Why Do Most Companies Fail?

I was asked Tuesday at the Corporate Alliance summit why most companies fail.

My guess is that most companies fail primarily because they don’t have the right team of people. The CEO might not be right, or the CEO hasn’t chosen the right people in the right positions, because most CEOs don’t know the talent level required at each position and the teamwork needed to build a successful company.

This is especially true of young CEOs, who haven’t been around the block, who haven’t seen great talent in action, in all the roles necessary to build a successful company.

The more I think about what CEOs do, the more I seem to think a comparison to a basketball coach is appropriate. To have a successful company, most businesses need key people in several categories including research & development, manufacturing, IT, finance, marketing, sales, and HR. Many CEOs may have personally succeeded in one of these areas. For example, most Inc 500 CEOs say they are personally strong in sales and marketing. I think the number was 80% last time I saw a survey.

But CEOs of struggling companies most likely have strong employees in areas where they know what talent is, but mediocre employees in all the other areas that they’ve never coached before.

If a CEO has never worked for a company with a great finance person, how can they be expected to hire someone that is great? Same with every position in the company.

I have observed that technical CEOs often hire a lot of great technologists. It’s great to have good technologists in a company, but what if you don’t have great sales and marketing people? Or what if you have good traditional marketers, but no great skill in internet marketing? It is hard to succeed today without leveraging the web.

A technical CEO that staffs a company with a bunch of great developers but overlooks PR, marketing, and sales is like a basketball coach that starts five centers. An NBA team that started five centers would get killed by a well-rounded team with skill in every position. A team with all centers would have no point guard to dribble and pass the ball and no shooting guard to put up three pointers. The balanced team would be way too quick for them.

Every team (company) needs a point guard (marketing guru) to do pass the ball (lead generation), a shooting guard (sales force) to score, and of course solid rebounding and defense and teamwork (manufacturing, finance, operations, etc.).

Without sales and marketing roles being filled by very capable people, a company won’t stay in business for long.

But how does a technical or finance CEO hire a truly great sales or marketing person? It seems almost impossible.

It’s like asking me, as a marketing-type CEO, to hire a great computer programmer. How can I do that unless I’ve worked with someone before and know they are great? I can’t look at someone’s code and understand it. I can’t even ask good interview questions if I’m not a programmer myself.

Since a technologist CEO most likely has never done sales and may not know any great sales people, it is very likely that he/she will hire poorly for that position. And same with marketing, and finance, and on and on.

I believe that several things can help CEOs hire great people for every area of their company.

First, build a diverse advisory board of successful people who represent all the different skills sets you need help with. (You might not be able to judge if your chosen advisory board members are really all that great in their fields, but ask around and get references and assemble a team of successful people that probably can tell talent from fluff.) Silent Whistle (now Allegiance) had one of the best advisory boards I’ve ever seen. And I think it made a significant difference in helping the company get great people in key positions like product development, sales and marketing. And now it is really paying off.

Second, do group interviews. We have started doing this at Provo Labs and it makes a big difference. We get multiple candidates for each position and then we conduct group interviews, so that several of us are able to ask questions together. We all hear answers to questions that we might not have thought of asking. This prevents the interviewer from doing all the talking, which has always been one of my biggest problems in interviewing. (I have what Business 2.0 calls “Babbling Interviewer Disease.”) I sell the vision of the company during the whole interview and by the end find myself completely pumped up–“that was a GREAT interview!” (“Wait, I did all the talking.”)

Third, have a mastermind group of successful CEOs with different skills sets who are willing to interview candidates for each other.

I have no idea if this has ever been tried or if it would work, but I just thought of it, so I decided to throw it out. (Besides, you can’t make a list of ideas and end up with only two.)

One thing Provo Labs will do to make sure that our team members all stay great (assuming they were great when we hired them) is that we will ask every one to join (or start) a local networking event for professionals in their exact field.

For example, when we hire an affiliate marketer, we will ask him/her to join a group that I think is called the Utah Affiliate Marketers Network, or something like that. I’ve never attended it, but I know it exists.

Our email marketer will probably need to start a local group where email marketers share best practices. Our SEM marketer may have to do the same. And our content acquisition and business development teams will most likely have to form local groups as well, because I’ve never heard of networking events for these areas.

And our developers will actively participate in Geek dinners, but they may also be asked to form a smaller network of 10-12 people who are really focused on the same kinds of programming, who will meet regularly to share their best ideas with each other.

The other thing we are considering is a bit more radical. We are considering hiring a full time employee in Asia to directly work with/for each full time employee at Provo Labs. This is partly driven by time to market issues and to put time zone differences to work in our favor, and partly because of our desire to be international in both our work force and our understanding of international markets.

