Brand leadership has to change

A few years ago, shortly after the 2008 crash, American Express in the United States paid many of its less profitable customers to close their accounts and go away. The move garnered much attention and analysis then. It was seen as a de-leveraging move. Whatever hubbub surrounded the brand then has since died down and in an unscientific survey of my business-savvy friends, few remember that this happened at all.

It was a story of a brand choosing its customers, rather than the dominant narrative that conventionally goes the other way round. The latter powers the nascent GrabYourWallet movement.  Another campaign, Sleeping Giants, is similarly holding brands and companies to account if they continue to advertise on extremist websites.

These are interesting times, as the Chinese curse goes.

As consumers, we profess to love brands that are “authentic“, never mind that in many cases, contrived authenticity, not rooted in values embedded into the business’s value chain, is all we are getting excited about.

What happens when “authentic brands” meet programmatic advertising? Unfortunate, inadvertent outcomes, that is what. Brands are left scrambling to do damage control.

What happens when “authentic brands” take a stand that is vastly unpopular? What happens when the brand’s CEO tells a customer she is free to leave if she does not like their philosophy? Isn’t that just the brand being authentic?

What when all signs point to the emergent challenges being bigger than the more popular political bugbear of the time?

Is authenticity malleable? Should it be?

What if a brand never had cause to reveal some of its stances before and is now choosing to do it in a way that consumers find abhorrent?

And when that comes to pass, should consumers force the brand to comply with their idea of authenticity, or choose to walk away with their wallets?* After all, wisdom says, when facts change, changing our minds is no bad thing.

These growing disagreements and schisms are why, more than ever before, brands need values at their foundation, in their DNA, embedded in their value chain.

Real, defensible, explicit values that the brand is willing to stand up for.

Not convenient values that change with the times or fads du jour.

It is then that brand managers will truly be able to use programmatic advertising as a tool to help them rather be helplessly enslaved by it, while they operate in a haze, whether it be about their brand values or technology.

It is then that “customer choice” will come to mean both that the customer chooses, or rejects, the brand and that the brand chooses, or rejects, the customer.

[* Switching costs for small businesses on a shopping cart platform are not negligible but then that is an economic argument, not one about values.]

 

The governance we need: a reflection

I have had both shared and personal reasons to have spent much of the last year reflecting on the nature of governance around us.

It was a year marked by sharp separation between opposing factions. This cleavage had long been in the making. The divide between the haves and the have-nots was growing with an empathy deficit. The difference between correct and manufactured reportage was lost. The political outcomes of both the EU referendum and the US presidential elections are being seen as a revolt against the soi disant elites, disconnected from the reality of the lives of many.

This is however not just an issue of national politics. A friend of mine informed me that today, January the 4th, the second working day of 2017, is “Fat Cat Wednesday.” Today the FTSE 100 CEO has apparently already earned the average annual salary of an average UK worker, a sum of £28,200.  The UK is one of the most unequal countries in the developed world. Even though the link between CEO pay and performance is “negligible” according to research, with 80% rise in pay delivering only 1% improvement in performance, the pay gap persists and is demotivating to over half the workforce. If we have learnt anything from the political seismic shocks of the year that just turned, we know this is an unsustainable state of affairs.

We are at an historical inflection point whichever way we look.

If governance is all about building stable organisations – whether national entities, for-profit businesses or non-profits, educational institutions or anything else – it is self-evident that we need a different kind of governance.

We need governance that reaches across the aisles and engages, to heal and possibly to collaborate – whether it is Hillary Clinton gracefully attending Donald Trump’s inauguration despite the bitter and personal campaign both fought, or business people such as PepsiCo CEO Indra Nooyi agreeing to serve on the economic advisory council in the Trump administration despite her criticism of the language used for women and minorities.

We need governance to listen and to understand one another’s concerns, which may necessitate learning how the other side uses the same words in the same language to mean different things.

We need governance that may seek efficiency but not at the cost of efficacy, because organisations are not dumb legal entities but living breathing ones, working within the ambit of their wider societal contracts.

We need governance to be anti-fragile, both in its intentions and its recognition of consequentiality of various choices, over time and not just in the immediate quarter that follows.

We need governance that is true, inclusive, collaborative stewardship for all.

If the last line reminds you of Edmund Burke’s view of social contracts, let’s not forget his words which may as well be about the governance we now need: “All that is necessary for evil to succeed is that good men do nothing.”

