Deciding What to Decide
One difficult part in startup decision making is choosing the decisions to make. Some may be obvious, but many have the effect of trying to fix things that aren’t broken.
Let’s take the example that you’re missing your sales targets. Do you make changes in the sales team? Do you presume there’s some price elasticity and decide to try a lower price? Is your messaging off target and not really captivating your intended audience? Do you need to pour more dollars into marketing and PR? Are you marketing in the right places? Are you keeping a close eye on what’s working or not working for your direct competitors? I could go on.
If you decide to change multiple variables at once and things do improve, you won’t know which moves were responsible. But, good founders are naturally impatient and prone to action, and it’s hard to take a measured A/B testing approach to validate decisions sequentially. If you’re adjusting your advertising spend on Facebook, A/B testing is easy and backs up your choices immediately with hard data. However, in the broader context of running the business, it’s much harder to isolate the many elements, including the human factors, that are part of each major decision you make.
Let’s focus just on the pricing question for a moment. I’ve seen founders use the following trains of thought:
1. I have an instinct that our price is too high.
2. The last person I talked with about pricing told me ours is too high.
3. My CFO explained to me that we’d have a difficult time breaking even at a lesser price point, but I ignored her. I’ll make it up on volume.
4. The lowest price always wins the business.
5. I’m just sure our competitors are cutting deals.
6. My sales team says price is the only thing that is keeping them from meeting quotas.
7. We’re doing everything else right, so this has to be the answer.
Business life is rather more complicated than those ideas. Luxury goods purveyors create demand by pricing high enough to keep the riff-raff from polluting their brands. Who would want a $50,000 Ferrari? Deciding to tinker with pricing without taking into account the overall business model and customer profile is most often a wrong-headed move.
One could come up with similar example in all aspects of a business. No one gives a founder a menu of choices to make every day. A smartly run company has a plan and a set of goals against which to measure performance. Activities that miss their metrics, either on the low side or the high side should rise to the daily decision list. That means you are not just looking for weaknesses, but you are seizing on strengths. Plus, you’ll have surprise decisions every day based on the actions of customers or employees or occasionally some externality. If you let your management style be governed totally by those serendipitous events, you’re not doing the best job of deciding what to decide.
Keeping your own counsel excessively is another way to get your agenda out of whack. I’ve seen founders whose companies are off target become totally withdrawn into their own original visions and limit their exposures to professional peer groups. I’ve had great luck keeping myself out and about in the world and letting good things happen to my companies. But, I often see the opposite. A founder gets discouraged and withdraws into a tightly proscribed comfort zone and quits listening and learning. Analytical thought is pushed aside by pursuit of the dream. Meanwhile his or her market segment moves on. Especially in the tech world, if you think the world will stand still for you, you’ll sooner rather than later get your hat handed to you. This is a decision on your part. You have to participate in the arena you have chosen if for no other reason than to identify your biggest threats. There’s someone else doing exactly what you are, maybe one hundred someone else’s, and you need to be where they congregate to take their measure and plot your response to them. And, every meeting or event you attend could easily present you a new opportunity. I’m not talking about general social networking. I do that at my country club. But, I am talking about being active in your field in some way that creates authority, trust, and interest and keeps your eyes open to reality.
Launching a fundraising effort is a darn good way to learn exactly where you stand in the great scheme of the tech universe. I recently had a blunt discussion with an advisor to a company that is raising money out of necessity to stay alive more so than out of a desire to validate its rank in the hierarchy. I told him his deal would not work. Period. It includes concepts that have hardly been analyzed. But, he countered that they’re only looking for “dumb money” — not regular tech investors but individuals from a variety of backgrounds who will occasionally take flyers on interesting ideas. It’s extraordinarily difficult to raise enough dumb money to achieve anything of scale, and you don’t get all the high-value connections that generally come along with professional tech investors. If you do eventually expose your company to those professionals, all your dumb shareholders will get crushed in the new cap table. I’ve had some non-tech individual investors in deals before, but they’ve been based on personal relationships and have been commingled with the professional investors, all on the same terms. This recent meeting may have been he first time I’ve heard a startup build its financing strategy strictly on the perceived availability of dumb money. That’s a decision I would not make.
On the other hand, I’ve seen fundraising turn up some very positive surprises. You float a round to top up the tank and to provide some third-party evidence of your personal perception of what you as a founder have created. Then, as that circulates and you get a chance to talk to all your existing investors along with your A-list prospects, something better materializes. I’ve seen that happen time and again. Just deciding to put yourself in play gets the conversations started, and intriguing deals start popping out of the woodwork. You may well want to stay the course and just execute your offering as originally planned, or you may choose to abandon it in favor of something more tempting. That’s one good reason why offering documents say the company has the right to accept or deny any subscriptions for any reason. You’ve always got the flexibility to say “thanks but no thanks” and jump on an unexpected and better course of action.
You’re no doubt aware that many tech executives and other leaders follow Steve Jobs’ example of wearing the same thing every day. Jobs always wore his signature black turtleneck with jeans and sneakers. When we wake up, we are now so connected that our heads are quickly filled with the business missions of the day. We have many important decisions looming, so why not minimize the brain drain of making little decisions? If I’m busy working from home, I even tend to eat the same breakfast and lunch every day. If I’m out and about in Austin, my only dress decision is which Capital City Club logo golf shirt I wear for the day. I apologize that this dress code doesn’t seem to work for women, however, unless they are in military or company uniforms. I do try to give equal opportunity advice. The net of all this is that even minor decisions have a cost, and the major decisions deserve your primary focus. It’s up to you to characterize and prioritize them properly.
