• Who do we hire next?
• What is our specification for a role as we scale it?
• What does senior vs. associate look like?

I’ve spent considerable time thinking about this over the past several months.  It turns out I spent most of that time focused on the wrong thing.  I was thinking about the individual skillsets we needed in the organization and how we were going to acquire them.  It was a frustrating exercise because while the answer was relatively obvious, it wasn’t a good one. We need extremely talented product-to-market alignment thinkers. We need people that excel at analyzing external market landscapes using a pair of bifocals that allow them to uncover whitespace opportunities and conceive of a product solution that will win. A CEO colleague of mine, Rod Favaron (@rodfav) of Spredfast said to me “you guys have the hardest hiring problem to solve in the city.”  I don’t know if that is absolutely true, but it’s certainly the case that it is prohibitively expensive to hire truly excellent senior/executive level product thinkers.

So – for a month and a half I was stuck. I’ve spent my entire career looking at organizational development similar to the way a baseball team builds its roster.  The goal is to acquire players with different talents and put them in the correct spot in the lineup to maximize their impact on the game as a whole. The fast guys who get on base need the big sluggers to drive them in and the big sluggers need the fast guys on base to provide run scoring opportunities.  It always seemed very rational and obvious to me to view the world this way.   But, Rod’s comment got me thinking and made me realize that not only is my a thinking flawed, but, in fact, it’s forcing my team to evaluate the wrong skillsets as they think about new hires.

The flaw in that thinking is pretty simple: we don’t need Thinktiv to be stronger than the sum of its parts, what we really need is an organization that can function without the overhead of parts.  Our Chief Strategy Officer, Steve Waters (@thinktivsteve) reviewed this post and said to me: “So you’re saying we need Jason Bourne, not George Clooney and the Oceans 11 team?” This is a great analogy, and it’s right on. In our line of business, we help early stage companies identify and develop a product thesis around what “it” will win in their marketspace. It is one of, if not the most critical decision an early stage company will make. It does not require a team of 6 specialists to make that decision. It requires an experienced product thinker with dozens if not hundreds of swings at the plate commercializing products of different types for different markets. This person must be engaging to listen to, inspire rigorous focus and literally, invent a business. We must coalesce all of branding, customer acquisition, product strategy and user experience, measurement methodolgy and go-to-market strategy and these into a holistic plan. Seeing as how early stage companies need to get to market in 90-120 days, you can see how building a team of expert parts is simply not a viable alternative. It’s nearly impossible to hire people that can do that – perhaps Rod is right.

If we can’t hire it, we need to grow it. That’s when it occurred to me. If it must be grown, we need to have a program to grow it. If we have a program to grow it, our hiring strategy should be evaluating people’s ability to succeed in our development program and not be centered on evaluating people’s level of competence at their craft.

This all seems very obvious to me in retrospect. But, I take comfort in the fact that in my 15-year career, I have not been a part of or worked with organizations that operate like this. I find the ‘roster of baseball players’ strategy to be the predominant strategy – and there are plenty of successful businesses that use it.

This means Thinktiv needs to institute and measure the effectiveness of heavy cross-training regimens and invest in our development program. We’ve already started, although I’m not sure my teammates know it. Several of them have been taken out of roles their craft qualifies them for and put into positions of extreme discomfort, exercising muscles they simply haven’t exercised before. It hurts a little bit. Some of it will be uninteresting or less interesting, some of it will be easy and some of it will be hard. I expect we will increase “personal mistake rate” on projects throughout the organization. This sounds like a great idea to me as that’s how we will invest in our people. It won’t affect our customers because we over invest in them, providing plenty of air cover for our teammates so that we continue to deliver the results the market has come to expect from us. In the long run, our customers will benefit. It will require fewer parts to manufacture better businesses. It will take some time, but we will refine our understanding of the type of person who will succeed in our cross-training program, and that’s whom we’ll hire.

