Marina Gorbis's Blog, page 1574

The Curse of the B Team

You've just walked out of your boss's office after a talent review session. At the end of the meeting, you received a clear message: although your organization is performing well, your boss believes you have a "B team" with no clear successor to your position — and you're expected to do something about it. But what isn't immediately clear.

Most managers know how to manage and coach individual B players, solid performers unlikely to rise within the organization. However, dealing with a team composed of all B players is one of the most problematic tasks a manager can face. The challenges stem from the fact that B players are blocking key developmental positions, that is, those most useful in developing the skills and experience of a successor or other upwardly-mobile staff. And teams of people who stay in the same job for a long period of time tend to become static, as their members become comfortable with the status quo and less open to change and new ways of doing business. What makes the B team phenomenon so difficult to address is that you're dealing with a group of sound performers who are experienced, often committed to the best interests of the company, and, in the case of technical experts, difficult to replace. As a result, many managers are reluctant to take steps to deal with the situation. So, with your boss's admonition ringing in your ears, how can you upgrade your team and still be fair to your people, many of whom are loyal performers?

The short answer is that ultimately you'll need to free up some positions on your staff in order to bring in new blood from the outside or promote high-potential talent from within. As a starting point, I suggest that you define the mix of skills and experience someone would need to take your place and lead your organization into the future. Years ago, I worked with a senior executive who told me — quite honestly, I believe — that his most important responsibility was developing someone who could do his job better than he could. Not as well. Better. Behind his comment lay the notion that as the company grew, jobs became more complex and new skills sets were required. Depending on your role and the company's strategic priorities, that might include global experience, driving innovation, or making and integrating acquisitions.

Next, identify the positions in your organization that have the greatest developmental "pop" — the ones most useful in developing the skills and range of perspective your successor will need. These are the jobs you'll need to open up since they are critical training grounds for your job. By contrast in most organizations there are positions that require deep technical expertise or place a premium on the execution of established strategies. Having a B player makes sense in such assignments, as, for example, lead actuary in an insurance business or head of a large shared services group.

Once you have identified these critical developmental positions, work with the incumbents in those jobs to help them find other assignments within the company where they can contribute and add value in new ways. This can be challenging but is not impossible. For example, I have seen long-tenured people rotate from a staff role at headquarters to a field office or into the company's charitable foundation. Also, consider whether any of your supposed B players is a diamond in the rough who's been mis-categorized — someone who with coaching and the right set of experiences could emerge as an A player and possible successor.

Some managers fall into the trap of playing the hand they were dealt — that is, working exclusively to develop the people they inherited when taking over a new team. It's a serious trap I've seen even very senior executives fall into. In some conservative organizations it's the path of least resistance for managers if bringing in people from the outside is viewed as controversial and upsetting to existing staff. Over time such managers lose perspective on how their team members compare to talent available in the marketplace.

The remedy is straightforward but requires both time and effort. To counteract this tendency, devote time to getting to know people outside your organization by working with a recruiter or joining a professional or industry group, both to find new talent and calibrate your current team members' talents. By meeting people outside the company, you'll expand your frame of reference, and often you'll begin to view your existing staff through a new lens — and be less willing to accept performance or behavioral deficiencies that seemed acceptable in the past.

Turning a B team into a high-performing group with the requisite mix of A and B players — including at least one potential successor — demands time, finesse, and the willingness to have sometimes uncomfortable conversations with people, some of whom have been loyal lieutenants.

The major variable you control is time, so if you're leading a B team, the time to start addressing the situation is now.

The Two Questions to Ask Before You Innovate

The project team had certainly prepared for the workshop. Its members had a carefully constructed PowerPoint document, replete with facts and figures that showed the attractiveness of what we'll call the booming management-training market in China (details have been disguised to protect the client's confidentiality). Embedded video clips showed potential customers raving about the offering the team had recently piloted. A meticulously constructed business plan showed how the venture could thoughtfully expand into six major cities in China.

Yet, the presentation highlighted a critical gap between the team and its senior management sponsors. Executives immediately began asking questions about why the team was focusing on only six cities. The team responded by saying that its model required substantial marketing and a large local staff. Smaller cities just couldn't support that overhead. Executives pressed, asking the team to figure out how to reach 100 cities. Team members assumed that meant going back to the drawing board to develop a business model that would be profitable in smaller cities. And that meant, they thought, sharply lower investments in marketing and smaller staff.

I stopped the meeting and asked the project leader and lead executive sponsor to write on a piece of paper what each thought the project's primary strategic intent was.



"Create a business that generates attractive profits and has margins that are at or above corporate levels," read the project leader's note.

"Grow our brand presence in China," read the executive sponsor's note.

Now the disconnect was clear. While it was very clear what the team planned to do, its members hadn't verified their assumptions about why they were going to do it. Certainly, the end goal of many innovations is to generate financial returns. But, as this team found out the hard way, there are other reasons to innovate as well, such as boosting employee morale, having social impact, or bolstering a brand.

And whether or not achieving financial returns is the goal, the other thing the innovators should have taken care to clarify before starting to innovate was how the effort would be measured. And here they should be pushing to be as precise as possible. What are ultimate revenue targets? By when? What do operating margins have to be?

