When do you make the call?
How do you know when it’s just not working and a new leader or team is required?
When we get invited to meet with a company, most of the time it’s to discuss underperformance. We hear that while the board has supported the current management team for a period of time, the time has finally come to recruit their replacements. That companies underperform is not a surprise. All companies fail to live up to expectations for periods of time. What continues to surprise, however, is the length of time underperformance is tolerated.
We have met boards who have tolerated underperformance for more than 10-years without a change of leadership; companies where multiple targets have been repeatedly missed; where expectations are constantly re-set; where the repeated promises of tomorrow are meant to make up for the failures of yesterday and today.
Why? How? We ask such questions and receive a range of answers. “Building a business is hard work.” “Getting technology to behave in the way you wish is even harder.” “Getting corporates to engage on your terms and timescales is nigh on impossible.” All of these things are understandable and true. Still, continued acceptance of underperformance cannot be the response. Missing key targets for one year might be acceptable, providing that important lessons have been learned and applied. But if similar targets are missed in subsequent years, a call must be made.
If we want to build high impact technology and services businesses, we must demand more from management teams and boards. We need courage. And we need to be specific about objectives. The more specific the objectives and goals, the easier it is for evidence to be demonstrated. If the goal is to win two new client engagements by the end of the year, two signed contracts are required. If a technology milestone needs to be met within a certain budget and timeframe, then that milestone must be met and acknowledged. If not, a call must be taken.
Specific objectives like these are usually drawn up by management teams and agreed by boards. It is important, however, that a board agrees amongst itself what kind of achievement will ultimately be acceptable within a certain period of time. After all, there may be certain targets that represent a stretch for the business. If so, where should the line be drawn? These targets should be agreed immediately following the business planning process, thereby providing an effective tool for measuring the company’s efficacy throughout the year. They should also be put in place as early as possible in the life of the business, in order to create a culture of accountability and performance.
And what about failure? Business plans are ever-changing at the best of times. Shouldn’t we just support the team as best we can and see how they get on?
There is lots of talk in the start-up world about the importance of embracing failure, and it’s true that it has a vital role in the start-up ecosystem. But it’s important to be clear on the real meaning of this. Failing to satisfy a customer with an iteration of a product release before quickly re-developing it is one thing. Failing to win new customers promised for the second year in a row is quite another. So is the failure to recruit the right people, or the failure to secure your next round of funding, or the failure to produce a relevant technology roadmap. These are strategic failures for which a call must be made. The real lesson about failure involves accepting that heads should roll when targets are repeatedly missed. It may be your head, it may be someone else’s, and it is a natural part of a company’s development.
This is performance management 101. Yet when it comes to the management of young company boards, this kind of engagement is rarely seen. For many, it is the relationship with an executive (or team) that matters more than specific targets, plans or milestones. Admirable though this may be, it’s wrong. Relationships are vital to the overall health of the company. But driving high performance and value generation trumps warm relationships, if the intention is to build truly world-class businesses. We can only achieve the latter when we adopt a more objective and specific management style; one that enables us to make important calls that are in the best interests of the companies.