Whew!  It’s about time right? Yes, except this piece was written by ME in September 1983 for a Washington think tank and lobbying firm called the Solar Lobby (which eventually merged with the Renewable Energy Industries Association, I think).  Yes, 1983, when I was a young pup intern in Washington, DC exploring the potential of clean energy when very few people cared or really wanted to hear about it.  Wow!  That was almost 30 years ago my friends. 

So who cares?  I was talking to a friend who manages a clean tech energy fund the other day and we were quite taken by the fact that many of the same institutional grade technologies under consideration back then are still the promise for us go forward.  I was amazed today to hear (on the radio) that California is finally looking to upgrade the wind turbines at Altamont Pass (which are featured in my article above).  Are you kidding me?  I guess the positive story is that we can replace these decrepid wind machines with much more efficient higher capacity turbines.  It also displays the long-term robustness of the technology. But is this really how far we have come in 30 years? 

On the one hand, some of this is quite understandable in that the technologies being promoted at that time were simply not economical in comparison to conventional energy sources.  It takes time to work out the kinks, so to speak.  Also, there seems to be a much broader and well accepted theory today that we need to control carbon emissions and that renewable sources can help mitigate carbon production in the atmosphere.  Public perception does matter. Oh yes, we are also now in era where we have economic and research policies, and tax incentives, that make pursuit and commercialization of alternative technologies better funded and more attractive.

On the other hand, it is hard to comprehend how I, a young and naive 23 year old, could see the sense of all this 30 years ago.  Am I smarter than the next guy (doubt it)?  Do these technologies take this long to evolve?  A couple of lessons.  One, we are obviously looking at a social revolution as much as one that is grounded in scientific and economic realities.  Just for the record, I am also VERY much in favor of nuclear as a clean and manageable low carbon producing energy source that is just important as renewables.  How can France be so successful on this front and leave us in the dust (I have many theories by the way)?

Two, the reality back then was that nobody was going to embrace at a government, institutional or industrial level the practical value of these technologies. Right or wrong, it would take monumental shifts in economic and scientific research to pave the way for such a path.  Three, government needs to take some blame here.  They cannot make the world embrace a positive shift — an energy policy that includes ALL forms of energy production — but they can make it a priority.  Why didn’t it happen and what did we miss along the way?

It seems to me that there are three compelling reasons for a sound energy policy.  The first is save the planet; the second is we need ALL sources of energy to fuel the economy; the third is security.We tend to mix them up as we ponder the future.  There is no doubt that less polluting technologies, even those that involve dirty coal, will need to be embraced to meet demand.  Given the inefficiencies of our current electric grid, I see electric cars as less helpful in reducing carbon emissions (they move carbon from the tailpipe to the power plant to produce the electricity) yet quite helpful in reducing our overt dependence on oil (and therefore other countries).  The same goes for domestic bio fuels: when you do the math on the amount of energy required to grow, refine, transport and deliver the fuel, you might as well use gas.  The good news is that they do reduce dependence on oil which has positive security implications.  So, every tchnology requires its own understanding and justification; you cannot just lump them all together.

There has obviously been tremendous progress on many other technologies than I mentioned in that article 30 years ago (which by the way by the was called “Utilities Turn to the Sun”), but I would hope to see us go a lot further a lot faster over the next 30 years!

There are two sides to the current economic dilemma, but neither purist view provides the right answer.  On one side, we have those who would have us print money, no matter what the consequences (inflation just being one) in order to reduce the unemployment rate, increase commercial and consumer spending and, therefore, stimulate the economy.  From this standpoint, we print money to pay for current tax cuts, potential future tax cuts, government programs (local, state and fed), etc.  The biggest  fear is that not enough money is in the system to effect positive economic growth.  On the other side, we have those who would have us radically reduce spending so we spend less, need less tax revenue and, therefore, reduce our debt.  The key fear in the minds of these proponents is that the biggest threat is less the lack of economic growth and more the solvency of the country from a debt perspective (think Ireland and Greece).  If our trading partners who own a LOT of US government securities sell off those securities based on a lack of confidence in our solvency (revenue in to support spending in relation to debt and expense obligations), it will trigger a global economic crisis that will dwarf the last one.

