Author: Tom Koor

Tom Koor

Why should a Venture Capitalist invest in you? V2

What is the purpose of this article?

  • Enable founders and investors to discuss and understand some of the VC (Venture Capitalist) investor process in early stage companies.
  • This understanding will help founders create and manage their VC relationship building and two-way communications’ processes.

You can download a PDF of this article from: Why should a Venture Capitalist invest in you V2

What are the critical learnings in this article?

  • A VC is focused on making a large amount of money from an investment, because most investments generate little or no return
  • The VC decision making process has many steps, with variety of criteria at each step.
  • When it’s time to make the final investment decision, the team is the most important factor for the VC.

 What is driving the actions of a VC?

The primary focus of a VC is to make money for the investors in the fund. A secondary focus may be to have a positive impact on society.  The VC likely has a fund. The fund exists for a finite period of time and is expected to produce significant returns to the fund investors (e.g. significantly better than a liquid S&P500 ETF.

  • Often 10 year fund lifetime.
  • First 2-3 years investing in new companies.
  • Most of the capital invested within 5 years
  • Retuning capital to investors in the last 5 years and winding up the fund at the 10 year point.

What is the state of your startup?

  • You already have revenue from your solution. Few VCs invest in pre-revenue companies.  There are exceptions such as new drugs and new technologies (e.g. fusion power).

Why is the VC looking for companies which can return 10 to 100 time the investment? 1

Andreessen Horowitz, a U.S. VC fund with over $10 billion of asset under administration, has public shared their experience.  They receive 3,000 startup applications per year. 200 startups are looked at seriously. 20 startups are funded.  They commented that in the VC industry overall, 8% of investments generate the bulk of the economic return.  The other 92% of investments are a loss or generate little return.

What are the VC questions and decisions leading up to the decision to give you cash?

VCs get many requests for funds (sometimes dozens a day).  VC’s also seek out desirable startups, often using software to create large databases of startup companies.

The foundation for many of the questions is based on:

  • What’s the market size? How did you determine the number of potential cash paying customers who have urgent problems and needs they are willing and able to address?
  • What’s unique about the team? What does the team know that no-one else knows?
  • What’s unique about the solution? How easy is it to copy?

What are the three different routes to get VC funding?

  • Ask them for funding, either via cold call or introduction.
  • The VC reaches out, as a result of you staying in touch if the VC turns your down initially.
  • The VC proactively contacts you. This may occur because: the VC’s software scanning and analysis of the internet has identified your startup, they’ve seen you pitch somewhere, they’ve met you and talked with your for 2-3 minutes,

When you ask VCs for funding, their questions include:

  • Why should they open (rather than immediately delete) your cold call email or introductory email from someone the VC knows?
  • Why should they read any attachments?
  • Why should they have a brief call with you?
  • Why should they have a meeting with you?
  • Why should they start a due diligence process with you?
  • Why should they start to negotiate terms and conditions with you?
  • Why should they decide to give you cash?

Each one of the above questions will have a number of detailed supporting questions and analysis

What are the key VC questions when they decide to not-invest but still ask your startup to stay in touch with them?

These include:

  • Did you email them (or update their database) on the schedule they asked for? (Most commonly monthly.)
  • Did you accomplish in the past month what you said you would, in an earlier update?
  • How much have customer interactions grown, month by month. E.g. number of cash paying customers, number of customers who signed LOI (Letters of intent), how many asked to be emailed once your product is ready, number and type of interactions on your website, number of signups to your newsletter, etc.

The VC will have different decision making criteria at each stage. VC don’t all ask the same questions or have the same process.

What has the VC determined prior to their final investment decision?

  • Prior to the final investment decision, many VC questions will have been answered, especially in the due diligence stage, as noted above.
  • Few startups make it to the point where the VC makes the final decision on whether or not to invest.

 What is the most important factor early stage VCs consider when it is time to decide on whether or not to write the check.

  • 53% of VCs believe the team is the most important factor in making the decision. Fit with the fund was 13% and the solution was 12%.2
  • 64%% of VCs believe the team was the most important factor in their startups’ success3
  • 60%% of VCs believe the team was the most important factor in their startups’ failure4

Why the focus on the team when it comes to the final investment decision?

  • The team needs to be constantly learning and unlearning about customers, their ecosystem, technology, etc.
  • Often the team must change direction as they learn more about their customers and the customers’ problems. E.g. YouTube started out as a dating site and Slack started as a multi-player online game.
  • Incredible grit and perseverance are required.
  • If the team’s initial assumptions about a large target market for their proposed solution prove invalid, a brilliant team will find out what the unmet customer problems are and create an appropriate solution.
  • A poor team will continue to create and sell a solution for which there is little demand.

