Playing to win
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Fear plays a huge role in leadership. Although we don't talk about it well, unexamined fear is one of the leading causes of company failures. We call it bad board management or founder infighting, but underneath that is simple fear. Raw and thick.
Chief among all fears for a founder is that of running out of cash. And I see founders wrestle with it all the time: "Just how open should I be about the fact that everyone will have to get new jobs in X days?"
Here's a story about something I learned the hard way...
I walked into the conference room and took a seat at the long, wooden table alongside a dozen engineers and a few other senior leaders. I could feel the excitement and anticipation as our VP of Engineering began to make his recommendation for our product strategy for the quarter.
He walked through the rationale for increasing our investment in a school registration system, a product with tremendous upside. It could be the company’s largest revenue stream, he explained. It brought transaction revenue, which investors valued more highly than our traditional advertising revenue. It locked in our customers to longer term deals.
While others were excited, I felt sick to my stomach. I agreed with his logic, but I had a secret: we had fewer than six months to live.
If we didn’t close additional financing beforehand, by the middle of the year we would run out of cash, the company would be dead, and we’d all be looking for new jobs. The only other person in the room who knew the situation was our CFO, and we’d decided to keep the specifics of our cash situation to ourselves. Especially given how important execution was, we couldn’t have people getting distracted by the potential for imminent doom.
“At our current velocity,” the VP said with pride as he finished his presentation, “we should be able to finish the product in only 3-6 months.”
A wave of panic coursed through me. I knew there was no way we had time to build the product, release it, and compile sufficiently compelling data to raise additional capital before our runway ran out. The registration product was the key component to the future of our platform, but it wasn’t going to help in the present. It’d have to wait. We needed a quicker win.
“This is great work,” I said. “But what about the virality improvements we discussed to our core product? Did we evaluate those as well?”
He said they had, but because the infrastructure changes required by the registration product were foundational to the entire platform, doing the virality work first meant throwing it away and doing it again after the registration system was done.
I can be a convincing person, when I need to be. We ended the meeting having agreed to prioritize the virality work. The team quietly exited the conference room, and the VP of Engineering stayed behind to try one last time.
“This is the most shortsighted plan I’ve ever seen,” he said after the door closed. “It makes no sense. We’re primed to build the most important upgrade to our product in years, with only 1-2 quarters of dedicated effort. We’ll be finished in plenty of time for the next school year, and then you can have your sexy numbers when it really counts. In time for fall football season.”
He wasn’t wrong. But he didn’t know our cash situation. I stood my ground, citing a reasonable-sounding rationale that was so important it now escapes me.
He quit two months later, followed by two of our most senior engineers. During his exit interview, he said he’d lost faith in our ability to build a world class product. He said it seemed like we were playing not to lose, rather than playing to win the enormous market opportunity in front of us.
Said another way, an engineer who was known around the office for referring to all athletics as “sportsballs” anytime they came up in conversation, reminded me, a lifelong competitive athlete, of one of the oldest lessons in sports: The surest way to blow a good position, whether in the fourth quarter of the Super Bowl or the latter stages of a Series A raise, is to give in to your fear of losing.
And I’d done exactly that. I couldn't blame him for leaving.
But I can’t really tell my team that they’ll all lose their jobs in (X) months, can I?
There’s a point at which a founder, having raised enough capital to build and operate a team for 18-24 months, first begins to feel the end of their runway (the amount of remaining capital, measured in days/weeks/months) approaching. It might be six months out or it might be 15, but at some point the founder starts making decisions with an ever-shrinking deadline top-of-mind. Long term initiatives become less important. Short term metrics become moreso. And everything begins to orient around solving for runway, either by becoming profitable or raising additional capital before time runs out.
All that is terrifying.
The instinct to hide this fact is an understandable reaction to the fear that comes from staring imminent death in the face. Operating on too little sleep because that pit in your gut gnaws at you at 3AM every night, it feels like there’s no way you can tell your team about this existential burden. You’re barely holding it together; you can’t possibly put it on them. It’s your job as CEO to handle this type of stress, so they don’t have to. Right?
Wrong.
Talking about your runway openly with your team can be distracting, sure. People might get spooked knowing they may only have jobs for six more months. Or three more. Or 30 days. People might leave, making it harder to accomplish your goals. All this is compelling, rational-sounding logic to justify keeping that sinking pit in your stomach to yourself.
But as I discovered first hand, the cost of hiding it is much worse.