Interestingly, I would suggest that the most thoughtful and coherent proponent of the latter theory is David Stockman, the former Budget Director under Reagan. See his recent interviews and read his words.  In many ways, he is correct. As I have said for months, you cannot deleverage 25 years of an excessive and irrational debt binge in 25 months.  Among other recommendations, Stockman would say kill the Bush tax cuts. In fact, he would say kill ALL the tax cuts.  We don’t have the money.  Period.  We certainly should not have tax cuts (which short-term likely reduce tax revenue) without commensurate decreases in government spending. Stockman would also have us radically reduce spending (versus printing money), less because of inflation fears and more to avoid a draconian sell off of US government securities that will create a global economic Armageddon as our fast growing trading partners lose confidence in the US economy and the stability of our currency.  With respect to Stockman, I was somewhat shocked that he also agrees we will need to increase taxes on the wealthy.  That’s where the money is.

Although I am no economist (thank God!), I am pretty sure an approach that takes advantage of the best offered in these 2 divergent views offers the most hope.  We need to right-size government and get spending and debt under control.  If nothing else, the signalling to the rest of world will be powerful that we are working to get our house in oder.  We need to start with large entitlement programs.  That’s where the biggest bang for the buck is in the short-term.  We cannot completely back off tax cuts, especially those targeting small business and especially at a time when the economy is so weak, but why not tax the wealthy and why not cut spending in some proportional way as we implement tax cuts, say, over the next 10 years — in a methodical manner that the populace can digest?

One thing is clear.  Both the democrats and the republicans are useless.  There is zero political will at the top, specifically Obama, who surprisingly has NO command of the bully pulpit.  He should go on the war path and veto every bad bill coming our way.  But he won’t.  Ronald Reagan was the great Communicator; Barack Obama is the great Compromisor.  Let me know a time when that really got anyone anywhere in government.  The senate and congress are almost worse than him based on their inaction.  When they do act, they have this chronic tendency to kick the can down the road to the next set of inept losers who step into their shoes — all while Rome burns. 

Speakers over the three day event covered a wide range of relevant issues. Day One Key Note Speaker was Keith Giarman, the President of the Venture Capital and Private Equity Practice for DHR International which is a leading, global, privately held provider of executive search solutions.

“It’s an honor to address the incoming MBA Class at USF, especially at this interesting time in our economic lifecycle,” Mr. Giarman said. “While it remains a difficult climate, and will be challenging for job seekers for some time, there is a bright spot. The need for strong, ethical, operational talent is greater than ever before as we accelerate growth on the next cycle and work to create true business value. Human capital, more than ever before, is the key to success and we need well trained MBA grads from schools like USF.”

Mr. Giarman’s presentation focused on the “context” for leadership which drives the way public and private companies, and their investors and shareholders, consider and evaluate the skills of incoming executives in various roles (notably CEOs). For example, the leadership, functional and domain experience of the CEO of an early stage start-up company is quite different than what’s required in a large multi-national position managing profit & loss in a public company. There are some similarities in skills, but students (soon to be job seekers) need to think carefully about where they fit and why as they consider career opportunities.

There is no doubt that some firms have exercised more of an operational view than others in the past and also during the most recent “bubble” period, but it seems to me many think more highly of their expertise in this arena than reality would suggest (hubris can be a terrible thing:-). Given recent events, some of the larger funds (typically $1 B plus) are wisely creating  portfolio company support groups that institutionalize the measurement mechanism for monitoring the health of their investments via KPIs (key performance indicators) and other factors. You would think this would be a “no brainer” since the investors expect this level of measurability and scrutiny inside their actual portfolio companies but such is not always the case. These portfolio support groups centralize the range of internally and externally available resources that can be deployed to help assess operational issues, consult on strategic and tactical problem areas, provide interim executive support when necessary, recruit new management when required, etc. They typically consist of internal operating partners / consultants and relationships with key external consultants and / or firms who specialize in certain areas. Of course, the creation and management of a department inside the firm that can facilitate uniform measurement AND deploy resources FAST when things get rocky is great if you have a large enough fund with enough fund scale to afford the overhead of such an effort. Also what do smaller firms like the $250 mm fund do if they cannot afford the overhead? 