What are your next steps?

As a founder:

  • Understand the different decision making stage each of your target VCs go through, including the final decision to fund you.
  • Design your VC relationship building and two communications processes to support the variety of target VCs.
  • You’ll need a CRM (Customer Relationship Management System), and two up-to-date data rooms. The external data room will be visible to potential investors.  The internal data room is used by the startup team, and not visible to potential investors.  Some content will be in both data rooms.

Footnotes

1 https://corporatefinanceinstitute.com/resources/knowledge/other/how-vcs-look-at-startups-and-founders/

2 Paul Compers, Harvard Business School, Will Gornall, University of British Columbia Saunder School of Business, Steven N. Kaplan, University of Chicago Booth School of Business, Ilya A. Strebulaev, Graduate School of Business Stanford, “How do venture capitalists make decisions”, April 2017, Page 42  This survey of VC firms included: 63% of all VC US assets under management, 9 f the top 10 VC firms and 38 of the top 50 VC firms.

3  “How do venture capitalists make decisions”, Page 53

4 “How do venture capitalists make decisions”, Page 54

Further reading

Touko Kontro & Ari Seppänen, “How to get your startup funded?”, NewCo  Helsinki, City of Helsinki, https://newcohelsinki.fi/app/uploads/2018/01/Fundingworkshop-2.2-1

Is your early stage startup planning to fail?

https://koorandassociates.org/the-startup-journey/is-your-startup-planning-to-fail/

What does the startup journey look like?

https://koorandassociates.org/the-startup-journey/what-does-the-startup-journey-look-like/

Tom Koor

Massive social and economic turmoil is approaching

I fear that massive social turmoil, accompanied by economic upheaval, is coming in the next decade.  This fear is due to what I heard at the Toronto Global Forum earlier this week.

Panelists described the need for massive government investments in health care, climate change, sustainability, incentives, etc.  But no discussion about where the money will come from and the need to increase taxes. Individuals will also have to make major changes and spend money.

I will summarize what I heard from the leaders about their approach to getting the public to make major changes……tell people it’s important and tell them they must change.  They leaders had no concept that they need to listen to the public, understand their concerns, help the individuals understand the urgent need for personal change. This approach of dictating change will lead to even more social upheaval than COVID.  Our leaders have no idea how to change the behaviour of large groups of people.

There is a science to large scale change of human behaviour.  I’m saddened that our leaders are unable to learn and plan to take the simple approach of dictating change. This will result in massive resistance by the public.

When I got home that evening, I read two articles in the newspaper.  One was about the need to increase defense spending in Canada given the war in Europe and tensions elsewhere.  No mention of increasing taxes.  The other article was about the deterioration of physical infrastructure of Toronto, the  city I live in.  Deterioration is occurring because billions of dollars of maintenance is being deferred into the future.

The public complains and wants more spending but doesn’t want to pay more taxes to correct the problems.

Tom Koor

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

Tom Koor

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

Tom Koor

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

Tom Koor

Billion dollar startup characteristics

What is the purpose of this article?

  • Generate discussion among founders, investors, boards of directors, and C-suite regarding the characteristics of billion dollar startups.
  • Enable the discussion to be fact based rather than base on myths and anecdotes.
  • This discussion should be held whether you are startup or a long established global company.
  • This article refers to three fact based analytical books and reports and includes only a small amount of the enormous collection of factual analysis.
  • This article doesn’t tell you what to do. Just because information is correlated, does not mean there is a cause and effect relationship.

You may download a PDF of this article from: Billion dollar startup characteristics

What are the critical learnings in this article?

  • A billion dollar startup requires a large number of customers who believe: they have urgent problems and needs; are willing and able to pay to address those problems and needs; and that they can obtain better value from your company that the competition.
  • Success depends upon understanding customers better than the competition. This understanding must be fact based using interviews supplemented by survey and analysis of customer actions.

Characteristics of unicorns – startups which achieved over $1 billion U.S. valuation.

Ali Tamaseb studied over 200 unicorns founded between 2008 and 2018.1

What were the founders’ backgrounds?

  • A founder’s age doesn’t correlate strongly with success. Median age was 34. 2
  • The #2 person had an even wider age distribution, from 16 to 76 at time of founding. Founders of health and biotech companies skew older. 3
  • 20% of unicorns had a sole founder. 36% had dual founders, 3 co-founders 28%; 4 co-founders 12% more than 4, 4%. 4

What was the founders’ education?

  • Education: 36% had bachelors; 22% had MBA, 33% had another advanced degree. College dropouts less common than founders with PhDs. 5
  • Of those that went to university: about 35% each went to global top ten vs not in global top 100. About 30% went to global 11 to 100 universities. 6

What was the founders’ work experience?