It's perilously easy for corporate innovators to skate past the why and the how, particularly those working in new-growth groups or incubators. Just as Tim Robbins told Morgan Freeman in The Shawshank Redemption to either get busy living or get busying dying, corporate innovators feel the urgent need to get busy innovating, or have their existence questioned.

One mechanism some companies use to deal with this problem is to have each team complete a charter before it starts to work, detailing the project's strategic intent (the why), specific goals (the how), strategic options that are on and off the table, critical uncertainties, project resources (both people and money), identification of who is responsible for making which decisions, key strategic milestones, and the next project checkpoint.

One final piece of advice: be wary of well-intentioned executives who express discomfort about approaching innovation in a structured way or about placing boundaries on innovation efforts. It feels good to say, "We're open to anything," but in my experience, it's never true. Make sure you're clear about the rules of the game from the beginning — particularly the why and the how — to save time and rework later.

The Dinosaurs of Cannes

Every year in late June, the global advertising community descends on Cannes, France for the Cannes Lions Festival the glitzy awards show that celebrates the best work in the industry. It's a sight to behold, with 11,000 agency folk, clients and technology companies from every corner of the earth coming together in one place. There's constant buzz with provocative conversations, parties galore and a show of amazing creativity.

Yet, this year it felt a bit like the Roman Empire during the Age of Caligula, one of history's most tyrannical leaders. Don't get me wrong — I love a good party. But, while the industry is partying, all on the client's dime, the world around us is radically changing as digital technology evolves the way we all communicate.

The contrast really becomes evident when some of the advertising industry's luminaries take the stage. One of my favorite moments came during an on-stage conversation between George Lois who created several powerful covers for Esquire, including the iconic one featuring Muhammad Ali as St. Sebastian, pinned by arrows, and Lee Clow. The discussion was fun and lively but the last line threw me for a loop: Lois ended the session by saying, "At the end of the day, it's about finding clients who let you do great work. And if they don't let you do great work, fuck 'em."

It was right out of an episode of Mad Men.

As you walked down the Croisette the rest of the week, you could see lots of dinosaurs basking in their glory while asking what all the furry and feathered things running around at their feet and flying around above them were.

Evolution could be seen in real time.

Earlier in the week, I had the honor of speaking at a session called "What Will Advertising be When it Grows Up?" with Gareth Kay, Chief Strategy Officer of Goodby, Silverstein and Paul Bennett, the Chief Creative Officer of IDEO and moderated by Jimmy Maymann, CEO of Huffington Post. All three had a unique and provocative point of view on how the industry must act to stay relevant as the world changes around us.

From my point of view, there are two issues at the core of this evolution. First as an industry, the fundamental way agencies charge is not aligned with their clients' needs. Charging by the hour incentivizes agencies to go slower and put more manpower on an assignment. We need to be aligned on common performance indicators with clients to ensure our method works. While some in the industry wish that we could remain as creative free spirits with our clients as patrons, clients are becoming so squeezed — and so focused on ROI — that that model isn't sustainable.

Secondly, we're one of the very few creative industries that codifies who gets to be creative by putting "creative" in their title. Other types of creative companies, like IDEO, expect everyone to be creative. We need to let go of this arrogance and allow creativity to come from everyone and everywhere.

Addressing these two issues requires a massive shift — and to make it happen we need to start by letting go of our self-image of being makers. "Making" is at the core of what the industry has historically done — from conceiving a campaign to executing and placing it. That made a lot of sense in a pre-production world, where we had one shot to get the perfect image on film.

Today, in our post-production world where everything can be tweaked, edited and shared after it's been made, our roles must change.

Instead of being executors of communication campaigns, we must become inventors, architects and conductors. The brands we all love see themselves that way. Nike and Apple, for example, don't really make anything. They invent products but leave it to their vendors to build them — vendors who they can change at the drop of a hat. It's much better to be an Apple than a Foxconn.

Looking around the industry there is reason for hope. Winston Binch and his team at Deutsch LA have started Inventioni.st helping brands invent products and processes instead of just making ads.

Likewise, Stefan Olander at Nike continues to be an inspiration as he helps architect what it means to be a sports company by building communities and platforms instead of just designing shoes.

Lastly, we've been on a journey at Victors & Spoils to establish an environment where amazing creativity can come from anywhere. Sometimes it's from our internal teams or ad experts but equally it can come from a brand's fans, followers and other customers, cultural wild cards (artists, social media pundits and thinkers) and teams inside the brand itself, including members of the marketing and product design teams.

What's the future of Cannes?

In recent years, the festival seems to be looking squarely into the past, buzzing about what happened last year and even last decade, longing for the Mad Men era and the dinosaurs that once roamed La Croisette. As in any environment some species will go extinct while others with new and better approaches will rise up. While that might seem scary, this kind of evolutionary creative destruction is essential for any creative industry to survive — and thrive — as the world around it changes.

Going forward, Cannes needs to become less of a glitzy gathering for self-congratulation and more a congregation of creative minds working to figure out the future — more TED than Academy Awards. While the festival will remain a central event in the industry, it must move beyond simply celebrating creativity in advertising to applying creativity to the industry's broad challenges. At the end of the day, creativity is the best tool for solving business problems. Having an annual event to discuss and embrace it will be an important driver of change.