Social Multiplication
Lots of companies sing elaborate show tunes about their solutions being inherently viral.   They want the market to believe there is some intrinsic (typically social) factor that allows the acquisition of a single end-user to create the acquisition of other end users — without additional expense.   This is generally viewed as a tremendous market advantage, because companies with these characteristics can build huge user bases, while spending much less than the norm to acquire those users.   There are powerful examples of this phenomenon — Hotmail, Skype, and Facebook being three.  There are also many companies for whom this talk is pure bullshit… just another piece of spicy sausage in the gumbo of a startup’s VC investor deck or PR machine.    Groupon, for example, has many things going for it.  But but being viral isn’t one of them… not when they are currently paying north of $30 for every new user on their network.

Whenever we find user acquisition multipliers that are real, we pay attention.  With QuickGifts we see two:

1) QuickGifts gives merchants the tools to “turn on” gift card sales within their existing online marketing channels — via their Web sites, Facebook, Twitter, e-mail marketing programs, etc.    The merchant, without spending any additional marketing dollars, can now convert lucrative card sales through the communication mechanisms they are already using every day.  Because QuickGifts manages the entire commerce and fulfillment process for the merchant, once an end user buys a card, they also become a QuickGifts customer.    In 2010, the average QuickGifts merchant client sold an additional 84 cards through these newly available channels (the number for restaurants was 151).

2) Compounding the benefits of #1 is the fact that gift card commerce is distinct from direct e-commerce and coupon commerce, in that every transaction involves two parties:  a buyer and a recipient.   The average U.S. gift card buyer in 2010 purchased 5.3 cards, presumably not all for the same person.  That means for every new card purchaser a merchant activates through its marketing activities, at least one more QuickGifts end user (the recipient) will be added as well.   Often several more.   QuickGifts also sells directly to business customers, who use the company’s universal Dibbs currency as the basis of their diverse corporate rewards and incentive programs.  The multiplier gets even more powerful in this case.   In 2010, the average business client issued unique Dibbs currency rewards to nearly 600 recipients, all of which are now also QuickGifts end users.

It’s the Intent, Stupid
Many of us at Thinktiv spent our formative professional years at an Austin-based software company called Trilogy.   That collective experience can (and probably will) fuel many additional blog posts, but for these purposes, this will provide relevant background.   The reason I bring it up now is that Trilogy surfaced an important insight in the 90′s when it was building online configuration solutions for the world’s largest auto manufacturers.   That insight revolved around the power of intent.   Forever, automakers based future manufacturing plans on the historical order data gathered from their dealer networks.   For example, Chrysler would see that the majority of the LeBarons ordered on dealer lots during the last quarter were “midnight blue”.   The obvious conclusion to reach was always “let’s build more midnight blue LeBarons!”

What they didn’t consider was the fact that “midnight blue” was already the most prevalent color on their lots, and that buyers were often settling for that color because their preferred color was not available.   Others would abandon their purchase altogether, opting for another brand because they had their heart set on a “fire engine red” vehicle.    What Trilogy enabled was interactive needs analysis for prospective car buyers on the Web.   It allowed the automaker to see for the first time what customers were asking for, rather than what they ended up buying.  Predictably, their manufacturing plans became more aligned to buyer intent, and conversion rates increased.

We see substantial parallels between this Trilogy lesson and the consumer gift card market.   Currently, 100-200 major retail brands dominate the market — because they have the dollars and the leverage to maximize distribution reach, where smaller merchants do not.    But if that distribution advantage went away, and consumers had the opportunity to choose gift currency from a much larger universe of their favorite merchants, wouldn’t purchase behavior change?   In other words, if consumers buy $80 million worth of Chili’s gift cards each year, isn’t that number partially inflated by the fact that Chili’s cards are among the small handful of restaurant cards available on the “dealer lot”?   Isn’t it likely that at least to a certain degree, Chili’s cards are equivalent to the midnight blue LeBaron?  We think that is a huge opportunity.

Fun with math!
As many world citizens realize, math can be fun. But those who have taken algebra know that it can sometimes be really freaking hard to do math when you don’t have all the relevant variables at hand. While there are many factors that can combine to make a great venture acceleration opportunity, in general the variables we at Thinktiv really care about are:

1. the size of the market (Samoa? Costa Rica? India?)
2. the unit economics of a business – in other words, what economic value is created when the business acquires a customer, and at what cost?
3. the lifetime value of a customer – how do those unit economics play out over time

QuickGifts has an excellent handle on the unit economics of its local merchant customers, and the value of those customers over a longer horizon. On average, a QuickGifts merchant client generates an additional $7,000 in gift card sales per year. The typical breakage rate on card sales is around 20%, meaning that $1,400 of that $7,000 is pure profit to the merchant. The remaining $5,600 in card sales are redeemed in-store, where recipients spend an additional 50% to 150% of the original card face value. That’s $2,800 to $8,400 of full-margin sales on top of the original card value. So the total gross economic value to the average merchant (per year) is somewhere between $8,400 and $14,000 at full margin + $1,400 of pure profit from breakage.

