MarketingMuses

Praise for the Self-Aware CEO

In my experience, a self-aware CEO is very likely to increase enterprise value, while a CEO that lacks self-awareness will almost certainly decrease it.

 

Recently, I came across an interesting discussion on an executive forum. The topic was, “What is the most important quality for a CEO?” The question seemed rather vague to me, but it appeared that most people had interpreted it as, “What quality is most likely to help a CEO successfully lead a company?” And the most frequent answer, by a wide margin, was “competence.”

To me, this answer seemed about as vague as the initial question. The most prevalent definition of competence is the condition of being capable. This implied, to me, that a competent CEO is successful—and vice versa—but didn’t really explain why. So I began to consider: What makes a CEO competent and, therefore, successful?

One caveat: While I’ve worked closely with over a dozen CEOs and division GMs, in corporate and consulting roles, my perspective is limited, primarily, to companies that develop, produce, and deliver technology-based, business-to-business (B2B) products and services.

 

Measuring Business Success 

My personal experience includes 1) working with a startup on the verge of bankruptcy, where success was simply a turnaround and acquisition that recovered the VCs’ investments, 2) working with several public and private companies that achieved liquidity events (merger or acquisition) at desirable valuations (well above book value), and 3) growing revenue and profit at publicly traded companies where the market caps increased. Conversely, I’ve worked with a few small companies (public and private) where profitability was either stagnant or never achieved. This led to layoffs, restructurings, high employee turnover, and in one case an eventual sell for the value of the company’s assets.

The common metric in each situation was an increase or decrease in enterprise value, measured as a multiple of the company’s book value. In the short-term, a company’s valuation can be influenced by many factors (e.g., market, technology, regulation, irrational exuberance), but over the long-term (several years to decades), the success of a company is best measured by its increase in enterprise value.

 

Domain Expertise

I’ve read that a successful general manager must have deep domain expertise in at least one of a company’s major functions. Given my experience, the major functions are 1) research and development, 2) production operations, 3) sales and marketing, and 4) finance and administration. Using this framework, I can make two definite statements about the CEOs and GMs I’ve worked with: 1) everyone was capable in at least one of the major functions, and 2) none was highly capable in all four. Furthermore, when I force-ranked the CEOs and GMs by how well they increased enterprise value, there was no strong correlation between success and functional expertise: every domain was represented above and below the median. 

 

Self-Awareness

So, if all CEOs were capable (i.e., competent) in at least one functional area, and there was no strong correlation between any single functional area and success, what made some more successful than others? In my experience, the CEOs and GMs who honestly and accurately assessed their strengths and weaknesses, hired people with complementary strengths, decentralized decision authority, and built well-rounded executive teams achieved the greatest success. Conversely, the CEOs and GMs that lacked self-awareness were more inclined to closely control decision-making across all functions, and the companies were unsuccessful (did not increase enterprise value).

 

The Limits of Self-Awareness

Self-awareness, alone, does not ensure that a CEO will lead a company to its maximum enterprise value. For example, one CEO was self-aware, but avoided conflict. As a result, he delayed difficult personnel decisions during a period of transition. While the company was successful, it’s unclear whether it achieved a maximum valuation. Another self-aware CEO made several bad executive-hiring decisions. While he was able to increase enterprise value, the company might have achieved an even higher market cap with better hiring decisions.

 

Self-Awareness in Action

One of the most successful CEOs I’ve work with, whose domain expertise was in production operations, frequently said, “I don’t know much about selling, but I know a lot about buying.” During dozens of meetings over several years, he asked me numerous questions about various aspects of marketing plans, always from a buyer’s perspective. Many of his questions caused me to rethink and retune an initial approach, and the strategies were better and more effective as a result. But during all the meetings over all the years, he never once told me what to do or how to do it.

Another successful GM (who became a successful CEO), with domain expertise in finance, had previously led a product line to over 50% market share by emphasizing product performance. Shortly after I took leadership of the product line, the agency and I presented a new advertising campaign that was more edgy and image oriented. The GM asked several probing questions as to why we were shifting the message. We explained that we were now a dominant market leader (over twice the share of number two) with good brand awareness, and we wanted to build a strong brand image consistent with our target market: rock and country musicians, producers, and studio engineers. When I mentioned that he did not seem overly enthusiastic about the campaign, he said, “It’s not what I would have done, but you have sound logic for doing it. Just make sure you keep growing market share.” He was uncompromising about the goal, but very open has to how it was achieved.

By contrast, the least successful CEOs where more likely to describe exactly how they wanted something done, while often being rather vague as to the goals they wanted to achieve.

 

Observations and Conclusion

My experience is that:

• Every CEO and GM was capable in at least one of the company’s major functions.

• The CEO’s and GM’s functional expertise was not a factor in his success.

• No CEO or GM was highly capable in all of the company’s major functions.

• The CEOs and GMs who were able to honestly and accurately assess their own strengths and weaknesses most often hired people with complementary strengths, decentralized decision authority, and built well-rounded executive teams that increased enterprise value.

• Self-awareness, alone, may not have ensured maximum business success. CEOs and GMs who had difficulty with personnel decisions (hiring and firing) probably achieved less than they could have with better personnel decisions.

• All of the companies that did not increase enterprise value were led my CEOs that lacked self-awareness and tightly controlled decision authority.

Assuming that the CEO is competent in at least one of the company’s major functions, self-awareness is the primary characteristic that is most likely to correlate with his or her ability to increase enterprise value. A CEO’s self-awareness, alone, does not guarantee that he or she will maximize enterprise value; good personnel decisions are critical to adding people whose strengths are complementary to the CEO. However, a CEO who lacks self-awareness will not perceive his or her own weaknesses, the company’s strengths will never the greater than the CEO’s, and the company is unlikely to increase its enterprise value.

 

Reading Steve Jobs

“I wanted my kids to know me.  I wasn’t always there for them, and I wanted them to know why and to understand what I did.  Also, when I got sick, I realized other people would write about me if I died, and they wouldn’t know anything.  They’d get it all wrong.  So I wanted to make sure someone heard what I had to say.” – Steve Jobs reason for having Walter Isaacson write his biography

 

I did not intend to read this book.  

I did not know Steve Jobs, but I know several people who did, including a few who worked with him.  Most described the experience of working with him as 1) priceless, and 2) one that no amount of money could get them to repeat.  I have heard many stories of his brilliance and brutality.  I have read several books about Apple (the early years and after Jobs returned), and watched an excellent documentary on Pixar.  And I don’t usually read biographies.

The fact that I did read the book is testimony to the genius of Steve Jobs (and Jeff Bezos) and the talent of Walter Isaacson.  I was in a hotel room one evening having trouble falling asleep, and downloaded the first few chapters of the Kindle edition (for free) to my iPad.  No one has approached Jobs’ genius for creating an immediate, exhilarating user experience in the digital age, and it’s hard to imagine he could have chosen a better biographer than Isaacson.  Within fifteen minutes, I was hooked.

Isaacson clearly did his research, and the fact that Jobs gave him complete access to his life, and encouraged friends and foes (in Jobs life, many people are both) to speak honestly about their relationships and experiences with Jobs gave him the detail he needed.  But his talent allows him to tell a richly textured, deeply affecting story from cover-to-cover (undoubtedly, an antiquated expression for a digital book). 

As a father of an adopted son, I was especially moved by the description of an incident when Jobs, at six or seven years old, told a neighborhood girl he was adopted, to which she responded, “So does that mean your real parents didn’t want you?”

“I remember running into the house, crying.  And my parents said, ‘No, you have to understand.’  They were very serious and looked me straight in the eye.  They said, ‘We specifically picked you out.’  Both of my parents said that and repeated it slowly for me.  And they put an emphasis on every word in that sentence.”

Throughout the book, Isaacson reports similar details that give the reader keen insights into the events that shaped Jobs, without injecting amateur psychological suppositions.  The result is great reporting delivered in a wonderful narrative.  As I read the book, I realized that my image of Jobs, while accurate, was a caricature.  By the end of the book, I had a fully formed picture of a brilliant, passionate, and deeply flawed human being.