See you next year in Cannes.

The Fatal Flaw with Anger Management Programs

Handling conflict is one of the most difficult aspects of any manager's job. In the 30 years I've worked with C-level executives, I've noticed that playing King Solomon to warring colleagues has gotten even harder, thanks to the "anger management" programs designed to eradicate intense emotions in the workplace. Too many of these programs deliver the message: "Just don't get angry" — usually after someone has already had a bout of rage.

But telling people not to feel anger — or sadness, or frustration, or stress — doesn't actually make those intense feelings go away. It backfires. You can never legislate "good behavior" long term since all that does, at best, is achieve is behavioral compliance with rules; at worst it intensifies a pending outburst of natural/normal emotions.

It turns out that adults are, in this respect, not much different from toddlers: Push a kid to do something, and he'll resist. Psychologist Leon Festinger, working in the mid-1950's, began the formal study of how we come to feel what we feel in what is known as cognitive dissonance research. He might as well have call his research, "If you force people to comply, they never internalize attitudes consistent with their actions." Festinger exposed volunteer subjects to two experimental conditions in his studies. Both groups were given loathsome tasks — for example, sorting spools of thread — and then asked to tell a waiting subject who would be tested after they were finished (actually a confederate of the experimenters') that the task was enjoyable, stimulating, fun, and the like. 50% of the subjects were paid $20.00 — a fortune in 1956 — to advocate a viewpoint they did not believe, while the remaining 50% of the subjects were given only $1.00 -then, as now, bupkis.

In these so-called forced-compliance studies, Festinger and countless other researchers found that when performance "inducements" were excessive — i.e. you were made an offer you could not refuse — subjects' views about the tasks they performed were as expected (as measured by post-experimental surveys): Negative. However, when performance inducements were minimal ($1.00) subjects' attitudes about the loathsome tasks change to move in the direction of their statements.

Why would this be so? If you have no explanation for acting a particular way -"I'd never lie for just a measly dollar..." — you account for your behavior(s) by attributing it or them to internal attitudes. But when "forced" to behave a certain way —"Anyone would fib for two sawbucks..." — the impetus for your action is obvious and external, so you need not infer that an internal orientation of yours caused what you did.

This process is why mice forced to behave when the cat is patrolling play like crazy when that cat is away. Ditto for kids in play groups and workers under constant surveillance versus those who work in companies that employ honor systems.

Abstaining from something that is forbidden is not the same thing as not desiring to engage in it. You create well-socialized people who respect others by either (1) providing resources to help them resolve "antisocial" feelings, or (2) providing skills training for coping with stressful circumstances.

HR managers seeking to reduce the impact of anger and other intense emotions at work should remember that a human emotion, once unleashed, is like toothpaste: You can never get it back into the tube. Thus, it's infinitely more adaptive to use what's out there as best you can rather than struggling undo what's already been done.

How Startups Overcome the Capital Gap

Imagine you're a first-time entrepreneur with an unvalidated business idea and no track record of making money for investors. You may have another kind of track record, such as working successfully at a large company. Or you could be a young entrepreneur, fresh out of college, ready and raring to get yourself launched.

Unless you are willing to bootstrap yourself to some degree of validation of your concept, and can convince investors that there is real demand for what you offer, and a really large market, no one will write a check. Certainly not VCs. Not even, these days, angel investors.

You can go to an incubator and potentially try to convince them to write a $15-$25K check to get your idea off the ground. However, the best incubators also look for large, venture fundable business opportunities.

Let's suppose your idea is a good, viable business idea, but not a billion dollar market opportunity. What do you do then?

Now consider this.

There are many more $5 million, $10 million, or $20 million business opportunities out there than billion dollar ones. Those don't fit the VC model, but if you build a $15 million-a-year business that generates 30% profit year-over-year, what's wrong with that picture?

In the fall of 2007, I met Sridhar Vembu, CEO of Zoho. At that time, no one had heard of him. He was flying under the radar of Silicon Valley. Sridhar had a small network management tools business that basically functioned as a highly profitable cash cow. It was not an earth shattering idea. But it gave him cash to play with.

And play he did. He decided to go after Salesforce.com with a Software-as-a-Service Customer Relationship Management product at a price-point that was one sixth of what Salesforce.com, the market leader, charged. He offered the product to small businesses, and customers lapped it up.

VCs started chasing him from every corner of Silicon Valley. Acquisition offers started floating in. Fast-forward to 2013: Zoho is a $200 million dollar a year company. It has been built without outside capital, entirely.

If you analyze this case study, what strikes you is that Sridhar's first business idea was not fundable. He bootstrapped it by selling to customers as early as he could. He grew the business organically, with revenue and profits, not outside capital.

But once the business started generating decent profits, Sridhar decided to go after a potentially bigger opportunity.

The moral of the story is that even an entrepreneur with a smaller idea that is not fundable can build a great company. The initial cash needs to come from revenues, not financing. But later, as the business finds its stride, generates profits, it can offer the opportunity and cash for pursuing a bigger idea.

