Building Sustainable Ventures with Mark Walztoni

It’s been almost two months since my last post- two months of political, economic and societal change that few people, if anyone, had an existing blueprint.  Values, instincts honed by experience and values, and what an old boss of mine defined as “rat-like cunning” are all on display.

So is planning for change still possible and practical? I believe that without at least a conceptual framework and understanding of key change principles the alternative is fear and “circling the drain”. 

The  current book we’re discussing, Lessons from Private Equity Any Company Can Use, suggests that organizations do the following when they invest in a new venture;

• Develop a road map for 3-5 key initiatives and focus
• Start macro, and work down to what you will do differently on “Monday morning.8 am” - that is, the actional to-do list
• Be specific and pragmatic
• Let the facts win the day
• Create excitement and alignment
• Budget two to six months (at least the first time)

This bulleted list proposes to balance action, facts, and emotion with focus and alignment to choose, drive, and maintain critical business initiatives. Since an investor’s time frame is now 3-5 years (if not 7 depending on how our economy evolves) the day-by-day roller coaster is annoying but manageable. Certainly “things happen” but aside from war, death, and disease (both personal and organization) the path remains open.

You may have noticed that I’l retitled my blog and primary business Sustainable Ventures Alliance LLC. My reasoning is that businesses must focus on sustainability first and that alliances allow access to talented people, capital, and customers. I’ll be writing more about this concept in future blogs and as always, welcome your comments.

The first principle of the book, Lessons From Private Equity Any Company Can Use is “define the full potential of your company.” As an investor’s objective is increasing the value of the organization (and therefore the equity of their investment) thorough due diligence is critical to reaching an understanding of what exactly is being purchased and what prudent mitigation strategies are required if the deal is closed.

The human capital side of the investment equation has traditionally received less emphasis during the due dilligence process, except for quantative analysis of benefit plans, pension obligations, and salary costs.

I believe that determining the full value of any investment benefits from a review of the organization’s talent pipeline, ability to access external talent, potential flight risks; and leadership team gaps that could swiftly erode an organizations’ ability execute against their strategic objectives, and current human capital performance such as turnover rates, staffing metrics, employee engagement indicators, and who and when ot offer retention, development, or separation agreements.

I spoke to the Executive Director of a large angel investing organization recently and he told me that in his experience early stage companies rarely failed due to poor technology or financing, but rather a leadership team whose talent, knowledge, and execution gaps doomed it’s ability to scale to the next milestone.

Where does qualitative human capital due diligence fit within your valuation process?

I’m fortunate to be considered an Expert Advisor for the Human Capital Institute’s Comprehensive On-Boarding, Career Transition, and Merger and Acquisition learning tracks. Tomorrow I’m the featured speaker for their September “Comprehensive On-Boarding Magazine” event, which occurs from 2:00 PM - 3:00 PM EST. 

Andy Kris is the Director of HCI’s Talent Leadership track and will host tomorrow’s broadcast and among our  topics will be the book, Memo to the CEO: Lessons from Private Equity Any Company Can Use by Orit Gadlesh and Hugh MacArthur of Bain and Co.

It was published by the Harvard Business Press on 2/07/08 and I’ve applied many of their six lessons in my own coaching and consulting practice and as an angel investor. You may download information about the book at http://www.bain.com/bainweb/publication.

You can register for tomorrow’s broadcast under the Talent Leadership and Comprehensive On-Boarding tabs at http://www.humancapitalinstitute.org.

Also, please visit my blog for further information and applications of these important private equity business principles.

Effective leadership changes always contribute to improved business results but are especially critical to venture capitalist and and angel investors who seek a high return of their investments within 3-5 years. They simply don’t have the time and depth of leadership talent in most early stage companies to recover from a new leader who doesn’t build effective partnerships, gets the right people in place, and  executes key strategies that move their business from start-up to sustainability. To quote Larry Bossidy, “At the end of the day you bet on people, not strategies”.

This point was brought home to me by a recent conversation I had with the President of an angel investing organization. He said that most, if not all, of the angel investments that fail are due to leadership rather than strategy failures.

A book named Lessons from Private Equity Any Company Can Usewas written by Bain & Company partners Orit Gadlesh and Hugh MacArthur and published by Harvard Business Press this year. Their thesis is that private equity firms are increasing the value of their investments by unlocking the full potential of their investments rather than by financial engineering alone. They recommend the following principles; 1) define the full potential of your company, 2) develop a blueprint for change, 3) accelerate performance, 4) harness the talent, 5) make equity sweat, and 6) foster a results-oriented mind-set.