I can already hear the groans from the PE firms. We’ve been doing this stuff for years. That’s what we do everyday. We are specialists in extracting operational value. But not so fast. Surely some firms are better than others. Some are more aligned with better systems. Some partnerships are less fragmented in how they deal with operating issues. For firms that have not grown up with this mentality, can they change their stripes?

I recently had the benefit of a conversation with the head of a portfolio support group of a $2+ B PE fund. First and foremost, I was extremely impressed with the thoughtful and disciplined “system” they had created to monitor the portfolio which I will describe at a high level (obviously much more granular and difficult to manage in its moving parts in actual practice). It starts with something called a “flight plan” — an apt moniker given the need for a PE funded company to get off the ground in their journey to the promised land (the margin and multiple expansion that leads to an explosive exit). If a company seems to deviate from its flight plan, the warning systems and alarms kick in. Depending on the problem, invasive actions are executed to get the “plane” back on plan. 

The important issue here is that there is an agreed upon and institutionalized system (whatever you call it) for the FIRM (not an individual partner, not the CEO) to monitor performance. In my opinion, the discipline inherent in this approach cannot hurt and must have a positive effect on overall portfolio performance.  With that said, there is a fine line between using resources outside the company’s four walls to add value; board members and the firm run the risk of being too invasive.  Some might even argue that trying to institutionalize a “flight plan” mentality is counter-intuitive in terms of the latitude that company management should enjoy as smart, hard-working and previously successful operating executives.  

Not surprisingly, such a system only works when all the partners, associated staff, and management teams  — everyone with a vested interest in their own and the firm’s financial success — buy in. I don’t see this as a trivial alignment exercise and, like any system, it is an iterative work in process as priorities, markets, etc. change; refinement over time is key. The system needs to be established and managed with a partnership spirit versus autocracy. In fact, my friendly partner who runs the group (by the way, a founder and managing partner in the fund) confessed that the easy part was developing the system and related flight plans. The hard part was the year-long process to get decent enough traction amongst all pertinent parties to make it useful as an institutionalized imperative. 

Of course, the system cannot add value by just alerting the team to problems in a predictive fashion; it needs to be able to take corrective action. Thus, either the firm hires internal staff that “parachute in” or align with top-tier service providers who can supplement with their own expertise (executive recruiters, leadership coaches, strategy consultants, turnaround specialists, etc.). A combination of internal and external resources is common in order to have a deep and wide ”bench” of talent who can help at any given time. 

It seems to me that the development and proliferation of specialized portfolio support groups is a very healthy offshoot of our recent financial difficulties. We WILL deleverage over time and the economy will slowly revive. Does this mean we will not see a bubble again in our future? No, but it seems to me that we are back to the reality of creating well-managed and profitable companies for the long haul. 

Or are we? 

“That’s correct,” I said.  “I will be slower and more expensive.  In your case, I am convinced that is what’s required.  It has taken seven years for you and the other founders to build this company into a profitable entity and take your first round of institutional funding.  You cannot make a mistake or it will kill the company.”

All too often, executive recruiters bow to pressure from various sources and initiate a project devoid of critical information that will lead to a successful hire who can fully integrate into the incoming team and culture. This problem can be seen with executive hires at all levels, but is especially acute when bringing in a new CEO.  Not surprisingly, clients are often in a hurry to fill the “gap” on the company’s management team and, unfortunately, sometimes prioritize speed over quality. Executive recruiters are frequently not blameless in these situations, often prioritizing short-term financial gain over the client’s best interests – a high quality hire.

In most circumstances, clients are sufficiently clear about the ideal profile for a position and rationale about the time required to execute a search without sacrificing either speed or quality. However, every hiring situation is unique and should be approached thoughtfully in terms of the best way to ensure the right hire. In some cases, there is significant benefit in slowing the process to allow a more complete understanding of the critical issues facing the company (or department) so the board, the management team, and the recruiting firm are all aligned in the definition of the ideal profile for the position tied to the business imperatives at hand. This was certainly the case at Compare Networks during a recent search for a CEO described in more detail below.

Compare Networks (CN) was a profitable internet company with significant revenue when it received its first round of institutional funding (from Alta Communications, a venture capital firm in Boston, MA). The company had been “bootstrapped” by its four founders for more than five years and needed to bring in a professional CEO as a condition of funding. The founders were a tight-knit team with primarily a scientific background and minimal professional business experience prior to starting CN. Based on several conversations with the founding management team and incoming investors, I concluded that the company was not clear about the ideal profile for the CEO. Their lack of clarity emanated from an incomplete understanding of where the company was in its lifecycle, what operational and management challenges were prominent, and what priorities should be established for growth, efficiencies and profitability (not entirely uncommon at this stage).