Let me tell you another story, that of Cableorganizer. A husband-wife team in Fort Lauderdale, Florida has built an e-commerce business selling cable organizers and closed 2011 at $16 million. No venture capital. Not even any kind of bank financing. Just blood, sweat, and tears. Read their story. Yes, it's mundane. Business, fortunately or unfortunately, is terribly mundane. And for some, terribly exciting when hard work yields customers, revenues, and profits.

And the reality is that most of the other 99% entrepreneurs who are constantly getting rejected by investors, grows their businesses in this mode.

So, ask yourself what have you been doing for the last six months? Chasing customers? Chasing Investors?

Remember that Customers = Validation, Revenue, Cash, Valuation, Fundability

And that Investors = Distraction from chasing customers

Now is a good time to reinforce:

Entrepreneurship = Customers + Revenues + Profits. In this equation, outside financing is Optional.

Note one thing, here. Both of these case studies are of companies that have bootstrapped themselves to positions of great strength and negotiating leverage. They CAN raise money now. In the case of Zoho, the best VCs of the Valley would write a check in a nano-second. In the case of Cableorganizer, banks would be delighted to finance their inventory and working capital to help accelerate growth.

So there is really no capital gap if you have a proven business model and execution capacity.

The capital gap is during the early stages, when the risk is really high. When business model, customer demand, and the entrepreneur's own execution capability is unproven.

To be precise, the capital gap is in the sub-million dollar revenue level.

That is the gap that Capitalism 2.0 needs to fill: getting entrepreneurs to a million dollars in annual revenue.

Look Who's Distracted Now

When acclaimed hedge fund manager Paul Tudor Jones revealed his opinion that women become much less effective as stock traders or investors once they have children, he was, in a sense, suggesting that the distraction of motherhood—a distinctly feminine condition—exceeds that of other attention-siphoning activities. I was reminded of how, almost thirty years ago, I heard that someone at my investment firm asked in a meeting whether I could simultaneously be a good fund manager and a good mother. Putting aside the absurdity of an executive wondering out loud whether any father can possibly juggle both his job and his parenting, these comments raise important concerns. Are mothers at work more distracted than non-mothers, men, or fathers, and, if so, is there anything we can do about it?

Many studies about work concentration have shown that a variety of life changing events, conditions, and behaviors affect our ability to focus. Concentration lapses occur more frequently when people are falling in love, having an affair, getting divorced, substance abusing, worried about a sick child or a dying parent, or even happily married but building or buying a new house, one of the most stressful situations of all.

But, is there any hard evidence that women are more easily distracted than men? According to one study from BYU that used self-reported data, women between the ages of 30-49 do report more trouble concentrating than other groups, citing factors including childcare concerns. However, women may be more honest in their self-evaluations than their male peers, or in jobs more prone to distraction—part-time workers and service workers were both more likely to be distractible at the office, as opposed to male-dominated professions like construction. (The lesson here may be as simple as: You're much more focused when your job involves making sure not to drop a 2x4 on your foot.) Finally, the least distracted cohort was women over 60, who presumably would not be in the workforce—particularly at high levels—unless they worked through a few of the tougher years. Most damning, other studies failed to confirm the BYU results, as have those observing how teenage attention disorders, which are almost twice as common in teenage boys as girls, may carry forward into adulthood.

Having worked full time through the years when my children were young, I recognized that I needed to apply some energy every work day to family matters. But I can also attest that when I attended investor conferences in the 80s,and a group of participants (not including me) would rush off to strip clubs or a line of cocaine, they were almost exclusively men. Call me naïve, but I consider that a distraction.

No employer expects that any of its staff, regardless of rank or gender, is focused on her or his job all day without interruption. My father-in-law, who was a very astute small business owner, used to tell me (only half in jest) that the very best anyone could hope for was four solid hours a day of total effort, himself included. Professor Cathy Davidson of Duke, in a 2011 HBR interview, defined the maximum length of uninterrupted human concentration as 20 minutes, before we need some break, whether to space out check our email. In addition to the constant attention-grabbing matters of love, children, sickness, and death, we now, of course, have the rise of technology-related distractions, which some decry as the great enemy of concentration.

According to entrepreneur and Google Ventures partner Joe Kraus, "We are creating and encouraging a culture of distraction." He bemoans the obsession with checking our smart phones and fruitless efforts to multi-task, which he describes as simply switching focus very quickly from one thing to another—reducing rather than increasing productivity. We rely on constant stimulation from texts and emails to not only fill gaps in our time alone but also to avoid or delay getting down to work on projects at hand. The oxymoronic concept of being physically present but mentally absent on the job has been dubbed "presenteeism." Of course, if we can't actually focus solidly for more than twenty minutes at a time, we require distractions, whether they are actively initiated, such as texting or calling, or passively absorbed, such as listening to colleagues banter.

If our existing level of distraction, already an office mainstay, is rising at an alarming rate, as Joe Kraus suggests, or if social media is only an incremental and not entirely destructive new distraction, what are some tools to improve our concentration?

Keep a to-do list with the suggested time allotment for that task. If you cannot go over an hour without checking new emails or texts, break the effort into manageable chunks of time. It's the equivalent of "hold my call" but applied to other communications as well.