The mental and emotional toll that comes with carrying the imminent “death” of you and everyone you work with, alone.
The risk of neutering the most important person in the company (you), considering that isolation and a resistance to asking for help are the leading causes of burnout.
The opportunity cost of not enlisting your highly talented and highly compensated team to help you actually solve your runway problem.
The risk of your team losing confidence in your leadership, as they see you drive the company toward increasingly short term outcomes for no reason (not that I know anything about that).
Talking with your team about your dwindling runway, those wonderful, dedicated people with families who depend on the success of your company, can be terrifying.
But you can’t afford not to.
Ok, but just how transparent should I be with my runway? Can I just say: “Soonish?”
I’m going to say something that shouldn’t be as radical as it is:
You should be very transparent and specific about your runway (plus or minus a reasonable margin of error, say 30-days), as soon as you possibly can.
Until you’re profitable, runway is your primary constraint in building a venture backed company. Running out of money is literally the only thing that will end the game. Not talking about this fact openly ensures your team doesn’t factor it into their own working calculus, which is like trying to win a football game while ignoring the game clock.
It’s amazing the illogical things unexamined fear can cause us to do.
Instead, develop a habit of talking about your runway as a creative constraint, mentioned in the same breath as your OKRs and strategy. Ideally you’d do this when your cash-out date feels a long way away so that, if and when runway gets tight, it’s not a surprise. But even if it’s already the fourth quarter, your team can’t play its best if they don’t know when the game ends.
Playing not to lose, you avoid actions that would cause any employees to leave (like scare them with runway realities). Playing to win, you build an environment that enables your best people to do their best work (clearly, sharing critical data with them enables them to do their best work).
My “sportsballs” VP of Engineering had it right.
What happened after members of our engineering team left
After the big blowup, I decided to explain the real rationale for my focus on short term engagement metrics to the rest of the team.
My hands were shaking when I told them that we had about five months of cash left, and we needed to close another round or we would go out of business. I could see the fear and shock on their faces as they took in this new information. A few key folks had just left; I girded myself for more to follow.
None did. Not a single person left the company.
Instead, they asked how they could help.
During the following 90 days, our team responded with a herculean effort that brought both strong engagement numbers AND an MVP of our registration product. On the heels of that sprint, we closed a follow-on round of financing.
Keeping the clock to myself out of my own fear (justified with a desire to avoid spooking the team) had limited our options, but with time running out, our team stared death in the face and rallied to win the game. And in doing so, we got to advance to the next round. And I communicated openly about runway at every all-hands meeting thereafter.
Until you’re profitable, running a venture backed startup is a lot like playing in the playoffs. Every financing round is a new game. Win or go home.
It’s high stakes, and it’s scary.
But I can’t tell you how many times I’ve watched talented but scared teams blow a 20+ point lead by playing not to lose.
Things I read this week
One: VNN to merge operations with rSchoolToday (MiBiz)
This has been a long time in the making. The company I founded, VNNsports.net, just announced a merger with Florida edtech firm rSchoolToday, thereby creating the largest high school sports tech/media platform in the US. The new company represents 40% of the entire US market.
Big day today. I'm pretty proud of this team.
LINK >>
Two: Agile doesn't work without psychological safety (HBR)
"50% of organizations that undertake agile transformations fail."
Why? They prioritize processes and tools over their people. Specifically, developing the foundation of vulnerability-level trust necessary for people to risk looking dumb in front of their peers.
Three: Employees are sick of being asked to make moral compromises (HBR)
I-O readers already know that compensation and titles are helpful to prevent dissatisfaction, but do almost nothing to inspire people. Mission & purpose are necessary for that.
But the Great Resignation may be changing that. Personal alignment with a company's mission, purpose & values is becoming table stakes on par with a living wage.
This will hugely benefit the world. And, it will surprise some companies greatly.
LINK >>
Four: It's always been like this (DailyDad)
This is magical.
"There he walked, carrying his young child. Sometimes the father would set the child down and they'd walk together. Soon enough the child would get tired again and need to be carried." All of this is seen in the footprints, found in White Sands National Park, dating from many thousands of years ago.
Five: Possible outcomes of the Russo-Ukranian War and China's Choice (USCNPM)
Watching the Russia/Ukraine war from a distance in Michigan, it's been hard to make sense of things. The whole situation seems foreign in more ways than one, and I've been wrestling to try to understand it from all perspectives.
China's perspective, one version outlined here by a Chinese intellectual, is a particularly interesting aspect that I found worth understanding.
LINK >>
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