When we look at the restaurant category on its own, the numbers are even better:

1. $10,500 in gross new card sales
2. 20% average breakage ($2,100 in pure profit)
3. 100% to 150% of additional spend when the recipient redeems in-store (or $8,400 to $12,600 of full-margin add-on sales)

That makes a total gross economic value to the average merchant (per year) somewhere between $16,800 and $21,000 in full margin sales + $2,100 of pure profit from breakage. One single-location restaurant in Houston sold over $41,000 in gift cards last year, without cannibalizing its historical in-store sales. That is a lot of fancy cheese!

How does QuickGifts make money? They charge the merchant a nominal subscription fee ($10 – $100 per month depending on number of retail locations) + a 10% performance fee on the value of all cards sold. So on average, QuickGifts will collect around $950 per year in fees per merchant ($1,300 from a restaurant). Because the value proposition is so strong, the company sees merchant attrition rates well below 1%, so it is easy to project the “lifetime value” of a merchant client over 3-year, 5-year, and longer terms. We like math like this.

IMPORTANT NOTE: You’ve had to process a lot of numbers in order to make it this far. Before continuing, you may want to reward yourself with a trip to the Thinktiv Refreshment Stand.

Welcome back. Now onward…

The T-Bone Corollary
The previous “power triangle” discussion and “unit economics” analysis above reveal another characteristic we like to see in venture acceleration opportunities. The “T-Bone Corollary” states that it is more capital efficient to intersect a white hot market with a complementary value proposition, than it is to simply chase that market with your version of the same value proposition. This rule is illustrated visually in this exciting video. If the value proposition creates additive revenue streams within the market, the effect is greater (as with a large truck or Humvee, for example). When we first invested in QuickGifts several months ago, we saw the opportunity to intersect the white hot local commerce market with the economic proposition outlined earlier. We saw the shortcomings of the daily deal value proposition to merchant customers, and felt the QuickGifts could create high velocity merchant acquisition as a complement to that type of program. We also saw entrenched players in the local search and merchant services markets looking hard for new revenue streams and more compelling value propositions for their merchant clients. This told us that QuickGifts could accelerate merchant acquisition even more aggressively, through revenue sharing partnerships that created profitable value for all parties.

So far the T-Bone Corollary has held true. Since November, QuickGifts merchant installed base has tripled, and that growth is accelerating. Through new partner relationships, the company now has external sales forces selling its solutions into a collective installed base of 25,000 merchant locations. It has an active pipeline of new partnerships in the works with reach into 300,000 more locations. That beats being the 23rd best daily deals site any day.

Up next in Part 3? “Social Multiplication & the Power of Intent”.

A short time ago, we announced our first “lead” investment – in Austin-based QuickGifts. In his last post, @Berkokid talked about the acceleration of QuickGifts since we became involved several months ago, so I won’t rehash that. I’ll focus on the variables that make us love the company, and why we believe it is an emerging category leader in an enormous market. The good news is that there are several things to love about QuickGifts, which means I’m going to break this discussion into a few separate posts.

In a nutshell, QuickGifts provides solutions that allow the in-store gift currency of local merchants to be more broadly distributed to consumers and corporate clients.  Since it’s founding in 2002, the company has built its business around four key solutions that together create a “closed loop” that enables merchants to capitalize on this opportunity:

OneLink is a white label e-commerce solution that allows merchants to effectively offer their existing in-store gift cards or certificates through online, social and mobile channels.

The QuickGifts Card Mall is a destination shopping site, offering the broadest online selection of local, regional and national merchant gift cards and prepaid currency.

Dibbs is the company’s proprietary, universal currency that can be used by recipients to purchase branded merchant gift cards on the Card Mall.

