Virtual Leadership

1995: The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works,” wrote Clifford Stoll, in Newsweek “How about electronic publishing? Try reading a book on disc,” Stoll went on, “Yet Nicholas Negroponte, director of the MIT Media Lab, predicts that we’ll soon buy books and newspapers straight over the Intenet. Uh, sure.”

17 years later, Newsweek ceased print publication and became exclusively available online.

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My company Mission, Visions Values statement has always been the same

Make a positive difference in peoples lives

Have fun doing it

Share in the material and spiritual rewards of doing it.

We must make this life experience count. We must seize the day. It is that gung-ho, jump off the cliff, go for it attitude that defines the leader mentality of a successful start-up.

There are countless books about leadership style. Most of them are written by people who have rarely led anything. Real business leadership comes out of a person actually starting something and figuring it out from there.

A start-up that I followed made the mistake of hiring full-time employees at the outset. For a while the new employees were excited about the adventure of building something. A year later the cash was running low and the founder was desperately trying to get investment. Half the employees panicked and jumped ship back to the corporate world. That meant the founder had to spend time finding and hiring replacements as well as reassuring the ones remaining that they had a job… all when he should have been free to seek investment and focus on growth. It does become a downward spiral and surprisingly quickly.

Then the employees that remained demanded pay raises. I knew one of the employees who was as frustrated as any and he confessed also that half the employees spent most of the day surfing the Internet. It sounded like a toxic environment and it all stemmed from the founder’s initial mistake.

To recap: For survival we need to mange cash-flow and then consider external investment to ignite growth while providing the founder some breathing room. The easiest way to handle cash-flow is to avoid hiring and renting as much as possible and for as long as possible. This has benefits beyond the saving of cash and releases the CEO/founder to focus on growing sales.

Virtual Leader Mentality

The next step is to extend the same mentality of cash-flow management to the rest of our business model. We are talking about going virtual. In my opinion this is the most misunderstood word in the start-up world. When I use the word people think mom+pop style, or online home-based business. That is not what I mean at all.

A virtual company is one that frees the founder/CEO to focus on growth and investment instead of managing. The focus is external to customers, vendors, and investors instead of internal on human resources, systems, and operating procedures, which comprise what I call the internal whirlpool. I use that term because the internal whirlpool sucks all the time, energy and effort of management focus internally whereas for the new company the focus should be externally on customers.

Instead of spending time to build internal capabilities, then finding, recruiting and training employees in procedures, the virtual company purchases those capabilities ready-made, a bit like a plug-and-play model, and on a fee-for-service or volume contract basis from expert companies. Those companies own and provide the staff and procedures to make operations smooth.

Typically those companies provide add-on services to large companies that need short-term help due to launches, promotions etc that create rapid growth in demand. For the virtual company those vendors become the sole provider.

With this virtual approach there is a need for a dramatic shift in entrepreneurial mentality. In the traditional model so much of a manager’s time is spent on recruiting, training, and maintaining employees that it tends to create a mentality of control. In the virtual model we contract with companies that already have highly experienced employees and their own internal systems of reporting and control. That means the CEO of a virtual model has to learn to let go and to allow empowerment. It is harder than it sounds.

I think about the virtual leader as more like an orchestra conductor creating harmony from musicians who are better players of individual instruments than the conductor, than a traditional expert-CEO who manages down a hierarchical structure by training-up subordinates.

Having worked in traditional business structures for 20 years before building three virtual companies, I can say that the leadership mentalities are 180 degrees apart. Most entrepreneurs I speak to about this transition think I exaggerate the challenges, but if I do then why do so many start-ups go out of business so quickly? Why do so many pioneers end up skulking back to the traditional corporate career after failing in businesses out on their own?

In the traditional model everyone wants to be respected and loved… and promoted. Everyone strives to get a top performance rating and a pay rise. Everyone wants recognition from above and below. It is the human condition. When you start-up a virtual model all that goes out of the window. There is no one to impress. There is no recognition. There is no one to pat you on the back or pick you up. There is no one to confide in or gossip with. There is you and you alone. It is a different mentality.

The CEO of a virtual company delegates tasks and systems to experienced vendors who should know what they are doing without supervision. The vendor will assign a client manager and provide regular reports, but you have to learn to trust in them to do the job you are paying for.

There is no one to blame when things don’t go to plan. You are it. If something goes awry you have to fix it. Then you have to learn from it. You cannot afford to repeat mistakes in a start-up and you cannot shift blame up or down the hierarchy because you don’t have one.

