Professor of Practice of Behavioral Economics
The last four articles I associate with wine:
Too good to be true?
Paul Brown tipped me on Guy Kawasaki’s post on the Venture Capital Aptitude Test. (Disclosure: Paul’s kind words come from years of he and I working together in a startup where he and the other developers did all the hard work) . Thanks, Paul.
In Guy’s post, Guy gives two positive nods two areas I’ve had lead roles with (engineering & sales) and disses two other areas I’ve been also been involved with (MBA and management consulting) in terms of how it affects one’s ability to be a venture capitalist.
Guy writes about management consultants:
The three worst backgrounds for a venture capitalist are management consulting, investment banking, and accounting. Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups.
Guy writes about MBAs:
Finally, there is the issue of the pertinence of an MBA to venture capital. The upside is that such a degree can provide additional tools and knowledge (such as calculating that 25% of $1.6 billion is $400 million) to help you make investment decisions and to assist entrepreneurs. The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside.
While I won’t address Guy’s claim about the whether these areas are good or bad for venture capitalists (as I can’t claim to be an expert about picking good venture capitalists), what I will address is Guy’s claim that "Management consulting is bad because it leads you to believe that implementation is easy and insights are hard when the opposite is true in startups" and "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested. All told, the downside of an MBA outweighs the upside."
On the point about management consulting I simply disagree (with no disrespect) with Guy. Guy’s statement is an overgeneralization. There are different types of consulting firms out there, and Guy’s perspective may be more influenced by pre-2000 practices. Consulting firms pre-2000 that were focused on strategy might have more of a tendency to be focused solely on stategy, but these firms got burned by making recommendations without focusing on ease of execution. On the other hand, there were firms that grew of of an implementation background (and potentially interim management background) and moved upstream into more strategy consulting. Although markets started to overlap a bit, structurally I think consulting firms and client were better off by having this type of cross breeding.
All said, if one has not spent any time managing or working in a business role prior to management consulting, I think this can be a weak point that one needs to work on careerwise. But there are strong benefits to management consulting that should not be underestimated either – by working in management consulting, one can get exposed to the internal operations of a lot more firms than one could by working for one firm straight for five to ten years. In five to ten years as a consultant, one may have seen the detailed operations of twenty to forty firms versus two to five as an operating person.
On Guy’s point, "The downside is that earning this degree (and I have one) causes most people to develop the hollow arrogance of someone who’s never been tested."
To this, all I can say is that my hypothesis would be that MBAs may tend to attract arrogant people [who overstep their bounds in terms of what they think they’ve accomplised over non-MBA entrepreneurs]. I don’t think the MBA naturally breeds this type of person.
Overall, I think Guy is onto something when he says people should value the difficulty of implementation and value and proximity of market insight. I also think he’s onto something when he talks about arrogancy affecting the ability of VCs to do the job effectively. But Guy’s characterization overly discriminates against consultants and MBAs. What about the negatives to engineers who only think about technical beauty and miss the market need? What about the salespeople who only sold what the customer already bought and never hunted for a deal?
When I was a practicing engineer early in my professional career, I remember alumni giving me a glimpse of the future of a typical engineer where the engineer would after a number of years move into a management role managing other engineers. Although I didn’t give it much thought at the time, what I didn’t think about was that moving into an engineering management role might make my engineering skills obsolete. Over the years, I did take a path that led me from detailed design engineering to systems engineering to project/product management types roles. Although I stayed on the cutting edge in terms of industry knowledge, along the way I became more interested in business, and I found that my specific engineering trade skills became anemic and obsoleted.
In business, similar things can happen too. For example, many successful sales executives started in an area such as marketing. Maybe down the road they became field sales people and then grew into roles of sales manager, area director, regional VP, or executive VP down the road. With each advancement, they may have become further removed from trench-level sales work. Or they may have helped the organizations become more specialized in productizing the sales process (e.g., for a large company with thousands of existing customers). In these cases, such executives may have set up separate people doing inside sales, other people doing proposals, other people pulling together the technology pieces of a proposal, etc. The executives end up maintaining relationships with customers at the executive level and having the final say in how deals are crafted and how things shape up. In these cases, the executive plays a tremendous role in the larger organization – the situation may be loosely akin to a general in the battlefield. The general becomes far removed from the front line but clearly has tremendous influence and can command respect without having to "do" anymore.
Down the line, management executives (like some military generals) may have more difficulty in moving from large scale environments to entrepreneurial or startup environments. They become accustom to having many resources and telling people what to do. While such executives may have invaluable knowledge and experience about the rise from nothing to sales monster, they may have forgotten what it is like to actually be in the trenches and/or have to do work. Or they may have forgotten what the rise actually entails (which would be a shame if that is the case). I know of many entrepreneurs who lament about venture capitalists or other investors insisting that executive sales VP of brand name Fortune 50 company should become head of sales for seed stage or Series A stage company only to find nine months and millions of dollars more poor that the entrepreneurs were better at selling an early market product with no brand name than the experience sales lifetimer.
This is not to say that managing only is bad. But managing only will create a specialization (which may be rewarded in its own right), and pursuit of that specialization should be a conscious decision. Some managers balance things out by ensuring that they perform a certain amount of work from time to time or visiting the field often. For example, sales managers may not only have regular, internal sales review meetings with field sales people but also travel with field sales people to visit client prospects. Multiple purposes are satisfied with the manager keeping skills fresh, monitoring performance of field sales, and smoking out end-to-end sales and marketing process problems that may be affecting the larger organization.