QuickGifts Corporate is a business incentives management solution that allows SMBs and corporations to manage diverse rewards and incentives programs built around Dibbs currency.

Just on a standalone basis, those are substantial commercial assets. However, QuickGifts possessed an abundance of other characteristics that we love to see in “acceleration investment” opportunities. Here are the first two:

A “G-50″ Market
The bigger the market a company serves, the bigger the potential to create a “great” company at scale. A corollary to this statement is that if a market is sufficiently big, it will have many more niches that a company can occupy to become really valuable (vs. “great”). If a market is smaller, you can still create substantial outcomes for founders and investors, but you need to have much more of a pure “greenfield” play on the opportunity, or some sort of unfair new advantage over incumbent market participants. One can think about the relative size of addressable markets the same way one thinks about world economies. Lots of investors would draw their Mendoza line for minimum market size at $1 billion, which based on this data corresponds to the GDP of Samoa. Things get much more compelling when markets approach the “shores of Malta” ($10B), the “Costa Rican frontier” ($50B) and then the golden “border of Tunisia” ($100B). QuickGifts is a pure play on two huge markets — consumer gift cards (~$100B annual sales) and the corporate incentives sector (~$50B)… with strong alignment to other multi-billion dollar markets like Mobile Payments and Local Commerce. When you add those together, you get a market with “G-50″ economic credentials — comparable to countries like Ireland, Finland and Israel.

The “power triangle”
We think that many great companies emerge when 3 or more parties receive substantial benefit from the business value proposition. While those benefits can be social or knowledge-based, explosive value creation is much more likely when the benefits are economic in nature. An example: In the early days of Google, the company was just a humble search engine creating benefit for two parties — the searcher and itself. When Google optimized the concept of paid search, it delivered substantial economic benefit to an entirely new set of constituents (marketers) and shifted its own benefits from social (“Google is the most brilliantly constructed search engine!”) to financial (“Google is an unstoppable economic juggernaut!”). Apple solidified its return from near oblivion when the iPod and iTunes marketplace created a great two-way relationship with consumers, centered on a new form of music consumption. However, Apple didn’t become a deadly force until the iPhone (then iTouch and iPad) hit the market, and along with it a marketplace where armies of application developers could make a living selling their work to eager consumers. We call these “power triangles”, and when they hit with well-balanced economic alignment for all participants, they turn good businesses into perpetual growth machines.

In the world of local commerce and the small-to-midsize merchant, we’ve seen over the past year the remarkable growth of “daily deals” leaders like Groupon and LivingSocial. On the surface, this looks like a power triangle phenomenon in majestic bloom: The consumer gets a fantastic deal on goods or services; Groupon takes a healthy cut of every daily deal transaction; and the local merchant sees an amazing increase in store traffic, revenues, profits, and loyal customers!

Uhhh… Whoops. Seems like the power triangle of the daily deal looks a lot more like a line segment to many merchants, since it basically allows a local merchant to conduct the worst possible economic transaction — selling a dollar for 25 cents — hundreds or even thousands of times.

On the other hand, the sale of a gift card represents the best possible transaction a local merchant can make. The full value of the card paid up front, then the merchant waits for recipients to redeem in-store. When they do, those recipients typically spend an additional 50% to 150% of the original face value of the card — again all at full value. The problem is not whether to sell gift cards — most local and regional merchants do. The problem is how to sell them efficiently in places other than inside the store. With few exceptions, local merchants typically sell 100% of their gift cards in-store. They struggle to offer their cards through online channels, due to cost, time and resource issues. Why does that matter? Chili’s sells roughly $80M of gift cards each year, but only $20M are actually sold at a Chili’s location. The rest? Online or at the end of the grocery store aisle. In a nutshell, QuickGifts allows smaller local merchants to finally compete with the big national brands for those dollars — and substantially expand the volume of those valuable gift card sales. Let’s look at what QuickGifts’ merchant clients have to say.

We think that this value proposition earns QuickGifts the right to wear Thinktiv’s official Power Triangle Amulet.

