.
  • Company leaders may need four types of third party support: Strategic Advisors, Coaches, Consultants, and Trainers.
  • It’s hard for a company to beat competitors who have better board’s of directors and C-Suite executives.
  • Warren Buffet supposedly said “You’re looking for three things, generally, in a person: intelligence, energy, and integrity. And if they don’t have the last one, don’t even bother with the first two.”
  • Successful growing companies and VC funds all agree that: Must focus on customers who believe that they have urgent problems and needs they are willing and able to pay to address. Many companies leaders I meet don’t believe that they don’t need to understand what customers think, feel, and value.
  • Successful startup founders regularly mention that the key to their success was talking to customers on a going basis. Dominic Barton, when he was global managing director of McKinsey, talked with two CEOs (or equivalent) every day.

Sharing my learnings

My website (https://koorandassociates.org/) contains my points-of-view regarding key issues and questions regarding value creation and growth in for-profit businesses. Each point-of-view is a brief article designed to enable discussion among founders, owners, shareholders, investors, CEOs, boards of directors, and advisory boards. I do not address not-for-profits, government, or other non-profit oriented organizations.

 Below are links to my website containing: new and revised points-of-view since my last update in April.

Points-of-view links:

Critical learning from Collision 2022 (North American startup conference for founders and investors

https://koorandassociates.org/creating-business-value/critical-learnings-from-collision-2022/

Elite talent – what is the purpose?

https://koorandassociates.org/creating-business-value/elite-talent-what-is-the-purpose/

Strategic Advisor vs Coach vs Consultant

https://koorandassociates.org/creating-business-value/strategic-advisor-vs-coach-vs-consultant/

Billion dollar startup characteristics

https://koorandassociates.org/creating-business-value/billion-dollar-startup-characteristics/

Why are values, morals, and ethics important? V2

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

How can a private company sell securities in Ontario? V2

https://koorandassociates.org/selling-a-company-or-raising-capital/how-can-a-private-company-sell-securities-in-ontario/

What will be the board and C-Suite talent requirements? V2

https://koorandassociates.org/creating-business-value/what-will-be-the-board-and-c-suite-talent-requirements/

 To support the Geoff Carr Fellowship at  Lupus Ontario

https://sna.etapestry.com/fundraiser/LupusOntario/research2022/individual.do?participationRef=12744.0.303532049

Critical learnings from Collision 2022

What is the purpose of this article?

  • Share my critical learnings from my three day attendance at Collision 2022 in June 2022. Collision was a North American startup conference with 35,000+attendees, ranging from pre-revenue founders to large established companies, and investors ranging from angel investors to multi-billion dollar funds.
  • These learnings may be from a single person or a composite from many people. In many cases, I’m quoting directly.
  • I believe that these learnings apply to any size company.
  • The learnings in this article are only a tiny subset of my 45 pages of notes.

You may download a PDF of this article from: Critical learnings from Collision 2022

What are the critical learnings in this article?

Partners of investment funds said that there is always money available, they are continuing investments in new companies and portfolio companies

  • The key criterion is that companies are solving urgent problems for customers.
  • Companies must cut costs asap if they are: not solving problems for urgent customers, losing customers, spending too much to get customers, targeting customers who provide declining profits, etc.

Don’t spend any money on advertising or scaling your company until you have customers who are crying in happiness because they have your solution. Customers should be coming to you.

You need to be constantly talking to your customers, regardless of what stage your company is at.  You need to ask them what they’re doing in the 15 minutes before and after they use your solution.

Every company is a data company

  • What do you know about your customers and users that no-one else knows?
  • This unique knowledge drives: your solution, the customer/user experience you create, your marketing and sales approach.

What did the CEO do when the business customers’ urgent problems changed, resulting in 60% of customers leaving and CEO terminating 1/3 of the staff?

  • The CEO talked with every business customer to understand their new urgent problems and needs
  • Using this new knowledge, the CEO then changed the solution, the customer support processes, marketing and sales approaches.
  • The result was a hockey stick revenue growth curve.

How did a startup, working from their kitchen table, get their very first sale, to a company with a $15.7 billion market cap?

  • Solve an urgent problem that is causing pain every single day.
  • Enable the customer to get a 10X performance improvement rather than an incremental 30% improvement.
  • Know more than anyone else about the problem, and how the customer can solve it.
  • Build strong internal relationships with the customer.
  • Take extreme accountability for customer results.

