Building Sustainable Ventures

Have you ever considered working for an early-stage company  or emerging company in New Mexico? Open to a full-time, contract, project team member, board position, or interim executive role? Your timing may be just right.

The above statement may seem counter-intuitive in today’s economic climate, but not according to a recent report funded and published by the McCune Charitable Foundation and New Mexico Community Capital. One of the actions recommended in their May 2009 report is ,”strengthen our base of experienced mid- and senior-level managers. Without exception business leaders and entrepreneurs noted this as a significant barrier to growing companies in the state. In the study, 67 percent of the respondents noted this undersupply of experience leaders and entrepreneurs as one of their chief concerns.”

While New Mexico is blessed with scientific and technical talent at Los Alamos National Laboratory (near Santa Fe) and Sandia National Laboratory in Albuquerque, candidates with deep industry sector expertise, global supply chain, business development, or “C-Suite” experience in early-stage and/or  lab-to-market  companies are in shorter supply. Some early-stage firms are open to “virtual” working relationships which are especially attractive to candidates who prefer not to relocate or whose roles (especially business development) can be performed in any city with good travel connections.

How can you explore New Mexico-based opportunities? One option is to visit the Opportunities section of my web site (www.sustainableventuresalliance.com) and submit your resume, another is to contact me directly to discuss your professional interests, and finally to research some of the leading venture capital firms that invest in New Mexico (such as Flywheel Ventures) to learn about companies in their portfolio where you could make a difference. Good hunting!

Regardless of your willingness to be “harnessed”, the author’s metaphor paints a useful picture. It implies being in alignment with the coach driver and others on the team, moving quickly on the journey to a desired destination, and staying focused on the path ahead. The reward isn’t oats (except if the destination isn’t achieved) but equity in an enterprise that results in personal and societal wealth.

The authors suggest acquiring, retaining, and motivating results-orientated people, sharing and scaling equity in the enterprise, and rewarding :boldness and success.” Probably nothing you haven’t read in most business publications or heard from every training course or professional speaker during your career. So what are  the true lessons here, and how can they be applied in this challenging economy?

For one, acquiring talented people frequires new staffing strategies. In the course of leading two recent Founder/CEO searches for early-stage companies, I’ve found that the total pool of qualified candidates is actually larger since these companies have a shorter runway to profitability and many are primarilyabout organizational survival. I’ve also found serial entrepreneurs interested in “getting back into the game” as a diversification (or recovery) strategy within their retirement portfolio.

I believe that the traditional early-stage staffing model is evolving from full-time hires to virtual teams formed “just-in-time” to tackle due diligence, proof-of-concept, and related business issues in early-stage and portfolio companies. Some talented people are reluctant to commit to full-time roles with a prolonged time to an exit by IPO or acquisition, especially if a relocation is required. And venture capitalists are reluctant to invest if a rapid path to revenue and a sound implementation plan is in place.

The solution could be accessing a robust pipeline of seasoned players with complementary skills that launch, accelerate, and implement key business initiatives to grow, realign, or turnaround early-stage organizations. In this model, “harnessing” talent requires the additional skills of working in a virtual team, contributing functional and industry strengths in clearly defined roles, and achieving meaningful results rapidly applying a “First and Every 100 Days” methodology.

I plan to present a slate of Founder/CEO and virtual team finalists to my fellow New Mexico Angel deal partners next Thursday after a final round of meetings with the prospects and our inventor. I’ll report out on our decision and implementation plan in my next blog entry. Thoughts and comments?

True performance, meaning achievement of something measurable and meaningful compared to past results, requires accountability and alignment.

The organization may focus on three to four key measures that can be measured qualitatively or quantitatively. Effective performance can then be accelerated by setting baseline measures and taking actions to improve results and then resetting the baseline.

Accountability may be shared across organizational units if a team of department leaders is formed and the senior leadership team reviews their results on a regular basis. This approach minimizes the risk of “siloed” groups and blaming others for lack of progress and aligns the resources toward common objectives.

Accelerating individual leadership performance during the first 100 days after a merger and acquisition or leadership change is also critical. Most research studies indicate that taking too long to align the organization and engaging the team is a leading cause of under-performing against key objectives.

What do private equity firms have to teach about performance acceleration? In my view, it’s their urgency in getting the right people in the right roles and focused on the right things so they can shift their focus elsewhere within their portfolio of companies.

A leading venture capitalist told me last week that his firm passes on many potential investments because of concerns that the leadership team must to be significantly upgraded to meet new strategic demands rather than the organization’s products, technology, or services.

The implication? Build the competencies necessary to accelerate performance before you meet with potential investors as they will benefit your career and organization regardless of your funding.

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?