Provide positive feedback on work done in a timely manner. Everyone loves a compliment. If colleagues see how appreciative you are, they will want to repeat the performance again. A little positive reinforcement goes a long way.

Stop obsessing about responding to all digital communications immediately. Almost all can wait twenty minutes, and almost none require immediate answers. Unfortunately, we have trained ourselves, our loved ones, and our co-workers that it is permissible not to plan ahead, since we can be reached in a moment's notice. Let's try to retrain ourselves and think ahead so that we don't have to interrupt a stream of thought and respond to a last-minute request.

Realize that the benefit from thorough and thought-engaging effort is more valuable than the satisfaction of a reputation for instantaneous accessibility. I am guilty of the latter and vow, regardless of how hard it is, to start following my own advice. Hold on a second; I just received a text.

When Congress Takes Interest in Accounting, Watch Out

Few things are simple in corporate regulation. Reforms often backfire. Changes meant to help shareholders end up enriching executives, or lawyers, or accountants. Less regulation is often better than more.

But here's a simple rule that I imagine holds up pretty well. If an overwhelming bipartisan majority in the U.S. Congress decides to delve deep into the details of a corporate regulatory process and tell the rule-makers they can't do something, that overwhelming bipartisan majority is up to no good.

This happened in the early 1990s, when the Financial Accounting Standards Board first tried to assign a value other than zero to the stock options handed out to executives and other corporate employees as compensation. With Joe Lieberman leading the way, the Senate voted 88-9 to tell the FASB to give it up. And the FASB did give it up, until the corporate scandals of the early 2000s changed the mood in Congress, giving the accounting standards-setters cover to get stock-options expensing through in 2004.

On Monday, it was the House of Representatives that got into the act, with a 321-62 vote in favor of a bill, sponsored by Republican Robert Hurt of Virginia and Democrat Gregory Meeks of New York, that would ban the Public Company Accounting Oversight Board from considering any proposal to force corporations to regularly rotate auditing firms. A couple weeks ago, this "Audit Integrity and Job Protection Act" (a wonderfully Orwellian title, no?) was approved by the House Financial Services Committee by an even more lopsided 52-0 vote.

The PCAOB is a relatively recent creation of Congress, one of the seemingly most successful products of the sprawling Sarbanes-Oxley Act of 2002. And so far its proposal to force companies to rotate auditors can best be described as a trial balloon. PCAOB chairman James Doty, a veteran securities lawyer, first floated it in a speech in 2011 a few months after he took the job:

Considering the disturbing lack of skepticism we continue to see, and because of the fundamental importance of independence to the performance of quality audit work, the Board is prepared to consider all possible methods of addressing the problem of audit quality — including whether mandatory audit firm rotation would help address the inherent conflict created because the auditor is paid by the client.

Doty went to acknowledge that this wasn't a new idea — it was considered as part of Sarbanes-Oxley, and deemed to require more study. That study, by the what was then still called the General Accounting Office, concluded that the evidence was mixed on auditor rotation and the best course of action was to wait and see how the other Sarbanes-Oxley reforms worked out. After almost a decade of waiting and seeing, Doty said, it was time "to explore whether there are other approaches we could take that could more systematically insulate auditors from the forces that pull them away from the necessary mindset."

What followed was a "concept release" from the PCAOB, and a bunch of public hearings at which accounting firms and corporate executives have been given ample opportunity to express their (mostly negative) opinions about the idea — but a few accounting scholars and others have raised points in favor of it. In a speech in April, Doty pointed to "emerging research" that "finds term limits are associated with less earnings management, less managing to earnings targets, and more timely loss recognition post-adoption," but acknowledged that it was far from conclusive and that there would be costs to rotating auditors that needed to be considered.

What this seems to be, in short, is a regulatory agency doing its job — trying to look out for the public, being extremely transparent about it, and relying on the best evidence available. Much of this evidence is coming from outside the U.S., where the auditor-rotation movement is further advanced. Italy, South Korea, and Brazil already require auditor rotation; the Dutch parliament voted last year to do so starting in 2016; UK regulators are considering it; and so is the European Parliament.

But now in the U.S., Congress appears headed toward foreclosing any discussion of the topic whatsoever. The dynamics of a vote like this are pretty simple: Legislators for the most part can't be bothered to delve into or understand such an arcane topic, and it's a safe bet that voters are even less likely to. So it's purely a matter of who will make lawmakers' lives difficult if they vote one way, and who will give them campaign contributions if they vote the other way. In this case, accounting firms and publicly traded corporations are strongly opposed to auditor rotation. A few institutional investors support it, but it's not a key issue for them. And accounting professors, you may be shocked to learn, do not comprise a major lobbying force in Washington. The unanimous vote in the Financial Services Committee, possibly the most lobbyist-ridden of House committees, is a telling sign here.

Auditor rotation may not solve anything. It may even make the situation worse. But when Washington's elected officials rush in bipartisan union to take a know-nothing stand like this, it seems fair to conclude that those on the losing end actually do know something.

Why Fights Erupt in Family Businesses

Two brothers sharing ownership in a fourth-generation concrete business had a bitter falling out over an unlikely issue: a sailboat. The older sibling accused the younger of dipping into the till to support his racing habit. The younger brother struck back by issuing an ultimatum: buy out my share of the company, or sell me yours. An ugly fight ensued, affecting the business, the family, the employees, and the customers.

