Nov 212014

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Dr. Earl R. Smith II


Many of my engagements begin with a phone call from an investor. Most often they are concerned that the company they funded is in real trouble and/or is teetering on the brink. These can be melancholy calls because there is often little for me to do but conduct a postmortem – to figure out what went wrong and help the investor and entrepreneurs avoid making the same mistake a second (or third) time.

In the best of all worlds, people learn from their mistakes. They may make new ones, but they don’t repeat. As I said, that is in the best of all worlds. In the real world, the aversions and other blind spots that people carry around tend to persist. They seem to make the same mistake over and over in minor variations on the theme. This is a story about one of those times.

I recently encountered such a situation. The phone call was from an investor who I had known for many years. She had been relatively successful in a number of companies – primarily ones in which she had acted as either the CEO or Chairman. This particular company was one that she had taken a more passive role in – as an investor. The company had burned through two tranches of funding with little to show for it. Revenues were a small fraction of those projected and expenses had shown a tendency to exceed expectations. The company was running out of money and she and her fellow investors needed to decide whether to provide additional financial support. I was asked to help them make that decision.

The first set of interviews with the senior team gave me a clue as to what was going on. There is a danger in looking for patterns – you can end up seeing what you want to rather than what is before you – but, in this case, the pattern was unmistakable. The beast was at large and its name was ‘Of Course’.

Assumption is the mother of all foul ups.

I am a major fan of testing every assumption underlying any business plan. Many of my friends accuse me of excess in this area. But I persist in challenging because I have seen the costs of not doing so. I am also a strong advocate of using ‘red-teams’ to test those assumptions. Maybe it is accumulated experience or simply a recognition of the risks of assumed omniscience, but I have long ago disabused myself of the notion that one mind – mine or another – is sufficient to chart a safe course through the reefs and shoals that any company must navigate.

What I found in this particular case was illuminating. My investor friend was in a new role – one unfamiliar to her. She had been the recipient of investment in the past. But now, she was providing the funding. In making the move to this new role, she had lost track of the way in which her former investors had contributed to her success – they had forced her to test and validate every assumption and to drive the ‘of course’ beast off of the field. She had chosen a gentler and less confrontational style.

Before going further I suspect that I should describe the ‘beast’. Here are some of its many forms:

  • Of course we are smarter than our competition
  • Of course my team is ‘world class’
  • Of course we have a sustainable competitive advantage
  • Of course nobody has thought of this approach to the market
  • Of course we can monetize the value proposition
  • Of course customers will flock to us and buy on our terms
  • Of course our company merits investment

Well, you probably get the picture. This beast is the great company killer. Nascent good ideas are devoured by it and value propositions with real potential are consigned to the dust bin under its influence.

So, given the description of the beast, you might expect that it is a very aggressive and violent adversary – but you would be wrong. Nothing could be farther from the truth. The beast is gentle and forgiving – indifferent to error – supportive and nurturing. It overlooks mistakes and forgives misinterpretation. It thrives on indolence and assumptions of omnipotence alike. It flatters the ego and justifies all manner of ineffective behavior.

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