(Disclaimer: These are my own views and do not reflect the views of the boards of either JP Morgan US Smaller Co.s Investment Trust or BeyondMe, where I serve as a non-exec director.)

Slicing up the equity pie

This article is the fifth in the Startup Series on FirstPost’s Tech2 section and first appeared on Nov the 2nd, 2016.

Cofounder conflict over equity sharing can often cause a startup to be aborted before launch or otherwise fail quickly, as many of us who work with founders in very early stages know well. Some founders do not want to share equity. It is fine as long as they understand what is needed to grow the startup and can buy that talent in. Early stage ventures often cannot afford to pay people market rates, nor can they risk core talent walking away easily. Giving equity to cofounders, who bring key talent, helps address these concerns.

Founders often ask, “how much equity should I give my cofounder for the amount of work she will be putting in?”. My brisk answer to this “how long is a piece of string?” question is: “it is what you negotiate and what all cofounders are happy with”. Inevitably it leads to a further question whether there is a formula to make this negotiation easy and the answer to that is “No”.

Founder experiences show that a long term and successful cofounder relationship is predicated not so much on the slices of the equity pie but on the sense of perceived fairness in the arrangement, including in the course of the relationship.

To facilitate the equity sharing discussion, I start by advising potential cofounders to develop their vision for the venture together. Creating a shared vision and defining broad strategic goals then help them understand better the contribution expected of each of the cofounders in shaping the startup. More importantly, they develop some appreciation of how much weight each cofounder is pulling, and how their roles and contributions may evolve over the life cycle of the startup. At this point, I often see relatively inexperienced founders starting to relax and then I remind them to consider probable contingencies.

Roles and responsibilities aren’t cast in stone. Scope creep can and does happen. What happens, for instance, when the person, who was in charge of customer development and marketing, ends up leading on user experience design, developing the product roadmap, and owning all revenue generation and operations, because they appear to stack together naturally? How would the cofounders deal if she wants to return to the drawing board and renegotiate the slicing of the equity pie?

People and their priorities change over time. What happens if the chief technical architect develops the core product and then wishes to leave for a job with more income security and predictable hours because her family is growing, but wishes to retain her equity in the business? How would the remaining cofounders deal with that negotiation while also ensuring that the future of the core product is not jeopardised?

What about unforeseeable things? What if the business runs out of money before lining up the next round of funding? What if, in the virtual team, one of the cofounders becomes unresponsive while holding the business to ransom? What if a cofounder becomes unwell or dies unexpectedly, bringing her partner or family into the picture in the way nobody has quite imagined? These are a fraction of the scenarios that I have seen played out in cofounded startups where the cofounders were caught unawares.

Envisioning these possible scenarios is a squirm inducing exercise for most founders. But it also makes clear that the relationship the founders are about to enter is an evolving entity with uncertainties and potential conflicts in the future, not an immutable one. Cofounders also start to realise that fairness as accepted by all sides matters.

They also realise that above all, at all times, a focus on the business is crucial. It is not beyond possibility that a cofounder decides that not only will she leave the startup she will also ensure the startup does not survive after her. It is uncomfortable to think of such a scenario but it must be considered in advance.

How do we ensure fairness then, if things are going to chop and change, and people are going to behave unpredictably, even maliciously?

Here let’s draw upon some common sense. While resolving a cake dispute, a parent friend of mine uses a trick. She lets one child slice the cake, and the other children pick the slices first. The resulting dynamic is fascinating and instructive. Stretched to a cofounder negotiation, one of the tests of fairness would be, if you were doing all that any given cofounder is doing, would you be happy with the share she is getting?

It is also important to understand that fairness must be perceived and seen as fairness by all parties. And that perfect fairness is an asymptotic goal, albeit one worth working towards.

In a later column, we shall discuss embedding these negotiations into formal agreements and what it means for the startup.

Empathy as luxury?

“Empathy is luxury. Think about it. If you have the time to read about other points of view, you have the luxury of time, that you can spend on reading other perspectives and build empathy.”, said my interlocutor, an entrepreneur building a platform for contrarian views. I am paraphrasing a bit but we had been talking about how to break the filter bubble that the liberal metropolitan elite inhabit. Better people than I are already exploring how the word “elite” came to be associated pejoratively with liberal, metropolitan persons.

Research evidence from the USA and the UK however shows us that the poor, who do not have spare time since more time spent working is more money, are more charitable and more community minded. In other words, the poor display more empathy. How can empathy be a “luxury” then?