I believe these principles can be applied to increasing any organization’s return-on-investment on building human capital assets that include the knowledge, skills, and capabilities of the leadership team and will discuss the application of each of these principles to building human capital and effective leadership changes through practical and proven processes and action steps that have been successful for my clients in future blog posts. I welcome your thoughts and suggestions to this discussion.

A leader’s greatest blind spot may be relying on an over-developed strength when they enter a new role. That’s natural as it’s likely that that strength resulted in their selection. For example, I once worked with Jill (not her real name), at a leading financial services organization. She had a commanding knowledge of employee relations law and was well-respected by her colleagues for her ability to manage multiple grievance investigations and external service providers.

The number of complaints was rising so she created a recommendation to retain more attorneys to reduce the attorney to second stage grievance ratio. It was her natural inclination to view the problem to be solved as to handle an increasingly large number of complaints more efficiently rather than question or propose how the root causes of grievances could be reduced or eliminated. She certainly had the knowledge to make that proposal but relied on his expertise in grievance management rather than grievance prevention.

To use an extreme metaphor, if your only tool is a hammer every problem looks like a nail. Where are you or your team using the hammer of expertise rather than diagnosing the root causes of a situation or problem?

I worked with a senior manager named Bill in the mid-80’s who thought that fanny patting demonstrated a positive climate of team spirit. Needless to say, eventually an employee filed a complaint. To say Bill was unrepentant at my our first meeting is like saying a pit bull can become mildly annoyed if provoked.

I began to quote company policy, legal liability, new societal norms, and disciplinary consequences to him (not one of my more thoughtful problem solving approaches) when Tom, a senior colleague who had joined us, took the alternative path of emotional connection by asking him, “Would you approve of your daughter’s boss patting her fanny at the office? “Bill turned red and I braced for an explosion, but after several moments he said, “I never looked at it that way and I won’t do it or tolerant it from now on”.

Tom’s contribution to this discussion was to connect Bill with an emotion that moved him from his defensive position to seeing the situation (and likely his world) in a different way. An excellent example of the power of surprise to create “aha” moments that motivate people to change. Where are the opportunities for “aha” moments by connecting your peers or team to remove a barrier to change?

Is a picture worth a thousand words? And if so, how a leader use this principle to connect people to the need for change? John Kotter, noted Harvard professor and author of such books as The Heart of Change and What Managers Really Do, wrote that there are eight steps to leading an organizational change initiative; increase urgency, build guiding teams, get the vision right, communicate for buy-in, enable action, create short-term wins, don’t let up, and make it stick.

The step that best applies to the “picture worth a thousand words” principle is “Increase Urgency”, as Kotter belives that there is a greater acceptance of the need to change when people can see, touch, or feel the problem.

He illustrates this principle with an example of a manager who researched his company’s use of gloves in their manufacturing process. He found that the plants ordered over 200 varieties of gloves from multiple vendors at prices which ranged from $5 to $20. Rather than prepare a spreadsheet or long report, he gathered a sample pair from each plant, brought them to his next staff meeting in a large bag, and dumped the bag on the conference room table. His team’s response (after what I’m sure was a moment of stunned silence) was something like, “this is crazy! We need to fit this problem”. And the manager had a solution in mind, needless to say.

Where are the “gloves” in your organization? How can you demonstrate or illustrate your own version of this principle to connect people to the need to change?

Effective leadership changes accelerate when a newly hired or promoted leader achieves 2-3 critical wins within their first three months in their role. These “small enough to win, big enough to matter” wins are generally dependent on their team becoming aware, accepting, and actively engaging with the need for the status quo to change. We all know that telling people they need to change rarely works, rather it stiffens resistance. So how can a new leader connect their team with the need to change? The following is an example from an article I recently wrote called, “The Power of Surprise - How New Leaders Connect  Their Team With the Need to Change”.

I vividly recall my first day of employment at American Express Company as a recruiter, which was also my first job after earning my undergraduate degree. The branch manager, a distinguished looking gentleman named Francis Pastor, dropped by my office within the first thirty minutes after I arrived. He introduced himself, expressed confidence in my ability to perform my responsibilities well (although we had never met) and told me that he expected me to help him build the best branch office in the company by ensuring that we hired talented people. He also told me that he would stop by my office from time to time to give me feedback about how well I was performing my role.

