"If you a scared mutherfucker, go to church."
- Ice Cube
"I tell my kids, what is the difference between a hero and a coward? What is the difference between being yellow and being brave? No difference. Only what you do. They both feel the same. They both fear dying and getting hurt. The man who is yellow refuses to face up to what he's got to face. The hero is more disciplined and he fights those feelings off and he does what he has to do. But they both feel the same, the hero and the coward. People who watch you judge you on what you do, not how you feel."
- Cus D'Amato, legendary boxing trainer
When we meet with entrepreneurs, the two key characteristics that we look for are brilliance and courage. In my experience as CEO, I found that the most important decisions tested my courage far more than my intelligence.
The right decision is often obvious, but the pressure to make the wrong decision can be overwhelming. It starts with small things.
When founders come in to pitch our firm -- one as the CEO and the other as President – the conversation often goes like this:
"Who is running the company?"
"We are," they both say.
"Who makes the final decision?"
"We do."
"How long do you expect to run that way?"
"Forever."
"So you've decided to make it more difficult for every employee to get work done so that you don't have to decide who is in charge, is that right?"
That usually results in silence.
Intellectually, it should be clear that it is easier for employees to go to one decision maker than two. It's not really very complicated at all. Unfortunately, the clear and present social pressure often overwhelms the long-term benefits of organizing the company properly. Because the founders do not have the courage to decide who is in charge, every employee suffers the inconvenience of double approval.
More importantly, decisions only get scarier as a company grows. When we decided to take Loudcloud public with only $2 million in revenue, it was not a hard choice intellectually -- the alternative was to go bankrupt. It was nonetheless terrifying to do something that most employees, everyone in the press, and many investors thought was nuts.
When Making the Right Choice Requires Intelligence and Courage
Sometimes the decision itself is rather complicated which makes the courage challenge even more difficult. CEOs possess a different set of data, knowledge and perspective than anybody else in the company. Frequently, some of the employees and board members are more experienced and more intelligent than the CEO. The only reason the CEO can make a better decision is her superior knowledge.
To make matters worse, when a CEO faces a particularly difficult decision, she may have only a slight preference for one choice over another -- say 54% kill a product line, 46% keep it. If the really smart people on the board and on her staff take the other side, her courage will be severely tested. How can she kill the product when she is not even sure if the she is making the right decision and everyone is against her? If she's wrong, she will have been wrong in the face of advice from her top advisors. If she is right, will anybody even know?
Recently, a large company offered to buy one of our portfolio companies. The deal was lucrative and compelling given the portfolio company's progress to date and revenue level. The Founder/CEO (I'll call him Hamlet – not his real name) thought that selling did not make sense due to the giant market opportunity that he was pursuing, but still wanted to make sure that he made the best possible choice for investors and employees. Hamlet wanted to reject the offer, but only marginally. To complicate matters, most of the management team and the board thought the opposite. It did not help that the board and the management team were far more experienced than Hamlet. As a result, Hamlet spent many sleepless nights worrying about whether or not he was right. To make matters worse, he realized that it was impossible to know whether or not he was right. This did not help his sleep. In the end, Hamlet made the best and most courageous decision that he could and did not sell the company. I believe that will prove to be the defining moment of his career.
Interestingly, as soon as Hamlet made the decision, the entire board and executive team immediately embraced the choice. Why? If they wanted to sell the company enough to advise the CEO to give up his dream, how could they reverse themselves so quickly? It turns out that the most important data point driving their earlier preference for selling the company was Hamlet's initial ambivalence – the team supported the decision they thought the CEO wanted. Hamlet did not realize this and interpreted their desire to sell to be the result of a thorough analysis. Luckily for everybody involved, he had the courage to make the right decision.
The general problem can be seen in the social credit matrix described below. The expected social rewards for making the crowd-influenced decision appear better than those for making the decision that you think is right: