Secrets to STARTUP SUCCESS

No One Is Immune to Reality Distortion

During the launch and early growth of D1, J. C. Faulkner and his management team spent a lot of time together in very close quarters. They met every Monday afternoon for five or more hours to scruti­nize the past week’s accomplishments and the coming week’s plans. They debated decisions, monitored results, and held each other ac­countable for progress. “In those meetings,” J. C. says, “we learned how to laugh, we learned how to argue, and we learned how to dis - agree—all with trust.”

By the standards of most leadership teams, the D1 team was hit­ting on all cylinders. But J. C. knew that even the closest and smartest of teams sometimes avoid critical but uncomfortable topics. For that reason, every few months he and his team would meet with Ken Macher, a San Francisco-based consultant, who specializes in helping groups communicate effectively about their most critical issues. Macher’s multi-day sessions with the team aimed to uncover hidden assumptions, focusing as much on what was unsaid as on what was said, and his sessions usually revealed concerns that had escaped open dis­cussion and scrutiny.

To prepare for a July 1998 work session, Macher asked each team member to document a recent conversation that he or she had found frustrating or challenging. He asked them to write their learning cases in two columns, with the right-hand column containing a word-for - word record of what each person had said, as it might appear in a movie script. In the left-hand column, the case writer would document what was not said, the unshared thoughts and feelings during the con­versation. Macher had used this “Left-Hand Column” exercise as a learning tool in previous sessions, so team members knew that their cases might be openly discussed with the full team.1

Doug Crisp, D1’s head of operations, prepared a case that de­scribed a conversation between him and J. C. about growing problems at Home Free Mortgage, their recently launched sister company. Doug had been trying to convince J. C. for some time that the fledgling business was in real danger. He thought its management team was too inexperienced to deal with the current market downturn (it had re­fused his attempts to help), and the business was hemorrhaging cash. He was not the only person worried. “A number of people had severe concerns about Home Free,” Ken Macher recalls, “but were not bring­ing it up because it was perceived as J. C.’s pet project.” Uncharacter­istically, J. C. had largely dismissed Doug’s concerns, thinking Doug had a personality conflict with Home Free’s president and, therefore, couldn’t see the situation objectively.

Ken Macher read Doug’s case a few days before the session and sensed that it was the tip of an iceberg. He told J. C. he wanted to share it with the full team to start the meeting, and J. C. agreed.

The case immediately struck a nerve. “When we handed out the case and everybody started to read it,” Macher says, “It’s one of the few times I can remember that a hush fell over the team. It was like. . . uh-oh.” J. C. later joked about what the team was probably thinking at that moment: We’re on sacred ground now. We’re really going to test these stupid theories.

No other cases were discussed that day. The rest of the session was devoted to detailed discussion and analysis of the Home Free sit­uation. In the best of environments, Home Free might have stood a chance, but the plummeting mortgage markets were causing the startup to lose $2 million per month, and, more ominously, the same markets were sapping D1’s core earnings with no clear end in sight. Home Free’s management team, lost in their own feel-good bubble, had been giving J. C. a far too optimistic spin on things. “They believed in what they were doing,” J. C later said. “They were too inexperienced to see that the thing had failed.” Although he had sunk a tremendous amount of time and personal capital into the venture, J. C. knew it was time to stop the bleeding. He met with Home Free’s management team that night to tell them he was closing the venture down.

The Home Free tale is a story of miscalculation and loss, but it would have been much worse had the D1 team not come clean about the gravity of the situation. An optimist by nature, J. C. admits that his emotional attachment to Home Free was causing him to distort the harsh reality of the situation. His team provided a wakeup call, allow­ing him to see the situation more objectively. Ken Macher, who has observed a lot of leadership teams and organizational cultures, says that the D1 team’s discussion about Home Free was a “poster child” for a productive, high-integrity conversation. “A number of things led to it,” he says. “The culture of the D1 team had developed to the point that people would bring up an ‘un-discussable’ topic (with Macher’s help, in this case) and the CEO would invite it to be discussed. And that was only the beginning, because they had to work through a lot of fog.” Drawing on trust and skill developed as a team, they cut Through layers of confusion, clarified what was happening, and de­cided what needed to be done.

Secrets to STARTUP SUCCESS

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