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Of Course … The Tragic Mistake – Part One Diagnosis

Of Course … The Tragic Mistake – Part One Diagnosis

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Many of my engagements begin with a phone call from an investor. Most often they are concerned that the company they funded is in real trouble and/or is teetering on the brink. These can be melancholy calls because there is often little for me to do but conduct a postmortem – to figure out what went wrong and help the investor and entrepreneurs avoid making the same mistake a second (or third) time.
Many of my engagements begin with a phone call from an investor. Most often they are concerned that the company they funded is in real trouble and/or is teetering on the brink. These can be melancholy calls because there is often little for me to do but conduct a postmortem – to figure out what went wrong and help the investor and entrepreneurs avoid making the same mistake a second (or third) time.

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Published by: Dr. Earl R. Smith II on Apr 09, 2010
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Of Course  The Tragic Mistake  Part One: Diagnosis
Dr. Earl R. Smith II DrSmith@Dr-Smith.com www.Dr-Smith.com 
Many of my engagements begin with a phone call from an investor. Most often they areconcerned that the company they funded is in real trouble and/or is teetering on thebrink. These can be melancholy calls because there is often little for me to do but conduct a postmortem  to figure out what went wrong and help the investor andentrepreneurs avoid making the same mistake a second (or third)time.In the best of all worlds, people learn from their mistakes. They maymake new ones, but they dont repeat. As I said, that is in the best of all worlds. In the real world, the aversions and other blind spotsthat people carry around tend to persist. They seem to make thesame mistake over and over in minor variations on the theme. Thisis a story about one of those times.I recently encountered such a situation. The phone call was from aninvestor who I had known for many years. She had been relatively successful in anumber of companies  primarily ones in which she had acted as either the CEO orChairman. This particular company was one that she had taken a more passive role in as an investor. The company had burned through two tranches of funding with little toshow for it. Revenues were a small fraction of those projected and expenses had showna tendency to exceed expectations. The company was running out of money and sheand her fellow investors needed to decide whether to provide additional financialsupport. I was asked to help them make that decision.The first set of interviews with the senior team gave me a clue as to what was goingon. There is a danger in looking for patterns  you can end up seeing what you want torather than what is before you  but, in this case, the pattern was unmistakable. Thebeast was at large and its name was Of Course. 
 Assumption is the mother of all foul ups.
 I am a major fan of testing every assumption underlying any business plan. Many of myfriends accuse me of excess in this area. But I persist in challenging because I haveseen the costs of not doing so. I am also a strong advocate of using red-teams to test those assumptions. See, for instance,Red-Teaming: Improve Your Chances of GettingFunded. Maybe it is accumulated experience or simply a recognition of the risks of assumed omniscience, but I have long ago disabused myself of the notion that one
 
mind  mine or another  is sufficient to chart a safe course through the reefs andshoals that any company must navigate.What I found in this particular case was illuminating. My investor friend was in a newrole  one unfamiliar to her. She had been the recipient of investment in the past. But now, she was providing the funding. In making the move to this new role, she had lost track of the way in which her former investors had contributed to her success  theyhad forced her to test and validate every assumption and to drive the of course beast off of the field. She had chosen a gentler and less confrontational style.Before going further I suspect that I should describe the beast. Here are some of itsmany forms:
y
 
Of course we are smarter than our competition
y
 
Of course my team is world class 
y
 
Of course we have a sustainable competitive advantage
y
 
Of course nobody has thought of this approach to the market 
y
 
Of course we can monetize the value proposition
y
 
Of course customers will flock to us and buy on our terms
y
 
Of course our company merits investmenWell, you probably get the picture. This beast is the great company killer. Nascent goodideas are devoured by it and value propositions with real potential are consigned to thedust bin under its influence.So, given the description of the beast, you might expect that it is a very aggressive andviolent adversary  but you would be wrong. Nothing could be farther from the truth.The beast is gentle and forgiving  indifferent to error  supportive and nurturing. It overlooks mistakes and forgives misinterpretation. It thrives on indolence andassumptions of omnipotence alike. It flatters the ego and justifies all manner of ineffective behavior.Within the company I was analyzing I found a complete lack of performance metrics, anabsence of a review process for business plans, budgets and new initiatives and aculture of assumption that whatever management decided was wise and progressive.But, when I connected performance to expectations, a totally different patternemerged. Plans were not executed, objectives were not being met, budgets weretreated as irrelevant to daily operations and managements decisions were provingwrong far more often than right. All of this as not only allowed but facilitated by theprincipal owner  my investor friend.I delivered my initial findings during a private session. She took is as well as might beexpected given that we were discussing a serious character flaw. My message was youhave allowed a permissive culture to develop within the company  nobody is testing

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