Next: Fun with math(!) & the “T-Bone Corollary”

Part of what makes us valuable as venture accelerators, investors, and partners is that we bring a diversity of high impact expertise to bear on technology-enabled businesses. Our different perspectives smash together around companies and market opportunities, and usually produce really good insights and outcomes. Unfortunately, what makes us special also makes it hard to publish a coherent blog. If there aren’t at least a few of us blogging about venture acceleration from our respective points of view, then we are guaranteed to appear myopic, distracted, insane … or all of the above. So we’ve signed up for the task.

Let’s just say that it has been easier for some of us than others. My office mate Jon Kolko (@jkolko) was already an accomplished blogger, author and thought leader on design-related topics … and he effortlessly embraced the challenge. @jkolko (not to be confused with another brilliant communicator with a similar name) has already published insightful pieces on the role of designers in startups, along with various posts about design thinking as it relates to commercial product strategy and social entrepreneurship.

Then we have our CEO Jonathan Berkowitz (@berkokid), who in addition to being the esteemed master of ceremonies here at Thinktiv, is a product strategy ninja and big thinker on startup-related issues. However, he’s never been a blogger, and his humble nature (and relentless execution mindset) make blogging feel like a soul-scraping voyage into theHeart of Darkness. @berkokid has valiantly battled through it over the past few weeks, writing excellent posts about startup leadership, turning ideas into valuable products, and a great initial discussion of Thinktiv’s overall market strategy. While it’s exciting that he has hit his stride, I’m facing the fact that it’s now my turn to step across the threshold into unfamiliar territory and an unknown future.

So here we are. As the Managing Director of Thinktiventures, I’m going to be writing about our investment model, the variables that create great acceleration opportunities, the businesses and entrepreneurs that have chosen to partner with us, and (*sound of knuckles on wood*) the successful outcomes our portfolio companies ultimately achieve. Please be patient while I zero in on my long term voice.

We have always viewed ourselves as more than a “design firm” or services company. A few days ago, I published a manifesto of sorts on this topic.  In summary, when we work with customers, our focus is not on tactical projects or deliverables. It’s always on the asset value our services are capable of creating, how we can maximize it and in turn, maximize the value that the market assigns to our customers’ businesses.

The essential question is:  “As the CEO of a startup, which is more valuable – $100K in cash or $100k of human capital that delivers vastly more asset value in the form of new products, distribution channels, or revenue streams?” We think it’s the latter and so do our customers. This insight led us to realize that our ability to accelerate businesses could actually be applied as a premium form of investment capital – capable of creating aggressive gains in market traction and >10x the asset value per dollar than traditional invested capital (i.e. cash).  This worldview was genesis of Thinktiventures, our equity investment program, back in 2006.

Since then, we have methodically put this idea to work. For certain clients in the right markets with the most compelling opportunities for venture acceleration, we’ve taken equity positions in lieu of cash for a portion of our services rendered. Using our approach, we’ve assembled an outstanding portfolio of these “earned equity” investments — with holdings in roughly a dozen emerging market leaders like Socialware, SharesPost, OtherInbox, Prysm, RecycleMatch, Pricelock and others.

Now we are taking Thinktiventures to the next level. Early this year we announced our acquisition of Triggerbox.  Triggerbox was a strategic advisory firm, angel investment vehicle, and longtime Thinktiv partner. As part of the integration of the two companies, Triggerbox founder Steve Waters joined us as Thinktiv’s Chief Strategy Officer and the Managing Director of Thinktiventures.  With that acquisition, we saw the opportunity to extend our “acceleration capital” model to larger, more strategic investments, with Thinktiventures acting as the “lead” investor.

Again, these investments will be optimized around the creation of asset value — which means they may not look like traditional venture capital opportunities.  We won’t be chasing after the most hyped new startups.  We won’t be making 100 bets with the hope that a handful will pay off.  We’ll be looking for opportunities where focused investments of acceleration services and financial capital can create “non-linear” returns in asset value. These opportunities are likely to take one of three forms:

1. Powerful ideas that are too complex or require too much investment for early-stage incubators.
2. Companies with strategic assets in great markets but need an aggressive shift in distribution strategy to realize their potential.
3. Large companies with valuable assets that have hit a plateau in their growth — and that now sit languishing in another venture capital portfolio.

