“The key to being a good manager is keeping the people who hate me away from those who are still undecided.” –Casey Stengel
Ask anyone what the most important factor is when choosing a new job and, 9 out of 10 times, they will say “the people.” Ask any venture capitalist what the most important factor is in the success of a portfolio company and 10 out of 10 times, they will say “the leader.” Sometimes they will say “the management team,” but mostly they mean the CEO in capital letters and the rest of the leadership team in lower case letters. So how do these people, who are charged with making investments and backing the right quarterbacks know a great CEO when they see one?
(spoiler alert: they don’t)
“When trouble arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that person is crazy.” –Dave Barry
Leadership matters. Everyone knows it intuitively, but how do you know who a great leader really is? This is the conundrum of every human trying to figure out how much they will like, respect, appreciate, admire the leader and team with which they are integrating, investing, collaborating.
Unwittingly, I have been unintentionally conducting a grand experiment in this topic, which I just realized (it only took me 14 years). As some of my readers know, I teach a class at the UC Berkeley Haas Graduate School of Business with my friend and colleague, Dr. Jeff Rideout. For about 10 of the weeks each semester in, we bring in CEOs of companies who tell their stories and pitch their fundraising decks and to our class of about 50 students, the vast majority of whom have significant healthcare work experience and some of whom have some venture or similar investing experience. After the CEO does their thing, we ask them to leave and we engage with the students around what they have seen, asking them whether they like or dislike the company and why they came to their conclusions, what they would need to know to invest, what the focus of due diligence would be, etc.
And each week, we also ask this set of questions, or something like it: What did you think of the CEO you just saw? Did you like him or her? Do you think they are the right leader? Would you invest in them?
I have been thinking deeply about this particular topic of team lately, and it just dawned on me how fascinating it is to hear the widely divergent student responses each and every week to the above set of questions. Usually, about half the class really loves the person who presented and thinks very favorably about them as a leader. And the other half of the class suggests they have already spent more time with these people than they needed to do in a lifetime. This split happens almost every single time. Here are a few examples of paraphrased responses we have heard in these debriefings:
- On one CEO: “Loved the CEO, very confident and smart and had multiple successes,” and “Hated the CEO, arrogant and dismissive and they think they know everything”
- On another CEO “Not enough experience to get the job done well” and “Amazingly charismatic and driven to get it done well”
- On yet another “Boring and too in the weeds” and “Smart and focused on the key issues that will drive success”
I could go on and on, but you get my drift. Everyone either loves or hates the people they just watched speak and answer questions for an hour, and that is the basis on which they form their opinion. It is exquisitely rare that a presenting CEO is universally liked or disliked by the group.
“Haters are confused admirers who can’t understand why everybody likes you.” –Paolo Coelho
It’s fascinating, actually, and also obvious in a way, how normal this split in perception really is. We all have people we like and people we don’t like and often that decision is made in the split second when we meet them. Some people are doomed even before we meet them due to bias, active or implicit, how we meet them, what they say in their first sentence, how they carry themselves, what they are wearing, and innumerable other reasons rooted in everything and anything except whether they are actually good at their jobs, or at least likely to be over the long run.
Each of us also comes to every new introduction with a set of beliefs, often founded on nothing but lore. For instance, lots of investment professionals believe that serial entrepreneurs are, by definition, more likely to be successful. But the truth is that there is very conflicting evidence for this (see this article arguing for and also this article arguing against). And in truth, the most famous and successful people who we hold out as pillars of great entrepreneurship are mostly first-time founders (Jobs, Gates, Zuckerberg, Bezos, etc.). Love those guys or hate them, it’s hard to deny that they started incredibly successful companies that created ridiculous amounts of value for investors, employees and others, and did so without any meaningful prior job experience to predict that would happen.