The rift between these two men — the father and uncle of a colleague of ours — never healed. Both men went to their graves without speaking another word to one another; their children grew up as strangers instead of cousins.

It's one of life's sad ironies that folks who love one another can end up having far more acrimonious business relations than people who are unrelated.

And yet in our experience, conflict actually occurs less frequently in family businesses than non-family businesses. It's just that when it does break out, the fighting tends to be more intense.

Why is that? The answer is devilishly simple. Fights in family businesses break out because they can. In non-family businesses, there are barriers to keep things from escalating. Owning the business removes many of these barriers. Once a conflict starts, it can easily spiral out of control.

It isn't that the causes of conflict are any different in family and non-family businesses. In all types of companies, people disagree about issues related to strategy, money, status, and authority. No organization is immune to narcissistic leaders or difficult relationships between employees. But there is a fundamental difference in the two types of companies in what stops conflicts. The difference, in a word, is boundaries.



Most non-family businesses have rules and processes — structure — that govern behavior for everyone from the bottom of the corporate ladder to the top. If my boss tells me in front of colleagues that I have a personality disorder, he is likely to be called up by HR for disciplinary action. Of course, we can all go overboard. A colleague's former boss once asked her if it was okay to shake her hand. They both laughed, but the comment underscored how controlled behavior can be in non-family environments.



The positive side of such rules and processes is that employees can safely quarrel with one another, confident that most people are going to stay within the bounds of civility most of the time. If they don't — and this is the stick that non-families businesses can always wield — employees can be fired, even from the executive suite.

Conflict is different in family businesses. Rules and processes may exist, but most don't apply to the owners. What's more, key relationships are grounded in the dynamics of the family itself. And families are governed by power far more than structure. Most families operate on a single rule: parents decide and children obey. No matter how imperious they may be, leaders of non-family businesses are rarely as dominant as matriarchs or patriarchs.

This hierarchical arrangement works under normal circumstances, especially since young people leave home to start their own families — where they switch roles and become the dominant figure rather than the dominated one. But in family businesses, in a very real sense, "children" never leave home. Parents dispense love, respect, and other things that people value — and they control wealth and career opportunities as well.

The overlap of family and business is the source of many of the wonderful and unique strengths of family-owned businesses — deeply held values, resilience in tough economic times, long-term orientation towards investment, and the greater loyalty of employees and customers.

Yet those same strengths can be undermined by the way families tend to handle disagreements. Family members often deal with difficult circumstances by withdrawing, avoiding, shaming, or undermining each other. All too often, matriarchs and/or patriarchs try to resolve disputes by forcing everyone to toe the line. If a conflict finally breaks through, it can do so with a pressure that blows the lid off the family's presumed harmony.

Now imagine what happens when a family brings those powerful dynamics over to the business. The result is that there is nothing to stop a fight once it gets going. The owners of the business can rewrite the rules, or ignore the processes — threatening the very success of the business.

Does this mean that members of a family business are fated to bide their time until their relationships erupt into a bitter fight? Not at all, and this is the good news. Once we understand that intense conflicts result from the relative absence of formal boundaries on behavior, we see that they can be avoided through an infusion of greater structure into the situation.

In one client situation, for example, we helped the siblings to solve their extremely disruptive disagreements by developing a family employment policy that identified rules for the entry of their children into the business. We also worked with them to establish a board that would be a forum for making tough decisions, with trusted outside directors incorporated as a way of mitigating sibling disputes.

This infusion of structure into the sibling relationship allowed them to stay in business together. It wasn't smooth sailing. They still had their conflicts, but conflict is necessary for any business to survive. When it is well managed, conflict doesn't make for good headlines. But it can build up a family business rather than tear it apart.

The Innovation Mindset in Action: Jerry Buss

Innovators think and do things differently in order to achieve extraordinary success. They are found not just in the world of business, although they do have strong leadership qualities and excellent business sense as a common core. Our research indicates that whether they are CEOs, senior executives, sports team owners, or film directors, game changers who stand head and shoulders above the rest share a common set of qualities that we call the innovation mindset.

In a series of blog posts, we'll introduce a few game changers and explore the common qualities that make them such effective innovators: they see and act on opportunities, use "and" thinking and resourcefulness, focus on outcomes, and act to "expand the pie." Regardless of where they start, innovators persist till they successfully change the game.

Take, for example, Jerry Buss (1933-2013), the longtime LA Lakers owner who rose from an impoverished Depression-era childhood to the Basketball Hall of Fame and ultimately transformed the sport of basketball.

Innovators connect the dots differently and see opportunities that others don't. They seize opportunities that others don't dare to.

Buss launched his career in real estate with $1,000 in 1959—a venture that proved lucrative. Twenty years later, he purchased the Lakers, the Los Angeles Kings, and the Forum sports arena. In 1979, the Lakers, like the NBA, were struggling—even NBA playoff games aired after the event, outside primetime. There were plenty of sports enthusiasts for baseball and football, but basketball was a distant third.