I heard a key Procter & Gamble executive last fall talk about how many research teams they have within P&G where three teams exist in various locations around the world, all working on the same project, so that as the US team wraps up their workday here they hand things off to an overseas team, who in turn hand their work off eight hours later to another overseas team in a location eight time zones away. So that you get 24 hours of actually work on every project each day.

If the hand offs go well, you can cut your time to market by 2/3rds.

I like this idea. I like the idea of our employees in the US thinking that if they do good handoffs that their projects will make significant progress while they sleep. I think it will also help them thinking globally in everything they do.

Like I said at the beginning, I believe that most companies fail because they have the wrong people on the bus, like most basketball teams fail not because of game-time coaching, but because of recruiting. It’s hard to win with the wrong people.

If CEOs can find ways to learn what real talent is in every position they need to fill, and if they will learn to help everyone work as a team, then the team they build will lead the company to success.

Investors almost always say they invest in the team more than in the idea. (There are a couple exceptions among VCs.)

So if that is true, all of us who start companies better focus most of our energy on building the right team.

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7 Comments

  1. One way some CEOs and General Managers attempt to deal with this issue (often, most likely, at a subconscious level) is by creating an organization structure that looks like this:

    CEO
    **VP of stuff CEO is interested in
    **VP of other stuff CEO is interested in
    **VP of still other stuff CEO is interested in
    **VP of yet more stuff CEO is interested in
    **Sr VP of everything CEO isn’t interested in
    ***Director of thing 1 that CEO isn’t interested in
    ***Director of thing 2…
    ***Director of thing 3…

    For example, a tech-oriented CEO may have several direct reports running hardware engineering, software engineering, manufacturing, etc, and then have a Sr VP running marketing, sales, and international sales. A sales-marketing oriented CEO may have direct reports for each of sales, marketing, international sales, and inside sales, with a Sr VP to run all forms of engineering, manufacturing, and logistics. (Titles may vary, of course)

    One problem with this is that the flow of work may be distorted, since the organization is designed around one person’s preferences and knowedge bases, rather than what makes sense structurally. Another problem is, of course, that the CEO may lack the knowledge to pick the right person for the Sr VP role and to evaluate that person’s performance adequately.

  2. Paul,

    So you have got me hooked on starting to read blogs in my spare time now. I can see how this is a valuable resourse. I heard your thought process on this at the CA Summit, but I am really glad that you commented on it here. I want to show this to our managment team and instill in them the same ideas. I hope this is the first of many posts to come from me. Have a GREAT weekend!

    Shaun

  3. Paul,
    I spent a long time trying to find more about the affiliate managers association. Here’s the info: it’s called RMAMA (Rocky Mountain Affilite Managers Association). They meet monthly. Contact pauls@ramam.com for details. The meeting this month is at 1800Contacts.

    Janet
    grocerybike@gmail.com

  4. Marshall Burtcher

    Paul,

    The company I currently work for, Onyx Graphics, has a hiring system in place that has been extremely useful for finding the right person and the right “fit”. What they do is interview pools of individuals, then narrow that pool down to 5 top persons. They have these 5 persons then give a “what I would do if I were working for Onyx” proposals. This helps Senior Management understand what capacity and talent these individuals have. From the pool, they are likely to isolate the talent and fit they are looking for. It is a process I see work and thought it might contribute to your ideas above.

  5. lester

    “I like the idea of our employees in the US thinking that if they do good handoffs that their projects will make significant progress while they sleep.” I do this right now Paul and its just great. You can get soo much more stuff done in the same amount of time. It is according to me a great advantage for any US company to supplement its employees here with employees in asia who work in exactly opposite timezones.

  6. Mastermind Group Guy

    Hi

    In the third point, i will like to elaborate the mastermind group you have mentioned.

    In a nutshell,

    To put it simply, Masterminding is an effective and practical process to provide solutions to challenges, problems, and goal-achieving through other powerful tools such as creative brainstorming, networking and accountability structures.

    Masterminding brings limitless possibilities to the person being masterminded. You get ideas, solutions and contacts you could never come up if you were working on it alone.

    If you are in business and have not form any mastermind group yet, I suggest that you take a look at what masterminding can help in business.

    About the Author

    Joel Chue
    The Webmaster of Mastermind Group Hub.
    He is very passionate about spreading the #1 Success Strategy to as many people as possible.

    http://www.mastermind-your-way-to-success.com/

    The KEY is to Work SMART!

    Mastermind Hub is the leading movement devoted to empowering ordinary people like you and me with the Mastermind group strategy to achieve big dreams.

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