Venture Capital

In business, it is extremely easy to go the wrong way and indeed many businesses have foundered on the basis of one inadvertent mistaken direction, but all of us are aware that a lot of businesses are not going anywhere at all. This is indeed the most dangerous situation of all as it is deceptively easy to keep busy maintaining the status quo and I believe that this function of management has been the source of decline for many companies. In venture capital, this state cannot sustain invested returns and is detrimental to the holding capacity of a portfolio under management in the venture firm. Today’s post touches on a few points on what makes CEOs or management fail in the hope that it gives readers ideas on avoidance not only in the venture capital business point of view but in the business of finance management and these pointers are based on the exposure to many CEO’s management style. A venture capitalist style of managing these highly charged C level individuals is the key to returns to the investment.

As CEO, you may be improving your productivity every year. You may be maintaining your profits more or less in line with inflation, and hence giving a spurious impression of growth. You may be laboriously producing marginal improvements on your primary product, but you can be absolutely sure that, if that is the position of your business, somebody somewhere has got your card marked as an easy number and is about to take you by surprise. Competition is wonderful but it can be deadly. A lot of companies spend hours presenting to me their strengths and come up with charts on SWAT analysis, which is part of presenting their idea of business. But i spend a significant amount of my time reviewing competition because i am banking on the CEO superiority of owned skill sets and/or technology to bring the company through adding value and securing me the exit, so it’s best to have a strategy based on the realities of the environment. This environment is collectively created by your industry and your competitors.

In reflection, there is no way for a company to sustain a technological edge for too long due to internal resources, the inherent market acceptance and competitive forces, but the CEO skill set is something venture capital could nurture and build on, especially in a early stage company. My opinion is that far too many CEOs fail because of the acceptance of self imposed constraints. With the present landscape of global markets and open business parameters, you either adapt to changing business environment relatively quickly or you inexorably disappear with your business model. The aim of a CEO must be to the best, for only the best command their own destiny and achieve the best of rewards that are sought for themselves, their employees and their investors. But remember than the best is a relative and not an absolute measure. The standards of the best are set by the competition and a CEOs aim is to always exceed them.

One point that requires some attention as a CEO is that you should never make controversial announcements without doing groundwork first. I have encounter problems faced by my investee CEOs when they fail to understand the effect of their ‘choice of words’ which engenders rumours, anxiety and worse resistance to change. Every company reorganises, changes goals and have key employees departing, it’s the evolution of the business model. Unless companies change they simply will not attract the best and so they will die. However, these changes may create uncertainty which leads to anxiety in employees. It is imperative that as the CEO you engage in one to one communication if need be and explain or express scenarios of solving situations, in other words, make a clear demonstration that you get it and you know how to solve it.

A CEO’s should not state lies or partial truths, even when it’s meant to be well-intentioned. Perhaps, there is a need to maintain confidentiality or handle sensitive topics, but you must know how to keep these matters discreet. Learn to respond – ‘I am not at liberty to comment at this juncture’ or ‘I need more time to get my facts together to respond to your query’. However, what you state as a CEO must be consistent and logical at all times. Do not open yourself to making open ended statements or promises and imagine that your investors or employees would not hold you up for it.

CEO’s that live in a bubble ignorant of the realities of power are inviting failure. As CEO you would be the last one to hear bad news as bad news gets filtered and malignant as it climbs the hierarchy of power. If you want honest assessment, either keep your company organization flat where you interact with you employees effectively, else if you do have a hierarchy, be prepared to take time out and talk to the grassroots. Get to your bad news before it becomes the closing news.

Furthermore, CEO’s that underestimate their employee’s intelligence are posting an egoist image. Here is what it is, and it is a subject that constantly crops up with my investee CEO - if you think your people won’t understand something about the company targets, remember it’s your job to explain it to them. Many CEOs flip over problems and fail to motivate their teams because they fear unfriendly feedback. Well, i have news for you; in order for you to deal with the problems in the company, whatever it may be, your team being knowledgeable would have the solutions that you need to solve the problems. Bear in mind that technology does not replace the role and contribution of the individual.

Often, in reviewing my investee CEO skill sets i often analyze to see if the CEO is confused or clear about the differences in process and outcome. In the goal-setting demanding environment of building, sustaining a business venture, it's easy to confuse process with outcome. If as CEO, you promise your investor a 7% increase in sales and due to unforeseen circumstances, deliver 5%. Your investors won’t appreciate it. In fact, they would be downright resentful. How could they be so insensitive to all your hard work? Simple. Your hard work was process, and you promised them an outcome and they wanted a specific result. Since they didn't get it, they can't see past that fact. Always be aware of what your statements are to your investors as a venture capitalist proposed role and focus is to judge outcomes.

As a CEO, you should never ignore acts of omission. What you don't say may be sending as loud a message as what you do say. If you don't give praise, people get the message they're unappreciated. If you don't explain the rationale behind decisions, the message is that you don't trust them. And if you don't tell people where the company wants to go, they don't know how to help you to get it there. Be consistent and have an internal communication strategy to emphasize morale, which is most critical if you have a start up. Given, that by their very nature, mistakes of omission are hard to uncover but as CEO you need to reflect by what message you may have sent by your silence so far.

My experience has shown me that there are many different ways of achieving ones aims and many different ways of leading a company. I have worked with CEOs whose style is so totally different to my own that i have found it incomprehensible that they achieve results, but nevertheless they do. My advice to all budding CEOs is that you have to develop your own style and our own approach, using skills and personal qualities as you may have inherited with your exposure to mentors, work environment and your personal beliefs.

The crunch of it is this: what a good CEO does over a long period of trial and error is to acquire a set of tools with which they are comfortable and which they can apply in different ways to the myriad problems needing solutions. Management and leadership of a company is an art and you have to approach a problem from a different background, dealing different situation, and perhaps in a different culture, from a different starting point every time. So, do make more effort to put your mind to thinking and planning as it will immeasurably increase the effectiveness of one’s execution and that is what functional effective CEOs do every day.