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You Always Bet the Company

Fred Wilson blogged about “betting the company.”  Great post but, I think, he was only two-thirds right.

“…in a venture stage business,” says Fred, “you should be betting the company every day.” Certainly right.

Fred also says “I think this is why many (most?) big company managers fail as venture stage CEOs.  They are taught to mitigate risks, to plan, to protect. They don’t want to fail and so they do.” Also right.

But, IMHO, Fred is wrong when he says “if you are running a Fortune 500 company, betting the company is probably not something you want to be doing.”

AT&T was unwilling to bet the company on the Internet or on many of the different futures would have saved it.  So AT&T lost almost all of its value and became the junior partner in at&t.

American automakers have been unwilling to bet the company on either new methods of production or significantly more energy-efficient product or other disruptive change.  They may well be losing their companies.

Microsoft bet the company many times: two examples are on its partnership with IBM (and its own ability to be the winning partner) and on Windows.  I left Microsoft partly because of a disagreement with Bill Gates over how soon Microsoft should bet the company on the Internet.  But the argument was over whether and not when.  There was no disagreement over whether it was appropriate to be the company.  Bill knew then that it was and probably still does.

Steve Jobs bet Apple on the Mac.  He was right.  His successors were market-extenders; they didn’t bet the company.  They damned near lost it.  Board had to bring Steve back to start betting the company again.

You’re not always right when you bet the company.  Scott McNealy bet Sun on the SPARC processor and his vision of network computing.  Close to lost the company.  Maybe did in the long term.

United Airlines never seemed to recover from the Alegis travel mashup fiasco.  Might have been in trouble anyway, though.

Many companies were bet and lost on the long-term value of data transmission facilities.

I bet Solutions, a private software company, on the continued success of the Mac just as Apple went into a decline and a workable version of Windows came lumbering along.  Wrong call. Ended up selling most of the assets of the company to Microsoft for much less than I’d been offered a year or two earlier. (not their fault, mine.  We were glad to have them as an exit and I ended up going with the assets to Microsoft.)

The point is, if you’re the one who makes strategic decisions, you’re betting the company every day whether you choose to acknowledge that you’re putting the chips down or not.  Doing nothing is a bet on the status quo.  Usually that’s the wrong bet in the long term but it’s an easy one to sell in the short term since you don’t appear to be making a bet at all.

It’s harder to bet the company when the company is public.  One of the reasons why it was a bad thing that so many venture stage companies ended up prematurely public in Bubble 1.0.  But, public or not, you’re betting the company every day.  I did that with more gusto when ITXC – a company Mary and I founded – was private.  But I regret not having maintained that gusto for betting the company even when much less of it was mine.  Could have lost as well as won spectacularly, of course; but that’s what CEO’s are paid to do.

Fictional CEO Larry Lazard in my novel hackoff.com had a revolver on his board room table. When decision time came, he’d spin the cylinder, put the barrel to his head, and say “I bet my life.” Since he didn’t keep the gun loaded, he meant he was betting the company. In his case, though, it was that gun that shot him (it’s a mystery so I’m not gonna tell you in whose hand the gun at the time).

If you’re a CEO – no matter what size your company – ask yourself each morning when you brush your teeth what you’re betting your company on.  If the answer is “nothing”, it means you’re betting on the status quo without even making that decision explicitly.  Very bad idea.  Not why you get the big bucks.

I blogged about AT&T managing for quarterly results rather than betting the company in the Lessons from the Crypt series which starts here.


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zach coelius

A great post, as usual. Keep up the good work, I -for one- really appreciate it.

Marc Fawzi

Instead of "betting" (which is a statistical process) as a way to control complexity, which can only work 50% of the time in the long range under perfectly fair conditions and much worse under realistic conditions, I'm starting to think more in terms of the following stabilizing model for corporate leadership, borrowed from chaos theory... (put your geek hat on)

1. The CEO must understand the company as it really is at its current stage and must work constantly to improve it, through an evolutionary (not revolutionary process).

2. The CEO should recognize as separate yesterday's vision (what he/his predecessor wanted to the company to be) and tomorrow's visions (where he wants the company to go).

Achieving Stability:
The above mentioned three things, 1) the company's state today, 2) the company's previously sought end state and 3) the company's currently sought end state, will always pull and push against each other, like three massive objects.

According to the most basic abstraction in chaos theory, that of the three-body problem, this would create some very hard to predict, non-linear dynamics, where the end state is extremely sensitive to the starting conditions (i.e. true complexity).

The way out, according to chaos theory, is to have a perfectly centered, stable interaction between the three things (our state today, yesterday's vision and tomorrow's vision.)

The alternative to a perfectly centered interaction model is to attach equal weights to our current state, yesterday's vision and tomorrow's vision.

Balance is not elusive. And chaos can be eliminated from the picture.

Well, just my 2 [nerdy] cents ...

Chris Gilbey

Tom, I think you are totally right... on all counts.

Being public makes it much much harder to take the bold path, because the shareholders want hyper-growth and a low risk profile. Being private makes life easier, and generally is why you raise the money in the first place - cause you have a vision.

What I find extraordinary is the number of managers I meet who are with companies where the CEO doesn't have a vision other than to demand that all the division heads grow their business by 15%. No leadership of thought = ultimate failure and death of the business in my opinion.... and that means that you have to take on risk....

Michael Parekh

Well put, Tom...great post.

Steve Goldstein

Tom, I usually love your posts but this is the danger of cliches. I think CEOs need to know what they're betting on. If they don't, well then they're probably screwed. But there's no reason you can't be making a portfolio of bets. You're citing a few examples over many years to back up a bad cliche. Poker players don't head to the table looking to go all-in as soon as possible. The best players have a portfolio or "chip-management" approach. And I think that transfers to managers as well.

Mr. Floyd

In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing."

--Theodore Roosevelt,
26th president of the United States

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