Oct 132014

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Dr. Earl R. Smith II


There are lots of reason why a business fails – but one is particularly insidious. Failure that results from not being held accountable for your actions and their results is an unnecessary call to a futile end.


Recently, I was recently invited by three different investors to ‘take a look’ at companies that they had invested in. The pattern that I found was so strikingly similar that I set to thinking about what I was finding. I began to think about the roots of the pattern. The more I thought about it, the more I found myself staring at one of the principal reasons that only one in ten start-up companies make it to their fifth anniversary.

In order to take you along on my journey of understanding, I’ll boil these three experiences down to one fictionalized version. So let me introduce you to John Long – CEO of Dip Stick LLC.

John is in his early thirties and has launched a series of failed companies. Some of them were bootstrapped but the current one was investor backed. John’s major assets seems to be the ability to dream dreams that do not come true and then sell those dreams to his ‘team members’ – and, if he is lucky, to an investor. He is marginally charismatic – good at making positive initial impressions – a salesman of ideas – but not much of a salesman for the services of his company. John describes himself as a ‘generalist’ and tends to talk with mild disdain about the technical-types that he has to induce onto his team.

After doing a bit of background research on the company, I scheduled an initial meeting with John. Here is how it went:

The Lethargic CEO: My first interview is always with the CEO. I want to take the measure of the ‘team leader’ – find out what kind of person they are and what kind of leadership they are providing. I start with questions focused on how they spend their days. So, my first question was, “John, tell me about what you are working on right now?”

The key to the question is the length of the answer and the granularity of the response. CEOs that are ‘phoning it in’ tend to give very brief responses couched in general terms. Engaged and productive ones tend to provide a very detailed description of the tasks on their plate along with a direct connection to the results desired. The devil, as they say, is always in the details – or lack thereof.

John’s response took all of half a minute. I immediately got the feeling that he was not engaged in the process of building a business – more in the mode of being a ‘founder’ and hoping that a very few things would come through to make the business a success. Out of frustration, I asked John how he spent his days. “Look”, I said, “there are sixty or so hours in an entrepreneur’s week”. (Based on my past experience, I was being conservative) “How did you spend last week?” The response was illuminating. His description of the prior week’s activities was so paltry that I suggested that “he could have accomplished all that in an afternoon.” As you might image, my suggestion did not go down very well.

The key here is a sense of accountability. The right kind of CEO feels an overarching need to make things happen and spends a lot of time and energy trying to figure out what it will take – and then accomplishing them. Accountability means that ‘it is up to me to make it happen – anyway that I can’. The drive of a successful entrepreneur is always focused that way. The successful leader always lives in the real world – and that real world is a cold and unforgiving place. If you are going to win, you have to be better at making good things happen than your competition – and better than any other member of your team. John seemed to be living in Never-Never-Land – where never is heard a discouraging word, and the sky is sunny all day.

Living Off the Good Guys and Paying Off the Bad Guys: One of the early tests of any entrepreneur is the formation of the initial team. John had been good at gathering the ‘easy and low hanging fruit’ but that ‘easy way out’ had caused problems as the business began to encounter the inevitable growth pressures that any business faces. The ‘sales people’ were ineffective at selling, the marketing people were pure overhead and the team ended up wasting a lot of time on efforts that had little chance of yielding revenues. The dollars that were flooding out the door were yielding little but an increasing flood of red ink. John’s ability to judge and productively manage people was sorely lacking.

John’s history in building and leading a productive team was spotty at best. All of his initial team members were either gone or in ‘retirement’. A couple of them, after taking overly-generous salaries and producing little or nothing but overhead expenses, had either left the business or been asked to leave. It was the nature of those departures that caught my attention. All of them had received ‘separation payments’. The clear intimation was that they had been paid off to keep them from causing the company any problems after their departure. In the end, scarce financial resources were twice wasted on unproductive team members – once during their tenure and again in funding their departure.

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