previous | contents | next

16 The People

Inability to Build a Team or Keep a Team Together

It is sometimes possible to detect a lack of team quite readily. A venture capitalist I know simply asks a direct question of a team member. If the CEO interrupts with an answer, he suspects that the company is driven from the top down and lacks a viable team.

When the founder and CEO is unable to keep the team together, he or she may be ousted by a "palace revolt" and replaced by a series of ill-conceived, board-controlled actors and actions. For example, I know of a company that built real-time laboratory computers based on the first 32-bit microprocessors. After two years, when the firm was just beginning to reach its peak sales and was becoming profitable, a "palace revolt" prompted the board to replace the existing CEO. The new CEO came from a very large computer company but was a sales-oriented individual with no experience in the laboratory market area or in product development. The organization subsequently declined to the point where it was forced to merge with another floundering firm. Guess who the winner(s) were: (a) investors;

(b) the founding CEO; (c) the new CEO, who received a "golden parachute"; (d) all the founders and employees; (e) customers; (f) none of these.

 

Inability to Sell the Company to the Financial Community: The "Short-Socks Test"

A start-up may fail to secure funding for many reasons, not all of which are necessarily relevant to the firm's viability. The following is a case in point: After visiting an entrepreneur, a New England venture capitalist commented to his associate that the company wouldn't be funded. "Why?" asked the associate. Replied the capitalist: "Because the president was wearing short socks." Although I'm sure that lots of California firms have obtained funding despite their founders' wearing no socks at all, the basic principle still applies: when an entrepreneur is initially seeking financing, first impressions really count-perhaps more than they should.

Regardless of whether the precise reason for the CEO's inability to sell the start-up to the board and the investors is trivial (e.g., failing the "short-socks test") or substantive (e.g., not being a sufficiently persuasive advocate for the company), his or her shortcoming will manifest itself through financing problems for the firm and a lack of belief in and/or support for the CEO. This flaw really involves an inability to manage the board and the investors. It is perhaps the most rapidly fatal flaw of all those discussed, and its cost is quite simple: the CEO loses his or her job when an impatient board finds it isn't getting the response it believes it needs.

previous | contents | next