Over the past several years we’ve seen a raft of changes in the corporate landscape, particularly in the technology arena. Once high-flying chief executive officers are suffering through the worst doldrums of the last 50 years, with the extremes of this group doing perp walks to pay for crimes of corporate malfeasance. What has led to such a startling shift in the perception toward CEOs and other corporate bigwigs? What were they thinking? Did they really believe that the cash would keep on flowing and that spending without any return was the way to win?
Every media talking head and industry expert has his or her own answer to these questions. Most focus on the greed of the Internet economy and the feeding frenzy this period created. While to some extent these theories are valid, there are other elements, historical and otherwise, surrounding the infrastructure of technology companies that may not be so obvious. As I tell my clients, we are leaving the Industrial Age and entering a new period for business and mankind.
Since we founded Sherwood Partners Inc., a business strategy consultancy, more than 12 years ago, we’ve seen that the CEO position in a technology company often serves to hinder more than help a venture’s prospects. When analyzing this position in a startup or the early stage of a technology company, we’ve concluded time and again that the CEO is really “CEOing” nothing at all. There is no company, no income and, in many cases, no product.
Let’s begin at inception. When one is building or starting a technology company, the first instinct is to focus on the “company.” Venture capitalists need to be convinced that a company is going to be viable in the long term, because they stake their claim not only on the quality of the concept or product but also on the management team, sales goals and potential market share.
On Your Head
Presume for a moment that we turn this logic on its head. Can an excellent product or technology coupled with a desire for a strong business plan, seasoned management and a strong sales force be defined as a company? Or is this “company” actually just a creative entity-a group of very talented people who have come together to take a new concept from the beginning through the beta stage and then, hopefully, to market? We must remember that simply getting a product to market does not guarantee success. The product must be well thought out, fully developed and have some type of customer absorption to succeed.
Throughout the Industrial Age, structure and a well-defined organizational chart ruled the day. In the old economy, a company usually had a product or service to sell or offer to produce revenue. In the new economy, AKA the Technology or Information Age, the technology company more often than not starts simply as a concept. As this concept gels through the beta phase of product development, the technology company must focus its energies and resources on research, implementation of the concept and then testing and validation of the product and/or service, rather than building a corporate infrastructure. While this is the correct process to bring new ideas to market, the company is not even near a positive cash flow or income stream.
Given these factors, introducing the CEO position at this early stage creates certain problems. Often, the person brought into this position will have either operational or sales and marketing skills. Either way, this position fosters a misperception for the venture capitalist, board or potential investors that the company is in a more stable place or further along in development than it actually is. Additionally, this sends the wrong message to the team developing the new concept.
Enter The CCO
Our suggestion is the introduction of a “chief concept officer” (or CCO). This is the person with the vision-possibly the founder-who takes the dream and begins to mold it into a reality. Remember, in this stage the goal is not to run a business. The goal is to work toward validation of the concept. Therefore, the sole focus is to tackle the obstacles that stand in the way of making dreams a reality. Taking on the dream and building toward a “working” business through the beta stage must be the key function of the CCO, who would then pave the way for an operating CEO and management team to truly begin operating and growing the business.
The focus at the early stage should be the development and maturing of the future product-not on securing deals or marketing a conceptual product (duties suited for CEOs). Once the product evolves into a working beta model, the CCO must focus the team to fine tune and adjust the potential product. At this point the work begins to focus on the first sale to secure the initial order.
At this point and only at this point, a real “business” begins. Once the company gets traction, a traditional business model comes into play and the founders and creators have earned their just earn-outs. This is the point at which a new management team is set, one with the experience and understanding of basic business concepts. This is the “operating team.”
During the Industrial Age, spreading infrastructures and factories required maximum management of people and processes. These processes were honed by mega corporations of the day, such as General Motors, U.S. Steel and IBM.
Tech Changed Thinking
However, as technology entrepreneurs built their empires, it has become clear that the role of the CEO has begun to change. Companies like AOL, Microsoft, Sun Microsystems, Cisco, and Hewlett Packard were started by idea people who had to largely get out of the way while proven managers handled the heavy lifting-like channel development, sales, marketing, and other key areas. The idea of a CCO is probably best exemplified by whom we consider the most high profile CCO of all time: Bill Gates. His new role as chief software officer at Microsoft underlines its necessity for focus on ideas rather than implementation.
To better illustrate the idea, let’s place it in historical context. We’re all familiar with the mnemonic device “In fourteen hundred and ninety-two/Columbus sailed the ocean blue.” Well, what about this: “In fourteen hundred and ninety-three, Columbus provided returns for the first VC”? While she has yet to be referenced in the history books as such, Queen Isabella of Spain was one of the first true venture capitalists.
Building further on this idea, if Isabella and Spain served as the venture capital group, how much better served were they by the position of Columbus as a CCO than CEO? While Columbus did manage a fleet of three ships and navigated across the Atlantic, the larger concept of riches in the New World was much more important than how his crew got there. Was there really a drawn out strategy for dealing with unforeseen problems arising from natural disasters, course mishaps or a land full of indigenous people who were not too pleased when these Spanish-funded Italians landed on their soil? Columbus, in tackling all of these problems and claiming this land in the name of Isabella, flourished in achieving the goals laid out in his original concept-even as the original map (analogous to today’s business plans) was scrapped early on.
Would Queen Isabella really care about these issues, as long as she received return on her original investment? Given the fact that the entire island of Santo Domingo (where Columbus originally landed) now speaks Spanish, the answer is quite obvious.
In today’s technology companies, the greatest successes could never be predicted and roadmaps have very often been scrapped or changed along the way. The key to success is having a brilliant mind focused on the concept at hand and doing everything within his or her power to achieve that concept. Investors clamoring for an early return, failed product launches and disastrous market conditions are trouble spots akin to what Columbus faced. A chief concept officer maintains focus on the work at hand, despite these mishaps, while many chief executive officers would look to simply save their own skin, resulting in downsizing and deeper troubles.
Bear in mind that the CCO is not a catchall solution for all technology companies, and in certain instances company “idea men” or founders are excellent CEOs. Michael Dell, for instance, is a businessman at heart. Considering that the innovation inherent in his business model is based on processes and innovative operations, he is ideally suited for the CEO position. In this case, actually, he might be well served by a CCO brought in to flesh out even more products and services to complement the systems Dell has in place, as with their recent forays into printers and PDAs.
That said, the CCO idea should be pursued, particularly in this economic climate. The incorporation of the CCO can save a company time to market and earn more for all investors and partners in the long run. This position gives the individual a well-defined target to “bring the concept home.”
Martin Pichinson is chief executive officer of Sherwood Partners Inc., a business strategy consultancy based in Los Angeles. He co-founded Sherwood with Michael Maidy in 1992 to help “distressed, entrepreneurial companies.”