I’m thrilled to report that yesterday, the first of these investments — QuickGifts — was announced. When we met them a year ago, QuickGifts was a 9-year-old startup providing gift card e-commerce and rewards currency solutions to local merchants and corporate clients. Bootstrapped by founder/CEO Stacy Young, the company had a tremendous base of strategic assets in the local commerce space, but limited distribution, and a pressing need to revitalize both its market strategy and visual brand.

QuickGifts slotted nicely into the second bucket I described above. We led a group of several investors in a $700K+ infusion of new capital, combined with a substantial investment of Thinktiv acceleration services. We worked with Stacy to implement an aggressive partner distribution strategy, and completely transformed the company’s market position, brand identity and end user experience. Now, as the company (re)launches, it is poised for hyper-growth and category leadership in an enormous market.   It’s the perfect example of what we’re trying to accomplish as investors, and we’re incredibly excited about QuickGifts’ future.

We’ll publish a more detailed breakdown of the QuickGifts opportunity shortly, but I wanted to give everyone the proper context in advance. We look forward to sharing more exciting Thinktiventures news in the weeks ahead.

1. If we consider a traditional definition of design, it is being outsourced and commoditized by international firms and through businesses like 99 Designs.

2. Executives who do not understand design and the value it can deliver reduce the practice to coloring in pixels. Executives very rarely value pixels, and if they do, it’s temporary in nature.

3. There is as much subjectivity in the field as objectivity. This makes it hard and emotional for executives, particularly early stage executives where no corporate styles exist.

I always say to my teammates at Thinktiv, “Design is dead.” And by the traditional definition, I believe that’s true in many markets, including ours. Design processes are frequently associated with high premiums, long cycles, and lots of ego. This has led to a noticeable decrease in a design firm’s ability to monetize design practices. This is why you see design agencies moving towards new terminology like “innovation firms” or “global innovation strategy.” However, it’s the same people working with the same customers using the same processes after the same output. They even charge their customers the same way. It’s design.

In the early stage market there is an ever-increasing trend of copying the design stylings of others. Illustratively, our president, Justin Petro @justinpetro frequently states, “there’s no such thing as a truly unique brand system unless you spend a lot of money.” At one end of this practice, we find design mashups, the styling and direction of 2 or 3 established companies rolled into one. We hear 2 or 3 customer ideas a month that reference 37 signals and say, “we want to be like that but …” At the other end, we find the cloning strategy. An example is Indeed.com of Google. This is not a criticism of Indeed. In fact, they’re able to produce a familiar experience for users without investing in heavy brand or experience innovation, and they’re very successful. This is some of the most compelling evidence of the challenges associated with design.

So, all this said, roughly half of my team at Thinktiv are designers by trade. We have interaction designers, visual designers, brand designers, print designers, motion graphics experts, and I’m certain I’m forgetting a discipline. So, why do we hire so many designers?

It’s simple; the design community is saturated with great commercial minds that have never been put into roles with deep commercial responsibility. At Thinktiv, our commercial responsibility is to unlock piles of money for early stage companies. We need to compel venture capital firms to finance our customers, end-users to pay for our customers’ products and corporate buyers to place a premium on our customers’ businesses. Our venture acceleration program has been successful over the past 5 years because we’ve become excellent at increasing corporate valuation through the use of design to architect product and market vision. We do not follow many common design practices nor do we do ‘design consulting’ for early stage companies outside the context of our venture acceleration program. We focus on a specific set of artifacts for a specific set of people that we know maximizes corporate valuation. Our designers tell their story through fundraising decks, business model spreadsheets, product screens, demonstrations, advertisements, and dozens of other artifacts that they must be able to create – all with a singular focus on the next phase of corporate monetization. They act much more like entrepreneurs in residence than they do design consultants.

Designers that join our team go through an adjustment period. They transition from a world of interaction, usability and pixels to a world of market definition, business competition and executive sales. I’m happy to say that our hiring practices are effective, we find people capable of making this adjustment. And, I think my teammates are generally pretty happy in their roles. In the end, I feel comfortable that many of the individuals on our design team can stand up in front of Venture Capital firms and pitch our customers’ business for a Series A raise. I feel comfortable they can do this because, at times, they do. I don’t believe that’s the traditional definition of design, but it’s ours.