I believe in the essentialness of empathy though I arrive at it from another perspective.

I see myself as a part of a whole, whether that whole be our neighbourhood or the planet. As such my being empathetic is nothing more than my honouring my self.

She wasn’t convinced.

Further expounding on how I got to this framing of this world, I found that it may have come from imbibing some of the Hinduistic philosophical and cultural values amidst which I grew up in India. The idea of the unity of the macro- and the microcosms of our being is embedded in Aham Brahmasmi, “I am the infinite reality”. The idea is also embedded in the greeting Namaste, “I bow to the divine in you”. The idea of consequentiality of our actions naturally follows, often stated controversially in the western world as “Karma is a bitch”.

It is trivially evident that neither business nor humanity can act as if their shared linkages and connectivity do not matter, and as if they can thrive or even survive without one another.

Both spiritually and rationally, empathy is therefore not a luxury in my view.

The idea of luxury as empathy however appeals to me. More on which, later.

Cofounders and the dating analogy

This article is the third in the Startup Series on FirstPost’s Tech2 section and first appeared on Oct the 3rd, 2016.

The search for a cofounder is analogous to dating. There is an ideal checklist of attributes — skills, qualities and more as you will see — and then there is the ineffable chemistry check.

Since no two people are alike, we will naturally encounter both similarities and differences. Over the years of working with startups, I have developed a framework which can help you think through the dilemma.

Values of cofounders should ideally be the same or similar. A key value to consider is the importance of control. Extensive research by Noam Wasserman of Stanford finds that there are people, who want complete control and ownership, and there are people, who understand that some control may need to be given up to build and grow the venture’s reach and value. This understanding is pretty fundamental to building a venture, especially if you plan to raise external investment to do so. A fundamental disagreement here would not make for a a good cofounder relationship.

Goals, needless to say, have to be similar not different, although one can work with  the possibility of changing mind later. For instance, a cofounder may commit today to work on the venture till an exit event but a few years down, agree to give up an active role in running the venture. Such possibilities are hard to predict but if all else is working, they are negotiable.

Skills are best if different or complementary. It helps if the cofounders bring different domain expertise to building the startup. If you are a techie who does not have experience in speaking to early adopters and customers, and your cofounder is the customer facing person essential to driving adoption and bringing customer feedback on board, you have brought together two essential skill sets.

Work ethic is best if similar. Some people emphasise hard work, others outcomes. A startup needs both but it needs outcomes and growth milestones more than anything else. If a founder thinks hard work is substitute for results, it is not going to work. It is therefore best if cofounders are on the same page as to the purposiveness of the work ethic. It is worth noting that work hours are not the same thing as work ethic. Work hours are often negotiated with the needs of the start-up in mind. While a developer can work late into the night coding, a customer facing cofounder has to work the hours when she can meet customers and partners.

Networks serve a startup best if different, or complementary. This would help the start-up maximise reach into customers as well as investors. The eagle-eyed among you may note this may not work when your cofounder is your former classmate from University, as mentioned in an earlier column. In such a case, look for the contacts you need in another cofounder or an advisor. Ask yourself “what things are you definitely not good at?” and go from there.

If this framework is lulling you into a false sense of security, don’t let it. Being able to judge these essential qualities is not simple or quick. Don’t rush the decision. Spend time talking through things and listening carefully, how they see failure and success, how they talk about disappointment, how they treat people over whom they have any kind of power, how they talk about people they have relationships with.

Occasionally someone may tick all the boxes and yet make you uncomfortable. Judging someone’s character is hard, and a lot more personal than judging their skills and experience. In such moments, listen to yourself, I say. Do not dismiss your instincts and do not dismiss your gut.

However as any person in a long term commitment or relationship will tell you, the marriage begins once the wedding is over. Committing to the relationship requires the commitment to work with all that comes with it. It helps to lay down early ground rules for all to adhere. That is the scaffold of your organisation’s culture, more on which a little later in this column series.

It is worth remembering that the advertised product may be quite different from what is delivered. In other words, people may disappoint you. They may demonstrate different behaviours in an organised and predictable environment than they do in a start-up. A start-up is a high stress, demanding environment where decisions are not hedged by a large team and wrong decisions can actually waste valuable money and time.You cannot predict all this but you can deal with it. More on conflicts arising and how to deal with those will be discussed later in this series.

(Note: a version of this framework appears in “Dear Female Founder” edited by Lu Li, who has kindly permitted the publication of this piece.)