  • 30% of unicorn founders had only worked for themselves before.7
  • 58% of those who had worked for other companies, (i.e. 70% of all founders), had worked for Tier 1 companies with rigorous hiring processes and reputation for hiring the best. 28% had worked for Tier 2 companies (large and well known). 14% had worked for companies not well known.8
  • Over 50% of founding CEOs and founding CxOs had less that 1 year of relevant industry or work experience. 9
  • 75% of healthcare and biotech founders had directly relevant industry experience; 40% of enterprise technology; and 30% of consumer unicorns. 10
  • What seems to matter was: quickly learning about a new space with unbiased mind, soft skills like building a network, managing a team, hiring and firing, raising money. 11

What was the founders experience with previous startups?

  • 59% of unicorn founders had been a previous founder, sometimes successful, sometimes not. 12
  • Those who had run a company before, experience ranged from a year to 27 years. Most common was 2-3 years (about 25%), about 54% were up to 5 years experience. 13

How severe and urgent were the customers needs and problems?

  • Two approaches: Pain killer (well defined and deeply annoying pain point) or vitamin (customers get better value, efficiency, entertainment or joy) 14
  • 68% of unicorns were pain killers. 15
  • Close to 40% of unicorns address productivity; about 20% address saving time; 11%-15% each are: convenience, entertainment, health. Safety and security are around 2-5% 16
  • Close to 50% of unicorns were system integration (bringing together existing technology. Value add comes from unique business model or marketing strategy). About 25% were technical i.e. fair amount of engineering. About 25% were deep tech i.e. it’s all about being able to create the new technology or drug. 17
  • Over 2/3 of unicorns were highly differentiated from competition. Less than 1/3 were incrementally differentiated. 18

What was the market demand?

  • More than 60% of unicorns started in large markets with well established demand. They either took market share or expanded the market. About 25% started in medium sized markets. About 15% started in small markets. Few unicorns created new demand or waited for the market to mature. 19
  • 68% of unicorns competed for market share. 32% created a new market. 20

When did the founders enter the market?

  • 30% of the time unicorn was first to the market. 30% of the time 2-5th in market.  40% later than 5th in the market. 21

 What are the characteristics of companies which achieved $1 billion in revenue?1

  • More than 60% of new public companies between 1980 and 2010, no longer existed in 2010. 4% of new public companies achieved $1 billion in revenue. 34 public companies a year achieved $1 billion in revenue, regardless of economic cycle.  Only 4% of $1 billion revenue companies make it to $10 billion in revenue. 2
  • 11,000 companies did IPO since 1980 and to end of 2007. Only 4% (410) grew to $1 billion in revenue, but 72% of all IPO taxes, 63% of IPO employees (i.e. 9 million), 64% of market value (i.e. $2.6 trillion), and 69% of all IPO revenue (i.e. $3 trillion).3
  • Failing companies had blind passion, did not self correct, did not adjust to changing customer needs, ran out of cash.4
  • Exponential growth companies continue to grow through tough economic times and recessions.5
  • Exponential growth companies created and sustained break through value propositions – High order benefits or exceptional value as perceived by customers 6
  • Exponential growth companies exploited high growth market segments: created new markets, redefined markets, or created category killers (i.e. killed incumbents). Imported ideas from other industries. Kept redefining market segments. 7
  • Growing to $50 million revenue requires brute force speed. Create and grow customer advocacy community and market momentum as quickly as possible. After $50 million in revenue, have thoughtful speed.8
  • The key to growing a startup to $10 million revenue was based on analyzing 2,000 business plans.9  Create a powerful value proposition. It must address a deep, frequent or changing unmet need. The company has a unique ability to deliver on that need. Contrast the company benefits to the competition. Talk with customers to understand the “frustration” or “What’s not working well”.10

What are the characteristics of SaaS unicorns which became public?1

This researched examined 1,000 SaaS companies in Canada and the U.S.s 400 of which became Unicorn by going public. Many of these went public after 2013.