The first requirement of a successful executive team is for each executive to be ruthlessly aligned with the CEO.  In most early stage companies, there is room for one and only one strategy.  The CEO defines it and is the keeper of it. Executives on the most successful teams take the time to prioritize learning, understanding, speaking and writing the CEO’s version of the company’s strategy. Then they evaluate how to extend the strategy discussion to the constituents they frequently speak with, for example, technology executives to developers or marketing executives to the industry.  There are many reasons why it’s important to create radical strategic alignment.  Simplicity, focus, accuracy, successful prioritization, and fiscal responsibility are just a few.  However, here’s a subtler one and it might be the most important for an executive leader. It is very difficult to lead a team of people if that team does not see you follow. (I’ve read a quote about this before, I believe).  Just as leadership is a skill that’s developed, so is following.  For an executive, being ruthlessly aligned with his CEO is something his team needs to see.  I’ve seen executive teams fail when executives fail to adopt and demonstrate alignment. For example, I’ve seen executives needlessly modify the corporate story to be consistent with their own point of view, as opposed to the CEOs. I’ve also seen them fail when they look inward at their own responsibilities as opposed to consistently aligning their responsibilities with the CEO’s vision. The cost of failure is high. The CEO does a lot of extra work resetting expectations and spends his time salvaging poorly communicated initiatives, as opposed to selling into the market. This is a difficult, emotional argument. Businesses are not democracies, despite our utopian ideals. The CEO is responsible to the board, and his direct reports are responsible to him.

The second requirement of a successful executive team is for each of the individuals on the team to stay in their lane.  One of the reasons early stage companies are exciting is because each challenge is truly new to the team.  There’s tremendous collaboration occurring at all times and lots of idea exchange.  This idea exchange is extremely powerful and a critical part of developing an early stage company. It creates alignment, passion, emotional attachment and innovation.  However, each challenge does not necessarily bring about the need for everyone in the company to flex their muscles.  The most successful leadership teams I work with have well understood roles and responsibilities and know when to draw the line.  Decision makers are clearly identified and more importantly, each executive expects a better outcome if he leans on the expertise of his colleagues rather than inserting himself sub-optimally into the fray. There are certain skill set combinations that seem more subject to this than others.  For example, Product Executives trying to run Marketing, or Development trying to create business value road maps.  In the end, the CEO hired a set of executives he believed brought experiences that were not his own and will be better at their role than anyone on the team. Each executive needs to trust this to be true, and stay in their lane. We struggle with this at Thinktiv.  I’ve got a great team of people I work with and for, and because of our success over the last two years; everyone is motivated to grow the business. Most of the time we function very well as a leadership team.  But if I look critically at where we need to improve, we need to trust the expertise each one of us has and match the right decision maker to the right challenge.

For the final requirement of a successful executive team, I want to visit an Andrew Carnegie quote.

“The older I get the less I listen to what people say and the more I look at what they do.”

I believe this and try to practice it daily, and I’ve seen the results. Therefore, I believe a critical requirement is that each executive must pay as much attention to the actions of the other executives as he does to what they say. I’m a huge sports fan, and the best teams have players that know each other so well that they do not need to communicate verbally.  They’ve learned to anticipate each other’s movements.  They’ve also learned to react to the information they have at hand and make quick decisions that give them the greatest probability at succeeding at the next task.  The most effective executive teams I’ve worked with have executives that are so in tune with what the others around them are doing that they’ve tailored their team’s behavior to meet the future demands of the organization.   They head off challenges before they become problems because they can ‘see’ or ‘feel’ them occurring.  It’s as if the organization itself has begun to develop a sense of proprioception. (Yes that is a $.25 word, I apologize).  We’ve all seen executive teams that fail to do this.  They can frequently be heard saying things like:

• “Well, he said I would have <the thing> by <this date>”
• “The roadmap called for <the thing> so I thought … “
• “Personally, I was never in favor of that approach, but he wanted to use it so … “

Great executive teams anticipate issues because they react as much to the actions of their colleagues as they do to formally communicated ideas.

I am very fortunate.  4 of my 5 executive team members have been together, and with me, for over a decade.  We’ve developed a wonderful chemistry and rely on it every day.  Our fifth executive team member, our COO Mark, is new and doing a great job of fitting in.  Perhaps a good post for the future will be from him on what it’s like to integrate into a team that’s been together for so long.