I asked one successful founder (well past the startup stage) “What should an investor do if the startup doesn’t want to talk to customers and users? How can the investor persuade the startup?”  The founder had a two word answer” “Don’t invest”.

The early stage CEO advisor compensation must be 100% equity based. The advisor must have faith in the CEO.

The CEO and investor(s) must have a commonly understood set of expectations for each other. Expectations change over time.

  • The CEO must have a job description for the investor.
  • There are major differences among: lead investor vs major investor vs smaller investors to fill-out the round.

How did a startup founder get 450,000 users in 10,000 businesses in two years with zero spending on customer acquisition?

  • Solve an urgent problem.
  • The user can easily understand the value proposition.
  • It’s easy for the user to get value quickly – ideally in 0 (ZERO) seconds.
  • CEO and developers spend 10% of every single day talking to customers and users.
  • Be obsessed with tracking by customer segment: Acquisition, activation, retention, revenue, and referrals.

The fundraising skillset is different from the sales skillset.

One startup raised funds with no product or solution – absolutely nothing. Except, 400 letters from companies stating they’d buy when the solution was available.

Some seed stage VC funds (targeting startups with 2-12 people) are taking a different approach with what is done with the yearly 2% fund compensation fee.

  • The cash going into partner pockets is being reduced with cash being spent on people to support portfolio companies e.g. providing part-time Chief People Officer, having an on call CFO, helping to structure interviews and surveys, helping to put in place customer metrics such as Net Promotor Score. Two such funds are Primary Venture Partners and First Round Capital. These funds believe that spending to maximize the long-term 20% performance compensation results in the startups, investors, and partners all making more money in the long-term.
  • A partner from one of those funds told me one-on-one that investors considering investment into VC funds should ask how the yearly 2% compensation fee is distributed, and how much goes into partner pockets vs helping portfolio companies.

Some startups said investors should provide a flying squad to help portfolio companies. This flying squad should do actual work (e.g. HR) and not just provide advice.

What are my summary observations after over 40 presentations as well as one-on-one discussions?

  • At Collision, successful investment funds and startups of all size talked a lot about customer/user problems, and customers/users getting value from having problems and needs addressed. g. startup founder who got 400 letters from customers wanting to buy, before spending one cent on building/creating a product solution.
  • Prior to Collision, many of the companies I meet, ranging from pre-revenue to long-term established, talk a lot about their solution. Many of the startups I’ve met first build something and then hope to find customers that have a problem their solution addresses.

What are your next steps?

  • Document your process for understanding customers, including facts, analysis, resulting business changes. Have a third party review and challenge you process, facts, analysis, and resulting business changes.
  • The above critical learnings reflect a number of different scenarios. Compare how your company leadership has responded to these scenarios in the past and would respond in the future.

 What further reading should you do?

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

ou may download a PDF of this article from: Elite talent – what is the purpose

What are the critical learnings in this article?

  • Elite talent and elite company performance are rare.
  • Beating the competition requires talent that is better than the competition.

What is the value and need for elite talent?

In today’s competitive business environment, there is unlimited capital for companies that have major competitive differentiation. This requires competitively differentiated talent

What are the characteristics of the elite talent that can create and transform companies?

#1 Leading strategy firm (when hiring MBAs) and global early stage investment funds (when assessing startup founders) are looking for the same type of talent”.

  • Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge. The founders of the majority of unicorns (startups which achieved a $1 billion valuation) had no previous domain experience.1 Roche paid $1.9 billion US for Flatiron Health, a cancer electronic records company.  The Flatiron founders (Nad Turner and Zach Weinberg ) had no background in cancer. They came from advertising. 2
  • Fast and deep analytical skills.
  • Fluid intelligence: the capacity to think speedily and reason flexibly in order to solve new problems without relying on past experience and accumulated knowledge. For example, successful startup founders, identify problems and needs that have not been well addressed before and create solutions that have never existed before
  • Curiosity – the passion to learn about the world around them and not be silo focused. This broader ecosystem knowledge provides a context for their deep ecosystem knowledge.

#2 Early stage investment funds also look for:

  • The drive and ability to deeply understand customers and users – their problems, issues, emotions, and what influences behaviours.
  • Perseverance: passion and energy to overcome all odds and difficulties to achieve goals. For example, Airbnb was short of cash in the early days. To make money they sold Cap’n McCains and Obama O’s cereal during the Obama McCain presidential run.  The following is a link to the current Airbnb site which still contains the original advertising. (https://www.airbnb.ca/obamaos)
  • Values, morals, and integrity: Warren Buffett supposedly said “..looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”

Business performance follows the power law distribution, not a bell curve.