 
Instead of embarking on a search without clarity, we opted to team with a fantastic consultant named Steven Hoffmann from Human Synergy – a Bay Area consulting firm with expertise in working with management teams on planning and business performance issues. The goal of the thirty-day project that ensued was to elucidate the core issues before executing the search process. Upon conclusion of the search, Steven would also conduct a one-half day executive integration session working with the entire management team and CEO to ensure the team was collectively focused on key goals.

Working with us, Human Synergy created a specific set of “deliverables” for the client that was both affordable and efficient. The 30 day project actually only consisted of a 4 hour session with the founding management team one morning per week every week for four weeks (in others words, it was not highly distracting). During the interim periods, the team members were asked to complete “homework” assignments that comprised about 1 hour of time per assignment. The key to success was to ensure the management team, not the consultants, did the work and came to their own conclusions.

Armed with exceptional clarity on the ideal profile for the position that was developed during the 30-day assignment, DHR executed a comprehensive market search for the ideal CEO, culminating in the presentation of three very talented internet executives. During the search process (Q3 / Q4 2008), economic conditions dramatically worsened with no end in sight. Instead of hiring a CEO with growth projections in mind, the company wisely decided to appoint one of the CEO candidates to the Board as an outside director. As part of his charter, that board member now works in partnership as a coach and mentor to the founder / CEO. The company has made the correct decision to revisit the need for a growth-oriented CEO in late 2009 and has fully integrated everyone involved in the company’s future into a tight-knit team focused on the key business issues facing the company over the next 12 months.

I wish more investors and their company’s management had the perscipacity to be as thoughtful as Paul Gatti and Tim Dibble at Alta.  Maybe we will see more come around given the realities of this new world economic order ahead of us!

“We recently engaged Keith Giarman and were extremely pleased with the results of the project. Unlike the other firms we spoke to, Keith was insistent on tailoring a different kind of process to meet our needs, including an initial upfront 30 day assignment working with an outside consultant that resulted in a crystal clear picture of where the company was, where it was going and what type of CEO was best for us. He knew this would slightly slow the process, but we all agreed it was the best approach for us to define the ideal profile for the role. The team impressed us with their deep assessment of each candidate’s strengths and weaknesses as related to the comprehensive Competency Matrix prepared for the role. As a result, our management team and Board were always prepared with information that allowed us to efficiently assess candidates at each juncture. Their process got increasingly better week-by-week, yielding even more top-tier and highly relevant talent along the way, and we were quite pleased to recently appoint Stephen Semprevivo to our board as part of the process. Importantly, Steven Hoffman from Human Synergy was extremely effective at galvanizing the team in terms of the issues we must face and overcome to weather the economic storm today and going forward. We continue to use Steven in a consulting capacity and we will definitely employ Keith and DHR in the future.” – Paul Gatti, CEO, Compare Networks

________________________________________

OK, I am sure this is bad and will get worse before it gets better.  And yes I would be lying if I said I was not worried about it too.  When things started to look really bad in the fall, I started taking inventory with my friends in the finance industry.  The spectrum of opinion ranged from assured depression to “it’s really not that bad after all.”  Interestingly, that same crew of finance geniuses (plus quite a few more) — folks much smarter and more analytical than me and certainly folks more fluent in market economics and math — have coalesced around a common message more recently.  Ten to twelve percent nationwide unemployment, ten to fifteen percent loan default rates, worldwide impact where no geography and sector is spared, recession for three years (how big is still anyone’s guess).  I agree!  So, can we please get over it and get on with it?

I am stunned at the deer in headlights out there.  Let’s cut the costs, reengineer the process, eliminate redundant positions, refocus our strategy for cash versus growth, blah, blah, blah.  Who is waiting?  Me? You?  Anybody who is not doing these things right now is a moron.  Of course, it is a difficult time for investors to understand what true reasons behind bad performance.  Is the bad performance completely due to the current economy?  Is this fundamentally a good business with an upside down capital structure?  Is the problem more related to the long-term viability of the company’s products and their value proposition, channel strategy, etc.?  Or is the problem a management team ill-suited to the new challenges at hand.