There are also tradeoffs with just "doing" too. People that get so focused on execution may find that they cannot scale the model. If managers focus on doing as opposed to managing, they may end up micro-managing, failing to utilize others, or failing to develop their managerial skills.
So what’s the answer here? Personally, I think the optimal choices depend somewhat on the nature of the game one is playing. In some industries (e.g., auto manufacturing), the sales and delivery process tends to require specialization to get scale. "Managing only" may be more acceptable. In other industries (e.g., consulting), scale may be harder to achieve and tend to require sales and delivery processes to be closer together. Managing and doing may need to be closer together.
So all said, one needs to recognize that there are different games that can be played. There are also tradeoffs in the types of players that can fill the roles too, much like a guard plays a different role than a center does in basketball. The key is to both match fit with appetite and skill with the game at hand and also to make sure that the process of renewal (e.g., maintenance, training, retraining) is in tune with long-run needs.
Ralph Muse, a fellow Texan, ex-Booz Allen management consultant, extremely experienced interim manager, extremely respectable father, and honored serviceman (among many other impressive things) recently started up a blog, and one of my favorite posts by him is entitled, "Super Salesman CEOs". The post is written in the context of trying to place a CEO in a startup, but I feel the post also reflects the situation in numerous client engagements I have seen, for example in cases where more mature companies are looking to enter new businesses or develop new product platforms. In Ralph’s post, he writes (bracketed text mine):
[An executive search firm] needed help finding the perfect person for a CEO search. The position description called for someone who had spent their whole career in Sales …
I have heard this request before. It seams to be a trend. While I think every good CEO is a salesman, not every sales VP can be a good CEO. If fact for most startups after the salesperson “makes the sale” the CEO will have to close the deal by convincing the customer that the company has a sound business strategy that will succeed.
One take that I have on this situation is that visionary and "salesy" (for lack of a better word) CEOs need to find someone or someway to complement their strengths if the CEO lacks execution skills, strong lieutenants, and/or the time and bandwidth to employ structured methods for tackling problems. I have seen a number of efforts fail or get stalled because they overlook some of the soft stuff to get businesses to work, like team building (as Ralph mentions). See Ralph’s post for more.
Excellent NY Times article which sheds light on how families and single parents are continuing to spend time with kids in spite of women working more and individual parental workload increasing (see chart along the left side). Although not all families have two parents, it would have been interesting to see total parental workload depicted. By adding the breakdowns for mother and father together, it appears as if (from 1965 to 2000) total parental workload has increased, total housekeeping has gone down, and total time spent with kids has gone up. It is interesting to note that average father’s housework time has increased. It also interesting to note that average paid work time for fathers has gone down (Note: this latter item is not one that I would have suspected).
"It’s Not Easy Being Green" are famous words often attributed to Kermit the Frog. I think these words apply to not only famous frog puppets but also "green" management consultants (i.e., those fresh to the field).
Consulting can be a high pressure profession, and clients (as well as senior colleagues) often closely scrutinize new consultants, especially newly-minted MBAs during the first period when they land on a project. For what it’s worth here are some of the things that helped me get through my first few months when I entered the profession:
My short roundup of articles and posts covering the Google acquisition of YouTube:
Update (10/18/06): Also make sure to check out David Dalka’s post here. Thanks, David!
Daniel Harrison has put together some of his thoughts on organizational behavior here, and it is a great reminder to me that this subject cuts through many aspects of professional and personal life. Daniel’s listing brought me over to Dr. Andrew McAfee’s (a Harvard Business School professor) post here, which starts off citing some reasons (by Dr. John Gourville) why consumers should not be thought of as "… highly rational evaluators of the old vs. the new products, lining up pros and cons of each in mental tables and then selecting the winner …". The post goes to mention three explanations (each of which either stem from or highly relate to prospect theory):
We make relative evaluations, not absolute ones. When I’m at a poker table deciding whether to call a bet, I don’t think of what my total net worth will be if I win the hand vs. if I lose it. Instead, I think in relative terms — whether I’ll be ‘up’ or ‘down.’
Our reference point is the status quo. My poker table comparisons are made with respect to where I am at that point in time. "If I win this hand I’ll be up $40; if I lose it I’ll be down $10 compared to my current bankroll." It’s only at the end of the night that my horizon broadens enough to see if I’m up or down for the whole game.
We are loss averse. A $50 loss looms larger than a $50 gain. Loss aversion is virtually universal across people and contexts, and is not much affected by how much wealth one already has. Ample research has demonstrated that people find that a prospective loss of $x is about two to three times as painful as a prospective gain of $x is pleasurable.
What is interesting to reflect on is that it is not always very easy for marketing organizations to explore the points above in a quantitative way. Figuring out where people’s reference points are (e.g., on a market segment basis) often requires primary research that may be expensive (e.g., millions of dollars). Hence, organizations may (primarily or initially) resort to secondary research methods that may tend to be biased toward assuming that consumers are rational evaluators.
Some ways to bootstrap the marketing research process may be to use focus groups, interview distributors (e.g., of competitors), and/or conduct mystery shopping efforts. What bootstrap methods have others used and found to be effective? How does it complement secondary research?