Some investment professionals, and perhaps I should say MOST investment professionals given the miniscule amount of venture dollars that find their way to female founders, believe that women cannot be great CEOs, or at least can’t unless they are paired with a great male leader standing next to them – this is, of course a bunch of…let’s call it “lore” when we should call it bullshit. A few female founders who prove me right include Blakely, Winfrey, Corcoran, Greiner, Huffington, Wojcicki, Rihanna, and Howroyd. Also, this Stanford article discussed how women serial entrepreneurs did better than those who are male article. Sorry, not sorry as I write this on International Women’s Day . These female business rock stars may not be quite as big of household names as the men in the paragraph above, but they created companies of expansive value that are admired by anyone of above average intelligence.
But I digress. My point really is that we are all guilty of seeing people through our self-colored glasses. We like people who are like us, we like people who are like people we already like, we like people who make us comfortable and who seem inspirational even if they haven’t proven they should be considered as such. I could create a long list of leaders who have started out up on a pedestal and fallen hard from that perch because the people who backed those leaders were just plain wrong, but I won’t, because we have the Wall Street Journal for that.
“Most entrepreneurs will admit luck plays a part in success.” –Richard Branson
I remember reading a great book — a Pulitzer Prize winner by Joseph Ellis called Founding Brothers. I read it in the context of a class I took in graduate school about the psychological biographies of famous leaders, back when I was still thinking of becoming a political speechwriter or political journalist (dodged that bullet). The book describes the top 10 Founding Fathers, all of whom are names any American should recognize, assuming they paid attention in American history class or know the names of just about any nearby freeway or public school. The point of the book was to show that, despite being great leaders in their own way, at least for a period of time, each of Washington, Madison, Hamilton, Adams, Burr, and the like were deeply complex individuals, colored by their own upbringings, psychosocial experiences, and often highly flawed personality characteristics. Some verged on (or fell over the precipice of) being total jerks or beyond obnoxious. Some. like Burr, turned out to be even worse. But all were successful in their own ways, and many were ultimately deeply unsuccessful at key objectives they set for themselves, even shunned, or rejected by their peers. It’s a great and very approachable book and probably worth reading to remind yourself that, when evaluating leaders, not everyone is what they seem to be and that certain flaws may be eclipsed by greatness, even when those flaws seem especially odious to those evaluating the individuals at hand.
Anyone who believes there are objective ways to pick out great CEOs – that anyone has the magic to unlock the key to “great” personalities just like the manner in which you guess who is under the Masked Singer costumes—is just wrong. There is just too much subjectivity. Just think about it this way: if people prefer other people who are like themselves, but they themselves are, according to others, not particularly fabulous, who, exactly, are they endorsing? Birds of a crappy feather, flock together, is basically what that means.
We do sometimes encounter great leaders (and we know that in hindsight mostly) who have an amazing sense of good taste when it comes to the team they have assembled (also known mostly in hindsight). And those teams are hyper-functional and create great outcomes. But thinking that we can truly see that in advance is to be over-confident in one’s own ability to evaluate people and to ignore the impact of luck and being in the right place at the right time – just ask Nassim Taleb , author of Fooled by Randomness (or ask Ann Lee-Karlon, who recommended the book to me). In summary, this book says:
“Randomness, chance, and luck influence our lives and our work more than we realize. Because of hindsight bias and survivorship bias, in particular, we tend to forget the many who fail, remember the few who succeed, and then create reasons and patterns for their success even though it was largely random. Mild success can be explainable by skills and hard work, but wild success is usually attributable to variance and luck.”
If we were all great at evaluating great teams, the divorce rate would be somewhat lower than the 50% it actually is and we would always elect the right President. Guess what? Not our lived experience, especially in 2016.
So how, as people and as entrepreneurs and as investors can we decide who to support, who to back, with whom to associate, other than to go with our gut and our ability to believe that experiential history will be a perfect proxy for future results? You got me. And that’s what my accidental class experiment has taught me. “Lightning May or May Not Strike Twice” is probably a better mantra for investors than “Practice Makes Perfect.”