 The problem is that while we are focusing (or should I say “refocusing”) on business fundamentals (fundamentals we should have never ignored), we cannot lose sight of the absolute need for PEOPLE.  It is people who will do what needs to be done now; it is people who will help us weather the storm; it is people who will help us grow again when the economy rebounds.

Unfortunately, PEOPLE become the after-thought during these turbulent times (when the opposite should occur). As a former CEO and senior executive in industry, I know how difficult it can be to chart a new course and energize a team to follow.  Many companies have taken action already to address the difficult climate ahead and, yes, there is likely more to come.  It is exactly at this time that you need to focus on human capital.  Do you have a plan in place so you have adequate access to talent when the economy rebounds?  Do you have a clear picture on which individuals on your team have what it takes to perform during the turbulence ahead? Are you confident that the team is truly operating as a TEAM so you can achieve business traction faster – whatever your goals? And, most importantly, what are you doing as a CEO, Board member, or team member that ensures you are part of the solution, not part of the problem?

Of course, we will survive the current downturn just as we have done countless times before.  I just hope that we come out of this stronger as a country, as an economy, and as a people along the way.  We will only do so if we recognize that it is human capital that always matters most of all — not hedge funds, not buyouts, not stock trades, not transactions.  It is time to get back to basics where people create VALUE in their work, not just make money.

So, compared to most (especially for those who earn an MBA), I went into graduate school later in life at the ripe old age of 30.  It does not sound terribly significant, but when you consider that only 15 percent of the class are 30 years old or older, it is meaningful.  Unlike the age of 40 or 50 for example, the difference between 26 (average age for admission) and 30 means a lot; four additional years in business at such a formative stage can provide an awful lot of seasoning.

My indoctrination into my class and section was, well, interesting.  There was the Morgan Stanley analyst who graduated from Princeton at age 20; the McKinsey analyst who was a Harvard Physics major; and the lawyer who already had three degrees by the time he was 26.  (Gee, I don’t see a lot of sales guys running around in here   Not surprisingly, the raw horsepower and analytical skill (with some notable exceptions) ran rampant which is actually quite good or we would have had very little to talk about in a Socratic case study environment.  Everyone was focused on things like corporate finance and beta analysis and Michael Porter’s Five Forces strategy analysis framework.  Not very many of us were  interested in organizational behavior and human resource management.  (Sidenote: It is a well-known fact that graduates who are queried about the importance of these subjects five years after graduation rank them very low.  Twenty five years later, seventy five percent of graduates rank these subjects the most important of all.)

Yet, these were the areas where I excelled.  In fact, I excelled so much that I was recruited into the Ph.D program by one of my professors.  I think my peers were in shock (I certainly was).  Rather than jumping on a new academic train (which entailed getting another Master’s degree in social / psychology across the river and then writing my OB thesis), I asked if I could spend a year at the school learning more about my intended profession before making the decision (that would be smart).  Faced with a somewhat skeptical group of Doctoral program administrators, I was finally introduced to two tenured HBS Professors — Carl Sloane and Shoshanna Zuboff — and spent a year at the school delving into adult psychological development and mid-career transition.

I decided I was too much of a “businessman” to be a professor and never did matriculate in the Ph.D program, but my appreciation for “softer” issues grew even more during that year and continues to grow to this day.  There is no substitute for purposeful analysis to make a company perform, but there really is no longer any question that strong leadership and management is the key.  This notion was reinforced when I read a recent copy of the Harvard Business Review (which, to their credit, does provide a nice mix of articles dealing with both hard and soft business issues).  One article stuck out, however.  It reminded me of the uselessness of analysis if it cannot be translated into action and it prompted the following letter to the editor of HBR.  True to form, it was not published so I figured it made sense to memorialize here:

Editor

Harvard Business Review

60 Harvard Way

Boston, MA  02163

Dear Editor:

 “The New Leader’s Guide to Diagnosing the Business” by Mark Gottfredson, Steve Schaubert and Hernan Saenz in the Feburary 2008 edition of HBR describes a useful framework for developing a baseline of current company performance with an eye towards improvement across multiple key vectors.  Unfortunately, like many other models promoted by the consulting community, it falls short in one fundamentally important respect: do the CEO and the management team have the functional and leadership skills to determine the root causes of poor performance (with or without the help of a consulting team) and, more importantly, can they implement changes in a manner that results in fundamental business improvements? 