  • On average, companies needed $125 million in revenue to become a unicorn when they went public. This required $212 million of invested capital. 2
  • The TAM (Total Addressable Market) size when going public needs to be at least $25 billion.3 The % of TAM at IPO time can range up to 2.2%4. Facebook’s yearly revenue at the time of its 2012 IPO was $4.2 billion. The prospectus stated the addressable market was $588 billion, thus % revenue was about 0.7% of addressable market.
  • Most startups do not reach the IPO point but are acquired. The TAM required for acquisition is much smaller than $25 billion.
  • You need a 50% differential in how customers measure competitive differentiation. Customers perceive quality, speed and cost. The customer’s costs may be far higher than what they pay your company. 5
  • You have product market fit when your net promotor score is at least 30 and the % of customers that would be very dissatisfied if they did not have your solution is at least 40%.6
  • Current year marketing and sales as % of current year revenue. 7 About 63% when revenues are $10-50 million. About 52% when revenues are $40-$250 million. About 38% when revenues are over $250 million. The implication is that unicorns usually lost money for many years. Investors provided the capital because lifetime customer profitability exceeded the one time customer acquisition costs.
  • Current year marketing and sales as a % of next year’s revenue should be less than 33% at IPO time. 8
  • The higher the growth rate, the higher the valuation, in terms of revenue multiple. 9

 What are your next steps?

  • Assess your understanding of your customers e.g. how they perceive you, the value they obtain from you, their profitability, etc. Improve your understanding of your customers.
  • Review the facts in your plans. Identify the source of each fact.
  • Review the assumptions in your plans. Determine if there are facts and analysis which would change your assumption. Be clear on which assumptions are opinions and guesses.
  • Be clear on the urgent problems and needs of potential customers and determine how many are actually willing and able to pay for a solution.
  • Recognize facts, assumptions, and analysis are only input to the judgements and decisions you make. E.g the amount of revenue you need to be a unicorn when you IPO may be very different from the average.

Footnotes

1 Ali Tamaseb, Super Founders (New York: Hatchette Book Group, 2021)

2 Ibid., 15

3 Ibid., 16

4 Ibid., 17

5 Ibid., 32

6 Ibid., 34

7 Ibid., 44

8 Ibid., 45

9 Ibid., 49

10 Ibid., 51

11 Ibid., 52

12 Ibid., 60

13 Ibid., 67

14 Ibid., 114

15 Ibid., 114

16 Ibid., 117

17 Ibid., 118

18 Ibid., 122

19Ibid., 131

20Ibid., 133

21 Ibid., 145

1 David G. Thomson, Mastering the 7 essentials of high growth companies (Hoboken, New Jersey: John Wiley & Sons, 2010)

2 Ibid., 3

3 Ibid., 9

4 Ibid., 21

5 Ibid., 22

6 Ibid., 32

7 Ibid., 33

8 Ibid., 75

9 Ibid., 163

10 Ibid., 164

1 Charles Plant, “Unicorn Math  an Algorithm for Rapid Growth”, Narwhalproject.org, Charles Plant, https://narwhalproject.org/wp-content/uploads/2020/06/Unicorn-Math.pdf

2 Ibid., 3-4

3 Ibid., 5

4 Ibid., 6

5 Ibid., 7

6 Ibid., 10

7 Ibid., 11

8 Ibid., 11

9 Ibid., 15

 What further reading should you do?

  • Read the two books and website article referenced by the footnotes.
  • Do you understand your customers? V2

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

Tom Koor

Why are values, morals, and ethics important? V2

What is the purpose of this article?

Help founders, corporate leadership, investors, and their coaches and advisory boards begin a discussion regarding VME (values, morals, and ethics).

You may download a PDF of this article from: Why are values, morals, and ethics important V2

What are the critical learnings in this article?

  • You need to have a shared and commonly understood definition of values, morals, and ethics.
  • You need to define how VME is used in decision making and to guide the behaviour of everyone in your company.

What are VME?

People often use these terms interchangeably. The concepts are different, which can result in confusing sets of expectations. E.g. many board of director’s mandates mention meeting “highest ethical standards”, but what does that actually mean? Many in corporate leadership1 believe ethics means compliance with laws, regulations, and company policies.  Many in the broader public associate ethics with morals and doing what is right.

To illustrate the confusion: for a few years Apple Computer only paid .005% income tax on billions of Euros of profit in Ireland.  The CEO stated that what Apple did was OK because all the laws were followed.  Many people felt that paying .005% income tax was “not the right thing to do.”

The following are my definitions.  You should have your own definitions.  You cannot have a discussion about VME if everyone has different definition of what the words mean.

Values: Values are the rules by which people make decisions about what they should or should not do. Values have different importance’s, which is helpful when needed to trade off or balance one value versus other values. Values are what someone thinks and feels internally.

Morals: Morals are decisions, actions, and behaviours which other people feel are right or wrong, good or bad.  Morals are actions and behaviours arising from one or more values.  Not all values are related to morals.  You are judged by others as to whether or not your actions and behaviours are moral or immoral.

Ethics: Ethical decisions, actions, and behaviours are based on following a documented set of standards or principles.   Many companies and professions have a Code of Ethics.

VME should also tie back to the purpose of the corporation.1 Is the sole purpose to make as much money as possible, constrained by laws, regulations, and company policies?

