You get some good questions, and you get some not so good questions. One of the not so good questions was, “Why do so Many Silicon Valley VCs Demand the Startups they Fund are Located in the Silicon Valley?” I referred to Marc Andreessen's guide to startups When the VCs say "no" about location risk:
"…And will I as the VC need to drive more than 20 minutes in my Mercedes SLR McLaren to get there?"
OK, so maybe that’s not such a bad question after all…
I did get a really good question about the importance of communication as a CEO, so I will share my answer with you.
Effective communication is everything as a CEO.
Think about everything and everyone you have to effectively communicate with:
- The employees
- The board of directors
- The investors
- Trade press
- The list goes on and on.
OK, so what goes into being an effective communicator?
Here's what is effective for me with my personality:
- Be direct and to the point. I like to tell it like it is. I don't oversell, and I don't undersell. Just the facts. Employees want to know where they stand, so you win points by being honest.
- Underpromise and overdeliver. It's so important to set realistic expectations, especially with your board and with investors. I'll give you an example of how not to do it. We provided engineering updates every board meeting when the company started. The schedules we used were "perfect" schedules. In other words, we had to be perfect because we had no schedule buffers. We looked bad in the board's eyes even though our execution was good. We changed our scheduling technique using the "critical chain" methodology. This actually improved our engineering performance and our standing with the board.
- Be transparent. Share as much as possible with your team. Yes, there will be leaks, but it is worth it. You are treating your team like adults, and the team will respond positively even to bad news. In fact, they may have ideas of how to solve the problem. You will earn the team's loyalty and support working this way.
- Be positive in voice and body language. Every movement, every speech, every email, everything you do is analyzed by your team. Hell can be breaking out around you, but you need to have a steady hand at the wheel. Your team is going to take their lead from you.
- Fill in the blanks. You always need to tell the team what you mean, and, more importantly, what you don't mean. Telling people what you don't mean is critical because your team will fill in the blanks for you -- and you may not like what the team fills in.
All of these ideas about communication are great, but there comes a time when effective communication can be difference between your company surviving or dying.
We faced this exact life or death issue.
My company was raising money, and that’s never an easy proposition, but it’s really difficult for a semiconductor company. We had a term sheet, but one of our existing investors refused to allow funding to close unless a second investor joined the syndicate.
We had four new potential investors that were closing in. I was confident, and I thought our existing investors were confident, that one or more of the new potential investors would join our syndicate shortly.
We were almost out of money, so the investors had to decide whether to continue funding the company until we found a second investor. We discussed our options in a closed session of a board meeting.
One of the things you learn is there is a difference between confidence and writing a check: one investor was willing to write a check, and the other wasn’t. Most investors are unwilling to go it alone. The investors told me and the other board members what they wanted to do:
Furlough the employees and sell the company.
The decision to shut down the company took me by surprise. From somewhere inside of me, I don’t know where, I suggested an alternative to the board and investors:
“What if we went on minimum wage for the next six weeks? We could play out our hand with the four investors? We will almost certainly have answers from them by then.”
It was a “Hail Marry” pass. I didn’t think the investors would go for it, but, much to my surprise, they did.
Just one thing: that was the easy part.
What was the hard part? Telling the employees they were going to be on minimum wage.
You don’t want to win the battle with the investors only to have all the employees walk out. The real work was about to begin.
We always had a company meeting the day after our board meetings, so we had 24 hours to prepare.
First, we confirmed with our co-employer, TriNet, that we could indeed change employee salaries to minimum wage ($10/Hour).
Whew. One hurdle down.
Second, I gathered the executive staff, and let them know what we were going to do. We then spent the rest of the afternoon preparing for the next day’s employee meeting. I reviewed my comments with the staff, and we made sure all the pertinent areas were covered.
Next, the executive staff posed likely questions the employees would have, and we reviewed my answers. We worked on the language of the answers, so there would be no mistakes.
The theme of my speech was simple: We, the employees, will need to sacrifice to keep the company alive. I asked the employees a straightforward question: “Are you in?”
The answer was yes. It was a unanimous yes.
I’ve never been prouder…and more relieved. The employees asked the questions you would want them to ask, such as, “How are we going to get the company operational when this is over?”
It couldn’t have gone any better, yet telling people you are out of money and you need to go to minimum wage isn’t exactly a happy message. I expected everyone to quietly walk back to their desks.
The team didn’t.
The team applauded.
It was the last thing I expected, and I had to hold back tears. Clearly, we had done something right.
Why did this critical moment go so well? I believe there are three reasons:
- We prepared well. Public speaking and being quick on your feet are about preparation. The better prepared you are, the quicker on your feet you can be.
- We had the right team. See my post on hiring exceptional employees. We had hired an exceptional team, and it paid off.
- We had the right culture. See my post on the importance of culture. Our culture was positive and open. We trusted the employees, and they, in turn, trusted us.
But, there was another reason that was more important than all the other reasons combined:
We built trust by effectively communicating from day one. We were honest and transparent throughout the life of the company. We treated the team with respect, and the team, in turn, trusted us.
It’s easy for everyone to be on board, even the worst employee in a bad environment, when things are going well. The true test of your team, your culture, and your communication skills is when times are tough. Interestingly enough, we didn’t lose a single engineer when we went to minimum wage.
Within a month of the employee meeting we had a term sheet from one of the new potential investors (two of the four would eventually give us term sheets). Our bet had paid off.
Oh, and what car did the investors drive? You got it – a Mercedes SLR McLaren!
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