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Why do Companies really Fail?
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Sam, I should point out, was well accomplished. He had been a star at one of the most prominent ISV’s in the industry, had lived through several startups, and had the desire to work in an early stage venture despite the difficult market. He had received rave reviews from every blind reference we could track down, and passed a grueling interview process with flying colors. At the conclusion of the interview process, the search committee (including search consultants from our firm, the founders, and seasoned venture partners) declared Sam an all out ‘stud’.

So what happened? Was our due diligence flawed? Was the entire search committee that stupid? Hardly.

In fact, there is absolutely no reason that this particular failure had to occur in the first place. Sam had the required domain expertise and skill set to deliver, not to mention the drive and work ethic vital to succeed in a startup. Why couldn’t Sam and the CEO have sat down over coffee and put their feelings and concerns out in the open? Why couldn’t our candidate have simply admitted to the CEO that he felt alienated from the group? Why did that last meeting collapse into a yelling match, rather than a rational discussion about the issues at hand, and how to execute going forward?

When I asked the candidate why he hadn’t raised his personal concerns about communication with the CEO when they first came up, he replied, “How were they [personal concerns] relevant? Business was going fine.”

Come again?! Clearly, business was not ‘going fine.’ But Sam’s response was typical. Common practice in our world is to rely on quantifiable metrics like revenue, customer wins, margins, etc. in deciding whether business is good, or not so good. No algorithm exists for measuring the psychological maturity of an executive, or the collective emotional health of an executive team. We rarely study what we cannot measure – especially when money is at stake. But it is precisely this mysterious factor – a lack of what I will call “awareness” or psychological maturity – that interferes with the ability of a team or individual to execute (thereby causing them to fail.)

The idea of emotional maturity as a key factor in the success or failure of a team/department/company is not new. It has been researched and written about for years by business psychologists and consultants. Silicon-valley based author and leadership guru Pat Lencioni penned three leadership fables all designed to illustrate the subtleties of how such problems lead to organizational failure. Each book (best sellers – I might add) lays out a clear formula for achieving what I will call a psychologically healthy organization – and each blatantly puts the CEO at the heart of the initiative. (Pat Lencioni’s books are mandatory reading for employees of my firm, by the way.)

What amazes me is that despite the volume and quality of knowledge available on the subject, it continues to draw little attention as a business priority. I question every venture partner I meet as to how much attention is paid to emotional maturity when hiring a new executive. The answers vary, from “a lot” to all out blank stares. When I ask if they’d recommend activities designed to help develop the emotional health of an executive team to a portfolio company, the answers are almost always negative. “It’s a toss up – spend time winning a customer, or do a touchy-feely team building exercise,” said one venture partner at a Sand Hill firm.

The latter is probably an extreme case. Most experienced builders seem to recognize that psychological maturity / awareness is a valuable trait in a CEO or entrepreneur. That said, obvious questions remain. This article does not provide a formal definition for the terms ‘psychological maturity / awareness / emotional health’, nor have I outlined precisely how a lack of the same stops a company from executing. And exactly why does it rank so low on a list of business priorities? Once recognized as a priority, how is psychological maturity developed?

Against my natural impulse, I will stop there. Questions like these deserve more than a paragraph, and I will attempt to address them over a series of articles to be published in this journal over the next 3 months. Further, I would like to invite your feedback on the subject to help in doing so. Please send suggestions or comments to: angel@sterlinghoffman.com

Angel Mehta is Managing Director at Sterling-Hoffman Management Consultants, and moonlights as a leadership / personal growth speaker. Sterling-Hoffman Management Consultants is a retained executive search firm focused exclusively on enterprise software companies.


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