How are VME used?

VME are used by the board of directors, CEO, C-Suite and major investors when making decisions and taking action within the company’s ecosystem.2  Ecosystem members (such as employees, the public, customers, suppliers) may have major differences in their individual VME.  Corporate leadership uses their personal VME to manage the conflicts of interests within corporate leadership, and with ecosystem members.

Lawyers would point out the fiduciary duty e.g. in Canada to act in the best interest of the corporation (fiduciary duty varies by country).  But is that the right thing to do?  Professor Didier Cossin makes the following observation, “The doctrine of maximizing profitability may be used as justification for deceiving customers, polluting the environment, evading taxes, squeezing suppliers, and treating employees as commodities. Companies that operate in this way are not contributors to society. Instead, they are viewed as value extractors. Conscientious directors are able to distinguish good from bad and are more likely to act as stewards for safeguarding long-term, responsible value creation for the common good of humanity. When a company’s purpose is in conflict with the interests of society, board members need to take an ethical stand, exercise care, and make sensible decisions.”3

Documented ethics arise from interactions between your company and its ecosystem members. Your company, and others, may be lobbying the government to change laws and regulations to benefit what they believe is important (i.e. their values and morals).  How should corporate leadership deal with the conflict of interest regarding laws and regulations which provide value to society vs providing value to the corporation?  Some people believe laws and regulations exist to protect the interests of society as a whole or protect those who cannot protect themselves.  Some companies have Codes of Ethics written to minimize legal risks to corporate leadership.

Some companies use values, morals, and ethics play in hiring, promotions, and terminations. Warren Buffet 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”.

How do values, morals and ethics impact company value growth and preservation?

Positive or good values, morals, and ethics are not a pre-requisite for company value growth and preservation.  I sure you can think of some example – I know I can.

Poor VME can lead to the following major company risks;

  • Company leaders may engage in fraud or illegal actions.
  • In 2002, Arthur Andersen was found guilty of a criminal act, based on one single email. (Incredible but true). As a result, this large global audit firm went out of business.
  • Companies may lose their social license to operate. In 2022, the European Union, Australia and other country government were actively seeking laws and regulations to restrict the activities of major high tech companies. Governments felt that the companies were not acting in the best interests of society.
  • There can be challenges in recruiting and retaining the elite talent necessary to grow in the intensely competitive global ecosystem.
  • The value from mergers and acquisitions can be threatened when companies have different sets of VME. It can be extremely hard to change the VME of people. Even ensuring compliance with a new set of documented ethical standards may be a challenge.

What are the challenges of VME?

The challenges of VME include:

  • What do you do when VME could reduce long term profits? Some companies consciously decided to take actions which they believe is better for the broader society but may result in lower profits. g. Vancity Credit Union (in Vancouver, British Columbia) pays its workers a living wage and expects its suppliers to pay their workers a living wage.  On the other hand, Loblaws shareholders, in an early 2018 Annual General Meeting, voted not to pay workers a living wage.
  • Shareholders trust the board of directors to make the right decisions. The board, in turn, delegates the bulk of authority to the CEO.  The board and the CEO must be able to manage a broad range of conflicts of interest, especially personal.  g. with average CEO tenure below 4 years, it can be a challenge for the CEO to focus on the long-term, rather than maximizing the value of short-term bonuses and stock options.  Directors have been known to question a merger when their own director roles are in jeopardy.
  • If the board and CEO have different sets of VME, then the CEO’s decision making, and tone setting for the company, will not be aligned with the board.
  • Corporate leadership, through their actions and behaviours, communicates what the acceptable VME are. It is important that the leadership, when making difficult decisions, communicates how those decisions are related to VME. Children by the age of seven have already developed a set of values and morals.4 They observe their parents and learn from their parents.
  • The most difficult decisions made by corporate leadership (e.g. times of crisis, cost-cutting, re-organization, major merger, major change in strategy, CEO appointment or termination, etc.) often reveal what the true VME are. It’s easy to talk about VME when it does not take major personal courage to make a difficult decision.

What are your next steps?

You need to customize the following generic plan for your specific company.

  • Survey the board of directors, C-Suite, and a sample of employees, asking what they observe the purpose of the company is and what the purpose should be.
  • Survey the board of directors, C-Suite, and a sample of employees, asking what they observe the companies values to be. In the case of the employees, asking them what they observe the values of the board of directors and C-Suite to be.
  • Survey the board of directors, C-Suite, and a sample of employees, asking what whether of not the leaders are following the documented code of ethics.
  • Survey the board of directors, C-Suite, and a sample of employees, asking what they observe the purpose of the company is and what the purpose should be.
  • Look back over the past 5 years. How have VME guided critical board and CEO actions?  g. during crisis, making important one-time decisions such as appointing or terminating a CEO.
  • What questions, if any, are asked of director candidates and CEO candidates to assess their understanding and commitment to the company’s VME? Which VME, if any, are a perquisite for hiring? Which violations of VME result in immediate termination or hold back promotion?
  • Analyze the above data to identify things such as: differences among your company leadership, differences between your employees and your company leaderships, differences between what is documented vs actual behaviours and actions.
  • What are the definitions of VME used by your corporate leadership? If your company has documented values, how are they used?  What are employees supposed to do with the values?  How do you know how the employees are using the values, if at all?
  • Read and discuss the values of the United States Army. What are the differences between your company values and morals relative to the U.S. Army.  The Army explicitly identifies morals – do your company values identify morals? The Army values guide individual conduct 24 hours a day. Are your VME intended to guide decision making, actions and behaviours only during working hours or 24 hours a day?  Some would argue that the company has no business in what an employee does in their non-working hours.
  • Prepare a short collection of stories describing how corporate leadership and employees should make decisions and behave in key situations.
  • Revise your company values and code of ethics to reflect those stories.
  • Put in place processes to communicate and use the company values and code of ethics e.g. prior to each board meeting, every attendee reads the company values and code of ethics. As each key board decision is being made, briefly discuss how the decision reflects the company values and code of ethics. The board should also consider the degree to which the members of the company’s ecosystem would view the decision as moral.

Footnotes

1 Purpose of the corporation definition: What is the purpose of the corporation and why does it exist?

Is the only purpose of the corporation to create wealth?  Is there a higher purpose, either to a community or to society?  Or you may conclude the only purpose is to create wealth for shareholders and the C-Suite.  Peter Drucker said: “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

2 Ecosystem definition: A business ecosystem is the network of people and organizations, including stakeholders and third parties directly and indirectly 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 set and nature of relationships in which each entity must be flexible and adaptable in order to survive, as in a biological ecosystem. Stakeholder definition: Stakeholders have an economic interest in the corporation: Shareholders, Non-equity capital, Customers/ users, Employees/ unions, Suppliers, partners

Third party definition: Politicians, Regulators, Third party standard setters (e.g. Proxy advisory firm, accountants, lawyers), Society

3 “The four tiers of conflict of interest faced by boards of directors”, Professor Didier Cossin and Abraham Longze Lu, IMD Global Board Centre   https://www.imd.org/research-knowledge/articles/the-four-tiers-of-conflict-of-interest-faced-by-board-directors/

4 “Teaching young children morals”, Meri Wallace, Psychology Today, April 6, 2018

https://www.psychologytoday.com/ca/blog/how-raise-happy-cooperative-child/201804/teaching-young-children-morals

 Further reading

“Society’s trust in corporate leadership and political leadership is low”  koorandassociates.org  Society’s trust in corporate leadership and political leadership is low.

“Values – U.S. Army” koorandassociates.org Values – U.S. Army

“Why is trust critical for transformation” koorandassociates.org Why is trust critical for transformation success?

Leaders eat last University of California – Davis, Center for Student involvement https://csi.ucdavis.edu/leaders-eat-last/

What is the purpose of your company?

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

Tools

“What are your values and morals? Survey Tool”, koorandassocicates.org What are your values and morals? Survey Tool

Tom Koor

How can a private company sell securities in Ontario? V2

What is the purpose of this article?

Enable private company founders, boards of directors, CEOs, CFOs, and investors to structure their discussion on raising capital and how to sell securities (equity or debt) in Ontario.

This article does not provide legal or financial advice.  Before making any decisions or take any actions to sell securities in Ontario, you should consult with the appropriate professionals.

You can download a PDF of this article from: How can a private company sell securities in Ontario V2

What are the critical learnings in this article?

  • There are many ways to raise capital, in addition to selling securities.
  • There are many provinces and countries to raise capital from.
  • You need an experienced finance person or financial advisor to help you think through the best way to raise capital.

There are many ways for a private company to raise capital in Ontario.

  • These include: government loans, grants, and tax credits; factoring; pre-payments from customers, deferring payments to suppliers, a variety of financial instruments, loans, and selling securities in Ontario.
  • Any company in the world selling securities in Ontario must follow Ontario laws and regulations. The OSC (Ontario Securities Commission) regulates the selling and trading of securities in Ontario.
  • Any Ontario company selling securities in another province or country must follow the local laws and regulations.

This article is focused on a private company selling securities in Ontario.  Publicly traded companies or private companies going public are outside this article’s scope.

A prospectus is always required unless the company meets specific exemption conditions.