 In “Good to Great,” Jim Collins undeniably ties stellar business performance (amongst like peers) to the CEO’s “Level 5” leadership skills and a functional management team.  How can a company be sure it’s even capturing the right data to develop a proper baseline, let alone be able to execute new initiatives, without the right executives “on the bus”?  There is no doubt that the model proposed by the authors can (like similar models) elucidate the baseline and areas for improvement; it thoughtfully considers a company’s performance relative to its peers tied to overall market opportunity.  But all of these models become moot unless the company has the right CEO and supporting management team who are nimble and skillful in creating rapid momentum up, down and sideways in the organization from a human resource standpoint. 

 The challenges here become even greater depending on the urgency and motivations of the Board.  In the world of Private Equity where I play, CEOs and their team are under the gun to produce fast.  I would wager heavily that the management teams which fail generally do not lack insight into the key areas where they need to focus their energy.  They fail because they cannot lead and motivate the organization towards aggressive implementation of the improvements required to win in the market.

So, executive recruiting is probably not a good career match for every operating executive and executives should think carefully about taking such a step.  For executives who experience difficulty making the transition into a “consulting” position like recruiting, my sense is they have a hard time letting go of two things: (a) the ego trip that goes hand-in-hand with a leadership role overseeing a large and / or dedicated organization; and (b) the perception that they spend a large portion of their day in operating roles working an intellectual exercise called “strategy”.

The “bottomline” is that an executive who has experience with multiple functions over the course of a career in business is in the ideal position to be successful in any consultative role, recruiting or otherwise (assuming s/he can “let go” as noted above).  In fact, what could be better for a candidate on the job market?  Isn’t it better to be talking to someone that really understands what you will do in the position being pitched (because the person doing the pitching has actually held the exact same position or hired people into those positions)?  I think so (but of course I’m biased.).  For the client, a former-executive-turned-recruiter can establish a deep level of credibility with candidates as a career counselor and business coach based on real experience.  This does not imply that the best-of-the-best consultative recruiters cannot do the same after years in the business; there is absolutely no doubt they can because I have employed them and currently work with a bunch of them.   However, the perception of immediate credibility is important here assuming of course the recruiter can actually deliver business and career insight that makes sense!

 Let’s address the issue across another vector.  Assuming an executive recruiter who has transitioned from an operating role has the qualities noted above, is s/he better at their job if they have spent time in various businesses at various stages with various business models focused on various products and markets?  In other words, regardless of functional responsibility, is this multi-company, multi-product, multi-market, multi-stage experience useful?  There is, frankly, no doubt. Executive recruiters move from assignment to assignment rapidly and, after digesting and synthesizing information from a whole range of different clients, need to create a winning recruiting strategy that can be practically implemented.  Quite a bit of the project requires mastery of the client’s business situation – strategic as well as cultural – that is driving and framing the hiring need (if the recruiter knows what they’re doing).  Without the ability to fluidly move from assignment to assignment in this regard, and practice the fine art of rapid situational analysis, how can a recruiter be effective at his or her job?  Perhaps more important, the successful placement of an executive is highly dependent on the recruiter’s ability to determine the company’s priorities given its stage of growth / strategy and ensure the candidate’s competencies – interpersonal and functional – are a good fit.

 It’s an overused phrase in the world of technology, but executive recruiters are constantly in “pattern matching” mode as they meet and screen candidates.  Hundreds and thousands of qualified executives looking for dozens of potential roles make-up your universe at any given time and this universe is constantly refreshed.  There is no doubt that recruiters can hone their “pattern matching” skills in this regard over years of experience and hundreds of successful and not-so-successful searches.  Who knows?  Maybe some who are not burdened with industry domain experience are ever better than their ex-executive counterparts.  I would argue that an executive who makes the transition into recruiting with the qualities noted above hits the ground running faster on both sides of the equation (clients and candidates) and is armed with directly relevant career experience that perfectly positions him or her for success. Maybe these kind of recruiters can occasionally impart business advice above and beyond just finding a body to occupy a seat?