If you want your company to enable your customers to achieve 10 times more value than the competition, some of your key talent must be 10 times better than the competition’s talent.

  • The distribution of company economic profit follows a power law. McKinsey’s study of 2,393 large corporations from 2010 to 2014 showed that the bulk of the economic profit was made bay a small number of companies e.g. the top 20% earned 90% of the total economic profit with the top 2% earning more than the next 8%. 60% of the companies earned little economic profit.3
  • People performance follows a power law distribution, and not a bell curve. Top 1% of workers generate 10 times average output .4
  • Half of all senior hires fail within 18 months.5

How do you recruit elite talent?

  • The best predictor of how someone will perform in a job is a work sample test (29%) 6 For example, when recruiting board directors, they should serve for one year as a board observer, to enable assessing them.
  • The two second best predictors are: are tests of general cognitive ability (26%); 7 and structured interviews (behavioural (tell me about a time) and situational (what would you do if) (26%). 8
  • Four interviews predict whether to hire someone with 86% confidence and each additional interviewer adds 1% confidence. 9 This assumes that you are clear on what value the role provides, the specific characteristics of people who can deliver that value, and do a combination of work sample and structured interviews.

Can your company be competitively differentiated without a competitively differentiated board of directors?

Some people believe that a company can succeed in spite of the board of directors.

What if the board:

  • Appoints the wrong CEO?
  • Has poor decision making regarding major transactions (e.g. M&A), plans, and policies?
  • Demonstrates poor values, morals, and ethics to employees and other members of the companies ecosystem?
  • Etc.

A poor board can certainly impact your company’s success.  However, I have seen cases where an extraordinary CEO has enough influence, persuasion, and guidance to overcome a poor board. I can recall one partner from a major private equity firm saying that with one board seat, he can turn the company around.

What are the implications for your company below the board and C-suite level?

  • With the right processes, technology, and development programs, your average employees can enable your customers to achieve more value than the competition. What’s key is hiring people at all level who have the potential to learn and unlearn.
  • When Google first built their Human Resources team, 1/3 of hires came from traditional HR background, 1/3 from top tier strategy consultants (because good at figuring out problems), 1/3 deeply analytic, with at least a masters degree in analytical fields (physics to organizational psychology).10 Google took the approach building HR practices with ongoing fact-based analysis rather that commonly accepted best practices. Many best practices are actually myths rather than facts.

What are your next steps?

  • Document the past performance of the company, including economic profit, and impact on key ecosystem members such as customers.
  • Outline the future scenarios for your company.
  • Define the required skills, knowledge, experience, networks, values, morals, and ethics required by each board director and C-Suite member to enable success in the future scenarios.
  • Assess your board and C-Suite relative to the above requirements.
  • Assess your competition’s board and C-Suite relative to the above requirements.
  • Identify: improvements to be made to existing directors and C-Suite, members to exit, and members to appoint.

 Footnotes:

1 Ali Tamaseb, Super Founders, New York, New York , Hatchette Book Group, 2021, 49

2 Ibid., 53

3 Bradley, Martin Hirt, and Sven Smit, “Strategy to beat the odds”, McKinsey Quarterly February 2018, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategy-to-beat-the-odds)

4 Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 182

5 Ibid., 294

6 Ibid., 91

7 Ibid., 91

8 Ibid., 91

9 Ibid., 103

10 Ibid., 361

Elite talent – what is the purpose?

What is the purpose of this article?

Enable the investor, founders, board of directors and C-Suite to discuss the role of elite talent in their company’s success.

You may download a PDF of this article from: Elite talent – what is the purpose

What are the critical learnings in this article?

  • Elite talent and elite company performance are rare.
  • Beating the competition requires talent that is better than the competition.

What is the value and need for elite talent?

In today’s competitive business environment, there is unlimited capital for companies that have major competitive differentiation. This requires competitively differentiated talent

What are the characteristics of the elite talent that can create and transform companies?

#1 Leading strategy firm (when hiring MBAs) and global early stage investment funds (when assessing startup founders) are looking for the same type of talent”.