Our experience in the early stage market, and with dozens of CEOs over the last several years leads me to define the following three requirements for CEOs to successfully navigate the challenges of moving their business from Powerpoint to production.

The first requirement is that the CEO must have a simple vision for how the company will address its market need.  CEOs develop their vision by analyzing current market conditions and forecasting future scenarios.  Their vision addresses at least these three dimensions:

1. A problem solving strategy (product or service)
2. A customer acquisition strategy (sales and marketing)
3. A monetization strategy

It’s rare for a first-time CEO to have enough experience and insight to be able to conceive of, simplify and broadcast a compelling strategy that includes all three dimensions.  This is not a fatal flaw, as long as the CEO recognizes he needs help – and finds that support. I’ve seen CEOs fail in recognizing their shortcomings, and I’ve also seen them fail in addressing these shortcomings with outside council. The least successful CEOs we work with spike highly on one of the above three-dimensions and they believe the single pillar can sustain them. This is rarely the case, and in contrast, the most successful CEOs build and broadcast a well-rounded vision for how to address the market need.

The second requirement is for a CEO to know what to delegate, and to actually delegate it.  (Kip alludes to a piece of this in his first requirement). The most successful CEOs hire people better than themselves for each of the critical roles in the company. If we assume quality hires, then the CEO must recognize that these team members are not going to accept micro-management gracefully and will become extraordinarily frustrated if their ideas are consistently over-ruled or needlessly modified by the CEO – “because he’s the CEO.”  The most common failing of CEOs who have ineffectively delegated is falling in love with iterations. Simply put – they delegate the responsibility of iterating until their vision is met to someone else, as opposed to delegating the creative process. This false delegation just extends the time and cost to get to the answer they would have gotten to if they just did the work, sub-optimally, themselves. False delegation brings innovation and launch processes to a halt because it stifles key leaders’ ideas and capabilities. The least successful CEOs find themselves trapped in brand language, pixels and bits of code – details that they should simply not have time to attend to. In contrast, the best CEOs have excellent talent on their team and have operationally and emotionally delegated critical tasks.  This allows the CEO to spend time ensuring the market is receptive to the company’s vision. I should note – as a partner and service provider to early stage companies, it is fair to include expert outside council (consultants) in the discussion.  They need the freedom to execute their processes and ideas as well. Why pay an expert to be a spec writer?

The third requirement of a CEO is to be the keeper (thanks Kip) of the company’s emotional energy.  In many ways, early stage companies are like toddlers.  First, they are highly subject to “chasing the shiny new object.”  Second, early stage companies generally have two moods, unbelievably positively excited, or DEFCON 1.  Have you ever seen a toddler sitting calmly and quietly playing or reading a book for more than 30 seconds? Finally, just like toddlers, most things early stage companies do are new.  Each experience is simultaneously scary, painful, rewarding and exciting.  The best CEOs we work with pro-actively create a blanket of calm over their entire organization, and they do it without slowing things down. Through their demeanor, they instill confidence in everyone including employees, investors, advisors and customers.  You can easily identify the least successful CEOs by looking at their team. Their team is frequently cranky, or stressed and they struggle to make customer and / or vendor relationships work.  They’re extraordinarily focused on details that are costing precious time and money. And they generally do not have confidence to make decisions themselves – too many decisions are put to internal democratic processes, which in early-stage-company-land equals “wait for the CEO to approve / decide.”

I suspect that as Thinktiv matures, we’ll have greater visibility into the relationship between the stage of the company and the challenges facing a CEO.  As a CEO, I try to look at what we learn from our customers and apply these lessons to our business, daily.  When mistakes are being made, or opportunities are abundant, it can be particularly challenging to stay calm and let team members navigate their way to dry land.  However, if you’ve done your job and your team and the market understand your operating vision, you’ve empowered people to succeed and your organization is executing under emotional control, you’re starting off on the right foot.

Note: I edited this post after a conversation with Ian Ragsdale @iragsdale and added ‘This false delegation just extends the time and cost to get to the answer they would have gotten to if they just did the work, sub-optimally, themselves.’