Creating a prospectus can be a long and expensive process. Much of the funds from the sale of a small amount of securities could be consumed by the prospectus costs.

Under certain situations a prospectus is not required, resulting in a faster and lower cost sale of securities. The following provides a high-level overview of the 6 general situations in which a prospectus is not required. Each situation reflects the characteristics of a specific type of investor.  You must consult a securities lawyer for advice, as the laws and regulations are far more detailed than this overview.

  • Private issuer: your corporation has fewer than 50 people holding securities. A company starting out with a handful of founding shareholders actually takes advantage of this exemption, often without being aware of it.
  • Family, friends and business associates including employees, officers, board directors of the corporation, or consultants to the corporation.
  • Accredited investor: These are investors with assets and income which meet the OSC’s definition of a “accredited investor”. The OSC views these as sophisticated investors who do not require the detail contained in a prospectus in order to make an investment decision.
  • Minimum purchase amount of $150,000. As long as the investor (who cannot be an individual) purchases at least $150,000 of securities.
  • Offering memorandum: an offering memorandum is a simplified prospectus, which must follow OSC regulations and be filed with the OSC.
  • Crowdfunding: your corporation can sell simple securities (e.g. common shares and non-convertible debt) through a registered online funding portal.

If you are taking advantage of one of these exemptions, you must file a report with the OSC, unless you are utilizing the Private Issuer or Employee, Officer, Board Director, Consultant exemptions.

 By utilizing these exemptions, the corporation has multiple potential securities buyers.

Potential securities buyers may include:

  • Friends and family;
  • Individual investors;
  • Family Offices;
  • Venture Capital or Private equity;
  • Strategic investors;1 and
  • Institutions.

In addition to the above, the corporation may utilize an exempt market dealer, who is an intermediary between the corporation and accredited investors. The exempt market dealer should have a broad network of potential investors, enabling your company to quickly sell securities.  It could be very time consuming for your company to find investors. The exempt market dealer must be registered with the OSC.

What are your next steps?

  • Begin your next steps at least 12 months before you need to sell securities.
  • Define your company’s long-term value creation plan (sometimes called a strategic plan).
  • Outline your company’s long-term cash-flow and capital requirements plan, linked to your long-term value creation plan.
  • Agree on what is driving the need to raise capital at this point. g. funding growth, founder(s) want to exit, founder divorce or death.
  • Analyze the long-term implications, in multiple-scenarios, of raising capital at this point.
  • Determine the best way to raise capital at this point. There may be many options rather than selling securities. There may be many options for which province or country to sell securities.
  • What stage is your corporation at? g. Seeking angel investors/seed capital or A, B, C series funding?  An established corporation that has been in business for many years? Founders seeking to sell their interest or sell the company?
  • Founders and major shareholders must also consider their personal and family financial plans.
  • Create your plan to build relationships with potential buyers of your securities. Investors, especially funds and institutions, will need time to get to know you e.g. many months of receiving your monthly updates.

Footnotes

1 Strategic investor: an investor (typically a company) that invests primarily for strategic rather than financial (return) purposes. E.g. in order to gain future access to a key new technology or product. (By contrast, financial investors make investment decisions primarily based on the prospect of a strong financial return.)

What further reading should you do?

Tom Koor

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

What is the purpose of this article?

Enable the board of directors and C-Suite to have a discussion regarding their talent requirements and how to manage those requirements.

You can download a PDF of this article from:  What will be the board and C-Suite talent requirements V2

What are the critical learnings in this article?

  • A company without a competitively differentiated board of directors and C-Suite will not survive.
  • Define the current and future value contribution required from each role. Assess each candidate’s capabilities in terms of their historical impact on value and their future potential to impact value.

What type of company is this article appropriate for?

  • Public companies with no controlling shareholder or group of shareholders (e.g. no founders with dual class shares, no voting trust).
  • This article is not designed for private companies with a unanimous shareholders agreement reserving key decisions (e.g. CEO appointment, value creation/strategic plan approval) for shareholders or investors.

Your company’s future is uncertain.

  • The future global environment is uncertain. (e.g. technology, politics, the economy, climate change)
  • Both the future members of your company’s ecosystem, and their interactions are uncertain. Members of your company’s ecosystem include: customers, employees, local communities, society, and investors.
  • Becoming or remaining a large company requires understanding the problems and needs of customers who are willing and able to pay. These problems and needs often change over time.
  • Becoming or remaining a large company requires creating and maintaining competitively differentiated solutions and assets. These solutions and assets will be constantly changing and evolving in your company’s uncertain future.

Why do you need a talented and competitively differentiated board of directors and C-suite?