Even under these challenging circumstances, instead of focusing on simply improving profitability, Buss saw a unique opportunity to build a team that would win the championships many times over. Even more importantly, Jerry Buss saw an opportunity to transform basketball from a sport into entertainment. He dubbed his team "Showtime," inspired by the signature opening line each evening at the famous nightclub The Horn: "It's showtime!" He had the backdrop of the perfect city to make his dream come true—LA and its entertainment industry. To quote Buss, "My dream really was to have the Lakers and Los Angeles identified as one and the same. When you think New York, you think Yankees. I wanted that to be the case here as well. That when you think L.A., you think Lakers."

Pat Riley, who coached four of Buss' 10 title teams, said it best: "Jerry Buss was more than just an owner. He was one of the great innovators that any sport has ever encountered. He was a true visionary, and it was obvious with the Lakers in the '80s that 'Showtime' was more than just Magic Johnson and Kareem Abdul-Jabbar. It was really the vision of a man who saw something that connected with a community." It is no exaggeration to say that Buss helped rescue the league from its late-1970 malaise. When Jerry Buss passed away on February 18, 2013, NBA commissioner David Stern said, "The NBA has lost a visionary owner whose influence on our league is incalculable and will be felt for decades to come."

Innovators break through to new levels with "and" thinking.

Buss aimed for great players and great entertainment—a new combination.

Buss recruited the best talent, starting with the charismatic point guard Magic Johnson, and provided his players with the best trainers and the best equipment. Buss aggressively invested in his players, creating a legendary line up of star players such as Kareem Abdul-Jabbar, Shaquille O'Neal, and Kobe Bryant, and coaches such as Pat Riley and Phil Jackson. After Magic Johnson's second season with the Lakers, Buss gave him an unprecedented contract for $25 million, then the largest contract for any athlete. "Anybody who makes an outlandish salary obviously attracts attention," Buss explained. "That was what was behind my contract with Magic. I think it created a lot of attention for the Lakers."

And Buss's investment went beyond the parquet; when former Laker Walt Hazzard suffered a stroke in 1996, Buss kept Hazzard on the payroll, vowing that Hazzard would remain a Lakers employee for as long as Buss owned the team. "He stood by his word," Hazzard's son said. "When my dad passed away [in 2011], he was still an employee of the Lakers and our family is eternally grateful."

Innovators use a mighty dose of resourcefulness to go through, over, under, and past obstacles. They leverage resources in groundbreaking ways to fulfill their big dreams.

To achieve his vision of great entertainment, Buss was resourceful, leveraging local Hollywood talent: live music and the Laker Girls—a group of cheerleading dancers, initially including Paula Abdul. Courtside seats that were priced at $15 when he bought the Lakers became the hottest tickets in Hollywood.

To recruit top basketball talent, Buss needed to raise more money. He was one of the first to sell naming rights; the Great Western Forum was the result of a major advertising agreement with Great Western Bank.

Innovators focus on outcomes. They don't get caught in the activity trap. They don't perform activities for their own sake but see them as instruments to achieve outcomes. Given their obsession with outcomes, the results of their work are significant.

Buss focused on outcomes—which, during his 30-year ownership, included 16 appearances in the finals and 10 NBA titles. In fact, the LA Lakers won the NBA Championship in Buss's very first year of ownership. In addition, Lakers grew from $16 million in value at the time he bought them, to $1 billion by the end of his era.

Innovators combine their resourcefulness and outcomes-focus to expand the pie, by effectively converting non-consumers into consumers. In the process they transform their industry, community, country, and sometimes even the world.

In order to attract a crowd that would not normally attend a basketball game, he encouraged famous Hollywood stars to attend. Jack Nicholson has since become the face of the LA Lakers. Attendance and TV coverage skyrocketed; viewers wanted to see the stars on the front row just as much as they came to see Magic Johnson's gravity-defying "no look passes" or Kareem Abdul-Jabbar's "skyhooks."

At a time when the major sporting events were shown on TV on pay-per-view basis, Buss co-founded Prime Ticket TV network and started showing the LA Lakers games free on basic cable, which further expanded viewership. Advertisers took notice and another revenue stream opened up. Buss used the additional revenues from the expanded pie to get even better talent and even better coaches, and even better equipment to train them, which in turn meant more championships and more crowds—quite a virtuous cycle.

"I've worked hard and been lucky," Buss said. "With the combination of the two, I've accomplished everything I ever set out to do." We all owe a big thanks to Dr. Jerry Buss for the innovations that we now take for granted—he truly "changed the game."

Why Are So Many Celebrities Now "Creative Directors"?

From Tommy Lee Jones waxing poetic for Ameriprise Financial to Beyonce boosting Pepsi's sex appeal, celebrities are commonly used by companies to get attention and generate buzz. In recent years, though, celebrities have taken on a more significant role. Some companies now actively involve stars in their product development process and other aspects of their businesses.

These modern-day arrangements are often formalized with a "Creative Director" title bestowed upon the celebrity. Undoubtedly, some of these relationships are simply glorified brand endorsements and can be classified as CDINO (Creative Director In Name Only), but some celebrities are having a bona fide impact on companies.

In years past, the basis of celebrity/brand relationships had been expediency and image. Today, it's about authenticity and impact.