Steve Jobs never read any part of the biography.  He gave Walter Isaacson complete control of the story, although, after seeing the initial design for the book cover, he threatened to kill the project, until he received complete creative control of the cover design.  Initially, I was amazed that someone who had guarded his privacy so closely would relinquish control of his life story.  But then I realized that he simply followed the process he had used in business. 

Jobs did not personally create technology, films, commercials, etc.  But he carefully selected incredibly talented people, provided them the resources to create “insanely great” products, and exerted absolute control over product packaging.  Steve Jobs, the book, is not insanely great, but is an informative, interesting, and worthy result of his and Walter Isaacson’s creative process.

If you prefer to watch, rather than read, I strongly recommend the 60 Minutes video story and interview with Isaacson.

 

All Things Must Pass Away

On Wednesday, October 5, I was away from home on business.  Around 4:30 pm, I learned that Steve Jobs had passed away.  That evening and the next morning, I read and watched reports of his life and the tributes to him, quite fittingly, on my iPad.  I frequently had to wipe tears from my eyes, and felt a profound sense of loss for someone I had never personally met.  It was a déjà vu experience, and I couldn’t exactly place when or where I had felt similarly, until I returned home on Friday.

That evening, while scanning TV channels, I saw the listing for the Martin Scorsese documentary, George Harrison: Living in the Material World.  Suddenly, I realized that the feeling of loss I had a couple of days before was exactly the same one I had experienced nearly a decade earlier, driving home on a gray November evening and listening to a remembrance of George Harrison on NPR that ended with his song, All Things Must Pass.

“None of life’s strings can last, so I must be on my way.  All things must pass.  All things must pass away.”

Parallels between the two men are numerous.  Both men were private, by nature, but both were public performers of the highest order.  Both were passionate and positive creators, but each said and did things that deeply hurt others.  And both died far too young: Jobs at 56 and Harrison at 58.  But the most important thing they shared was the realization of Abraham Lincoln’s assertion: “And in the end, it’s not the years in your life that count.  It’s the life in your years.” 

So while their bodies are gone, their spirits live on.  I can still experience the joy of a George Harrison song or the inspiration of Steve Job’s Stanford address on my iPad anytime.  And so my initial sense of loss has turned to a tremendous appreciation for the gift of being alive at the same time as these two extraordinary men.

 

Good to Great (to Indispensible)

“You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.” – Admiral James Stockdale

I recently led a 2-day offsite meeting, on the heels of a major restructuring, to align executives and middle managers across the company behind a new strategic direction and operational discipline.  In preparing to lead the meeting, I reread two books that I have revisited repeatedly since my initial readings: Crossing the Chasm and Good to Great.

Crossing the Chasm is my handbook for guiding an emerging-technology company from early to mainstream markets.  I have covered important aspects of the book in prior posts; including Crossing the Chasm is Counterintuitive and Developing a Whole Product Roadmap for Applications Software.

Good to Great is my handbook for guiding organizational change in turnaround situations.  The Stockdale Paradox, succinctly stated at the beginning of this post, was an apt starting point for the meeting.  In fact, I used three of the four basic practices in the chapter, “Confront the Brutal Facts,” as ground rules for group discussions:

1. Lead with questions, not answers.
2. Engage in dialogue and debate, not coercion.
3. Conduct autopsies, without blame.

The principles of focus and discipline pervade Good to Great.  The “Hedgehog Concept” and “Culture of Discipline” have become fundamental to my leadership practices.  And getting the right people on the bus, while essential to an ongoing enterprise, is critical to a successful turnaround. 

As the book states, “First, if you begin with who, rather than what, you can more easily adapt to a changing world.  Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away.  Third, if you have the wrong people, it doesn’t matter whether you discover the right direction.”

Good to Great has taken some knocks over the past few years as some of the example companies have fallen from grace, including Circuit City and, most notably, Fannie Mae.  However, of the many business books I have read, this is one of a handful that I return to again and again for direction and inspiration.  To me, it is indispensible.