You can imagine the result on my performance. I understood his high expectations, how my role was connected to his mission, and that he would provide feedback on my progress. He invested perhaps ten minutes of his time but made a lasting impression. You can replicate this approach by connecting your team with the meaning and value of their role, why what they do matters to you, and how you will evaluate their progress.

Do I recall every word that Mr. Pastor told me those thirty years ago? No, but what I do remember is how it felt when a new employee at the bottom of the corporate food chain was greeted by a senior executive who knew that his visit would be a surprise (actually a shock) that would generate a lasting and significant  return in engagement and performance. Who will you surprise today?

I read an interesting article in the Business section of today’s New York Times entitled, “If you’re Open to Growth, You Tend to Grow”. The author, Janet Rae-Dupree asks the question, “Is it possible to shift from a fixed mind-set to a growth mind-set?”. To answer this question, Rae-Dupree quotes Stamford psychologist Carol Dweck’s three decade study that people who believe that they were born with a certain set of skills tended to not attempt to improve, while people who believe their abilities can grow expand their capabilities. Needless to say, the latter folks tend to learn from mistakes and achieve greater career success.

I’ve seen many examples of this self-fulfilling prophecy in my practice. Executives who consider themselves the “smartest guy in the room” tend to limit their learning. After all, to admit they can learn means that others may have a greater insight in a given situation. It’s probably no coincidence that Enron executives considered themselves in this category. Much onboarding research also indicates that a major reason for new leader failure is relying on skills that were effective in prior roles. Many senior executives have told me that their most transformational experience was failing in a prior role.

As found in an earlier post, Leadership IQ, a global leadership training and research company recently completed a three-year study of the reasons for leadership failure. They found that the top five reasons for failure were;

1. Poor Coach-ability (26%) - The inability to accept and implement feedback from bosses, colleagues, customers, and others.
2. Lack of Emotional Intelligence (23%) - The inability to understand and manage one’s own emotions and accurately assess other’s emotions.
3. Low Motivation (17%)- Insufficient drive to achieve one’s full potential and excel in the job.
4. Wrong Temperament (15%) - Attitude and personality not suited to the particular job and work environment
5. Insufficient Technical Competence (11%) - Lack of functional or technical skills to do the job

The study indicates that technical incompetence is the least likely reason for failure, which is understandable since that’s the focus of most pre-employment questions. Yet if you add up the top two reasons, coach-ability and emotional intelligence, you get 49% of the reasons why leaders fail. That’s why it’s critical for new leaders to assess, accept, and adjust their leadership behaviors when they enter a new career challenge. As author Alan Toffler wrote, “The illiterates in the 21st century will not be those who cannot read or write, but those who cannot learn, unlearn, and relearn.

Leaders who believe that they are natural leaders (meaning that they don’t need further development) are the most likely to downplay leadership development opportunities and rely on past skills rather than acknowledge the need for change. How’s your coach-ability?

What do you think, are people born with a fixed amount of talent or can talent be developed over time?

I presented the topic: Best Practices for Making Leadership Changes Effective from Day 1” at the monthly meeting of the Human Resources Management Association of New Mexico last week. Over a third of the 150 attendees were engaged enough in the topic of onboarding and leadership transitions to complete an online pre-meeting survey. One of the questions was, “What is your most memorable experience of entering a new job or new role? “.

The answers varied from variations of  ”sink or swim” and “being left to fend for yourself” to the following simple but powerful experiences that may be useful to you and your organization:

• A welcome Happy Hour gathering arranged for me and attended by most of my co-workers.
• When I was promoted to a Catering Manager position, I was required to spend two weeks working in each of the other Food & Beverage Departments. I hated every minute of it, but it taught me to appreciate the other departments. Very worthwhile!
• There was an extended on-boarding process which provided me with a designated resource to help me understand the culture and ask questions in a safe environment.
• The environment was not conducive to learning. I did not work with my new manager very long, but I learned valuable lessons about the importance of assisting people to feel welcome and succeed.
• I felt supported from my first day as the on-boarding process went well beyond forms an dwas highlighted by an off-site lunch with my new manager and co-workers.

A humorous note about the importance of clarifying roles and responsibilities. One respondent wrote that he/she joined a start-up organization as an HR Director. During the first week at a new location a Culligan water rep came by prospecting for a service contract sale. Here’s what happened, “Since roles and responsibilities for all of us hadn’t gelled yet, we just stood around looking at each other saying, “Water? Water? Who handles water?”. The CEO made the executive decision: “People drink water, so you,  (the HR Director) should handle this. It became the standing joke thereafter, “Oh, people do X, therefore HR should handle it”