For example, Black-Eyed Peas' front man Will-i-am pitched Coca-Cola on making new products of out its byproducts. The company took on the challenge of producing headphones, clothing, and other gear branded EKOCYCLE to give recycled products a hipper image that resonates with young consumers. And, Lady Gaga partnered with Polaroid to develop a throwback camera and LED photo glasses that act as a camera and are designed for real-time sharing.

Perhaps one of the most significant celebrity/brand marriages is between Justin Timberlake and MySpace, the once-fledgling online music sharing service. A few years ago, Timberlake joined forces with a couple of advertising executives to purchase the site, and he has been an integral part of the company's transformation into a service that helps artists manage their brands and connect with fans. He contributes with industry-insider knowledge, personal connections with artists and music executives, and a celebrity flair that has produced a star-studded, tabloid-worthy launch party and a feature-rich user interface—perfect for the ADD-generation.

These examples demonstrate the shift in celebrity/brand deals from awareness to authenticity and from superficial to substantive. There are powerful forces behind this shift. In the past, signing a celebrity endorser was a quick, easy way for a brand to get attention. Companies could generate brand awareness simply by aligning with a visible figure. For celebrities, providing a brand endorsement enabled them to earn a significant fee for minimal work.

The needs of companies and celebrities have changed. The primary challenge for most brands today is differentiation. Engaging a celebrity with a unique personality or point of view can help separate a brand from its competitors. Also, today's consumers expect and even demand companies operate with greater authenticity. Doing more than using celebrities in ads enables them to do so.

Companies are also more focused on innovation than ever before, so they need fresh perspectives—especially from outside their industries. Celebrities' ideas and insights can help companies better understand their target markets, and because celebrities are often the ones leading the trends, they can help companies anticipate cultural movements.

At the same time, these deals make sense for celebrities, too. Celebrities now engage with their fan bases directly and need to sustain compelling conversations with them. Working on interesting projects like designing a new product or starting a new program provides a steady stream of news and insider information for celebrities to post updates about. And now that becoming a celebrity is easier than ever before, some stars want to differentiate themselves from wannabes and shore up their credibility as real artists and savvy businesspeople. What better way to do so than with a substantive title and voice at a reputable company?

Then, of course, there's the obvious business case. Compared to previous eras, musicians now make far less money from music sales, so they're looking to diversify their revenue sources. Signing on as a company's creative director usually involves a longer term, more profitable deal than offering their likeness for an ad campaign.

Today, companies no longer simply need bold-faced names and faces to associate their brands with. And many have found the value of such fleeting arrangements easily compromised when their spokesperson is discovered using their competitor's product (e.g., Pepsi-sponsored Britney Spears was photographed drinking a Coke) or caught engaging in inappropriate behavior (e.g., Accenture was compelled to terminate its sponsorship of Tiger Woods after his multiple infidelities became public). While new, more substantive brand/celebrity relationships are not immune to complications such as these, the incidence with which they happen and the impact they have can be minimized since the relationships are formed more selectively and developed over time.

In the new environment of authenticity and impact, it's not just the celebrity endorsing the brand. The brand also endorses the celebrity. This is a fundamental shift that results in a more equitable, and more interesting, relationship between both parties. Consider what the antiperspirant brand Secret did for Olympic hopeful Lindsey Van.

As a female ski jumper, Van (not to be confused with Olympic skier Lindsey Vonn) was blocked from participating in the 2010 Olympics in Vancouver because the Games only included ski jumping events for men. The Secret brand managers picked up Van's cause and lobbied for her inclusion by producing an emotional video that spread in social media channels. Subsequently, the sport was added to the Olympic Games, and Van is hoping to make the 2014 U.S. team, so she seems to have benefitted from Secret's endorsement. By endorsing Van, Secret was able to express with authenticity its brand purpose of encouraging women to be fearless, and significant gains in product sales and customer affinity followed.

With results like these, it's easy to see why celebrities and companies alike are interested in this new way of working together. It's why Red Bull built a special halfpipe for snowboarder Shaun White and why pop band OK Go is actively seeking a "brand partner" to work with on videos, apps, and other content connected to its upcoming record release.

To achieve authenticity and impact, companies need to approach celebrity engagements in new ways. Selecting a celebrity should no longer be based on his or her general familiarity and appeal. There needs to be a meaningful tie, and sometimes selecting a lesser-known person is actually a better choice because doing so can contribute to the perception of an authentic relationship. For instance, Van wasn't well-known before P&G picked up on her cause; and indeed, that's part of what makes the spot so effective: you're rooting for her as the underdog. Also companies should engage celebrities based on the quality of their ideas and their willingness and ability to engage with corporate representatives. Both of these criteria aren't as easy to assess as a Q Score, so the best approach may be to take a few small, selective steps in this direction before making a big public announcement and using a moniker like creative director.

There's also a need for the company to be crystal clear about its brand position and vision before engaging a celebrity—and to ensure the star embraces these. This alignment is critical, since the celebrity will wield more influence on the future direction of the brand internally through his or her contributions and on the public perceptions of the brand externally through their messages about the partnership.

Celebrity creative directors are popular these days because they allow brand and celebrities alike to play on higher ground. No longer are either simply promoting an image. They're making a difference.