  • It is your company’s competitively differentiated talent which develops competitively differentiated solutions and assets based on a competitively differentiated understanding of your company’s ecosystem members.
  • Capital availability has grown dramatically over the past 10 years, and is close to unlimited. The availability of quality talent has had little growth.  The scarcest talent of all are those people who are able to grow and develop the capabilities of others. Great teams need great coaches and advisors.

What drives talent requirements for the board of directors?

The director can enable long-term success and value creation via the decisions they make; and the actions they take.

The decisions may include:

  • Appointment, termination, and compensation of the CEO.
  • Review and approval of the CEO’s value creation plan (often referred to as the strategic plan)
  • Ensuring there is a pool of successors for the CEO and the C-suite.

The value creation actions may include:

  • Representing the company with key members of the ecosystem such as government.
  • Introducing the company to the directors’ network of relationships such as: investors, potential employees (including CEO and C-suite successors), suppliers, business partners.

The directors must have history of enabling value creation.

  • Directors are like airline pilots. They aren’t needed when the company is smoothly executing the flight plan.  The directors are needed when there are problems, crisis and black swan events. E.g. replacing the CEO.
  • Each director needs a history of decisions which have resulted in major value creation. For example, past appointments of CEOs who successfully executed their value creation plans. If a director has no history of appointing CEOs, or approving C-suite members, then you need to carefully consider whether they should be nominated. Director education is insufficient.  You cannot learn to ride a bicycle by only reading about it.  You actually have to get on the bicycle and ride it, and perhaps fall many times.
  • If directors are expected to directly create value by their own actions, then they should have a history of actions which have created value.
  • The directors as a whole need relevant current understanding of: customers, target markets, adjacent markets, key components of the company’s ecosystem, and the global environment.

What drives talent requirements for the CEO?

There are three things only the CEO can do, and no one else in the company:

  • Create and maintain alignment of people with the purpose of the company.
  • Nurture the company’s values, morals, and ethics (often referred to as culture).
  • Hire the leadership team and ensure they work well together.

The CEO must be able to oversee the creation and execution of the value creation plan for the company, and modify the plan quickly as circumstances change.

What are the common talent characteristics of the board and C-Suite?

  • They must have fluid intelligence. Fluid intelligence is the capacity to think speedily and reason flexibly in order to solve new problems without relying on past experience and accumulated knowledge. The uncertain future means that decisions must often be made for which past experience and knowledge is obsolete.
  • They must be able to quickly learn new facts, knowledge, processes etc. and unlearn what is obsolete.
  • They must be passionately curious to understand the world around them.

What are the other sets of critical talent supporting the board and C-Suite?

  • World class teams need world class coaches. The athletes who win gold at the Olympics also have the best coaches in the world.
  • The CEO needs a coach or advisory board, as part of the ongoing development of the CEO. The board of directors cannot coach or mentor the CEO due to conflict of interest.  g. A director could not vote on something which the director has coached the CEO to create – the director would be voting on themselves.
  • The board chair also needs a coach or advisory board.
  • Some members of the C-Suite may also need coaches, especially if they are potential CEO successors

What are your next steps?

Create ongoing process for managing Board of Directors, CEO, and C-Suite talent.

  • Outline the members of your company’s ecosystem, including customers.
  • Describe the components of the global environment which may impact your company’s ecosystem.
  • Create multiple future scenarios for your company.
  • What are the implications for the talent you may need: board of directors, C-Suite, CEO advisory board, and Coach(es) for directors.
  • A company without a competitively differentiated board of directors and C-Suite will not survive.
  • Define the current and future value contribution required from each role. Assess each candidate’s capabilities in terms of their historical impact on value and their future potential to impact value.
  • Determine whether or not the board has a role and accountability for value creation. e.g. relationships with 3rd In private companies, the board and shareholders/investors often have a role and accountability for value creation. In many public companies the board does not have a value creation plan. The only value creation plan is the one the CEO is accountable for.
  • Prior to a new director being nominated, they should be a compensated board observer for one year. This allows them to be evaluated.

What further reading should you do?

Why are values, morals, and ethics important?

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

What is the purpose of your company?

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

Is your company planning to fail?

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

Traditional strategic planning dooms companies to failure.

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

Tom Koor

What are your values, morals, and ethics?

What are your values, morals, and ethics?

A breakdown of values, morals, and ethics  within society risks social upheaval which may devastate businesses. In 2021 and 2022 Canada and the U.S. have seen major social upheaval.

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.
  • 42% trust government leaders.
  • 48% believe government is a dividing force in society.

The 2022  Edelman CanadianTrust Barometer 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 Canadian 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.
  • 43% trust government leaders.
  • 45% believe government is a dividing force in society.

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.”

My personal observation is that 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 actions to destroy the public’s trust in them.

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.