  • Ability to quickly learn and unlearn: paradigms, frameworks, methodologies, data, facts, knowledge. The founders of the majority of unicorns (startups which achieved a $1 billion valuation) had no previous domain experience.1 Roche paid $1.9 billion US for Flatiron Health, a cancer electronic records company.  The Flatiron founders (Nad Turner and Zach Weinberg ) had no background in cancer. They came from advertising. 2
  • Fast and deep analytical skills.
  • Fluid intelligence: the capacity to think speedily and reason flexibly in order to solve new problems without relying on past experience and accumulated knowledge. For example, successful startup founders, identify problems and needs that have not been well addressed before and create solutions that have never existed before
  • Curiosity – the passion to learn about the world around them and not be silo focused. This broader ecosystem knowledge provides a context for their deep ecosystem knowledge.

#2 Early stage investment funds also look for:

  • The drive and ability to deeply understand customers and users – their problems, issues, emotions, and what influences behaviours.
  • Perseverance: passion and energy to overcome all odds and difficulties to achieve goals. For example, Airbnb was short of cash in the early days. To make money they sold Cap’n McCains and Obama O’s cereal during the Obama McCain presidential run.  The following is a link to the current Airbnb site which still contains the original advertising. (https://www.airbnb.ca/obamaos)
  • Values, morals, and integrity: Warren Buffett supposedly said “..looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”

Business performance follows the power law distribution, not a bell curve.

If you want your company to enable your customers to achieve 10 times more value than the competition, some of your key talent must be 10 times better than the competition’s talent.

  • The distribution of company economic profit follows a power law. McKinsey’s study of 2,393 large corporations from 2010 to 2014 showed that the bulk of the economic profit was made bay a small number of companies e.g. the top 20% earned 90% of the total economic profit with the top 2% earning more than the next 8%. 60% of the companies earned little economic profit.3
  • People performance follows a power law distribution, and not a bell curve. Top 1% of workers generate 10 times average output .4
  • Half of all senior hires fail within 18 months.5

How do you recruit elite talent?

  • The best predictor of how someone will perform in a job is a work sample test (29%) 6 For example, when recruiting board directors, they should serve for one year as a board observer, to enable assessing them.
  • The two second best predictors are: are tests of general cognitive ability (26%); 7 and structured interviews (behavioural (tell me about a time) and situational (what would you do if) (26%). 8
  • Four interviews predict whether to hire someone with 86% confidence and each additional interviewer adds 1% confidence. 9 This assumes that you are clear on what value the role provides, the specific characteristics of people who can deliver that value, and do a combination of work sample and structured interviews.

Can your company be competitively differentiated without a competitively differentiated board of directors?

Some people believe that a company can succeed in spite of the board of directors.

What if the board:

  • Appoints the wrong CEO?
  • Has poor decision making regarding major transactions (e.g. M&A), plans, and policies?
  • Demonstrates poor values, morals, and ethics to employees and other members of the companies ecosystem?
  • Etc.

A poor board can certainly impact your company’s success.  However, I have seen cases where an extraordinary CEO has enough influence, persuasion, and guidance to overcome a poor board. I can recall one partner from a major private equity firm saying that with one board seat, he can turn the company around.

What are the implications for your company below the board and C-suite level?

  • With the right processes, technology, and development programs, your average employees can enable your customers to achieve more value than the competition. What’s key is hiring people at all level who have the potential to learn and unlearn.
  • When Google first built their Human Resources team, 1/3 of hires came from traditional HR background, 1/3 from top tier strategy consultants (because good at figuring out problems), 1/3 deeply analytic, with at least a masters degree in analytical fields (physics to organizational psychology).10 Google took the approach building HR practices with ongoing fact-based analysis rather that commonly accepted best practices. Many best practices are actually myths rather than facts.

What are your next steps?

  • Document the past performance of the company, including economic profit, and impact on key ecosystem members such as customers.
  • Outline the future scenarios for your company.
  • Define the required skills, knowledge, experience, networks, values, morals, and ethics required by each board director and C-Suite member to enable success in the future scenarios.
  • Assess your board and C-Suite relative to the above requirements.
  • Assess your competition’s board and C-Suite relative to the above requirements.
  • Identify: improvements to be made to existing directors and C-Suite, members to exit, and members to appoint.

 Footnotes:

1 Ali Tamaseb, Super Founders, New York, New York , Hatchette Book Group, 2021, 49

2 Ibid., 53

3 Bradley, Martin Hirt, and Sven Smit, “Strategy to beat the odds”, McKinsey Quarterly February 2018, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/strategy-to-beat-the-odds)

4 Laszio Bock, Work Rules (New York: Hatchette Book Group, 2015), 182

5 Ibid., 294

6 Ibid., 91

7 Ibid., 91

8 Ibid., 91

9 Ibid., 103

10 Ibid., 361