You also have to become a sales person. It doesn’t matter what job you had in the traditional setting, you have to get the courage to sell… on the phone, in person, online. You cannot afford to hire a sales and marketing person so you must pluck up the courage to do it yourself. trust me it is easy, but for some reason many start-up CEOs fear being sales people.

That means you have to also learn to ask for the business, close the sale, and accept rejection as a way of life. There is no place for ego in a virtual start-up. I find this is one of the hardest things for entrepreneurs to do. So many come from functions where they never had to meet customers or sell a product. Later I have lots of useful selling tips. Don’t panic. I am a total introvert and a very private man. If I can sell, anyone can. I dreaded having to become a salesman, but I needed the extra money the role offered. Turns out that just by being myself and being honest I was good at it.

You also cannot transfer your comfort blanket of pensions, investments, benefits, and salary. If you are not prepared to live frugally and make sacrifices for a period, forget about ever starting a company. You only need one car. You don’t need a house and mortgage when you can rent and use the equity for a cash cushion. You can go a few years without a vacation. You can work part time for a while if necessary (I did at the start of QOL… 2 days a week but in reality I spent 2 hours on the “job” and 3 on QOL). If you can’t do any of these things or your family cannot get behind on it then it is going to be really tough to survive the start phase.

A leader is best when neither seen nor heard; Not so good when adored or glorified; Worst when hated and despised. Fail to honor people, they will fail to honor you; But of a good leader, when his (or her) work is done; The aim fulfilled; The people will all say: “We did this ourselves.”
-Lao Tse

This quote sums up the style of virtual leadership. You are a conductor, just tweaking here, adjusting there, but overall respecting, honoring, and trusting your vendors and contractors to do what they do for a living. They are all experts. They make a living out of performing a service. So, let them. Suspend your ego, step back, resist the temptation to interfere.

MBA is Not Enough

You cannot learn to be a successful virtual CEO at school. You can learn about how a company’s functions integrate, and how each department works. Those are valuable things, but they are only one ingredient in a complex recipe.

Many pioneers like Steve Jobs and Bill Gates left school to start their dreams. Some successful self-made business people like John Rockefeller had no formal education at all. I will get a lot of flack for being anti-MBA, but I stand by my opinion. In my own MBA course I never had a lecture given by someone who had actually started a company. Most MBAs teach you how to improve a career. It does not prepare you for starting a company of your own.

Academia is often disconnected from the real world, and Business schools have failed to develop curricular that satisfy the needs of start-ups. Part of the reason is that business schools need revenue and they get it from big business, which sends their armies of middle managers to learn to manage better.

Through a survey to more than 40 chief executives, published by Duke Corporate Education in 2013, chief executives have revealed the top skills they are looking for in business school graduates. They named key proficiency items such as problem-solving, the ability to connect different aspects of business, to think in a holistic way and the courage to deal with uncertainty and ambiguity. The outcome of this is that business education has become more akin to a factory line than the broad learning opportunity it should be.

● Business schools want and need to be accredited. While students care little about accreditation, they care a lot about rankings. Conveniently, only accredited schools are allowed to participate in the rankings. Accreditation leads to “standardization”, which demands that all schools follow the same well-worn, mainstream curricular path. This would be fine if creditors embraced a business school model that provides the skill-sets start-ups need. But they do not.

● Most teaching staff tend to have no real business experience. It is a good thing for experts to share their knowledge through teaching. However, their “expertise” is often built up through years of research in an ivory tower setting – not by teaching to seasoned executives or connecting with real businesses. The outcome is that this so-called expertise does not meld with what is actually going on in the world.It is surprising how many faculty members have no work or management experience outside the confines of their academic institutions. Part of the reason for this is that they choose not to gain industry exposure in favour of pursuing an academic career. It is counter-intuitive, if not downright ridiculous, that seasoned managers in executive MBA programs for example, are often taught by people who have zero experience of making the challenging decisions their own students grapple with regularly.

● Academic research often brings little to the classroom. But it is very important to business schools. It matters for institutions because published articles in academic journals count for accreditation and business school rankings. Research is also paramount in the eyes of teaching faculty because it is what promotions, tenures and salaries revolve around. To climb the career ladder, professors prioritize academic papers over consulting work. The problem with academic journals – as opposed to “practitioners” journals – is that they are usually irrelevant to what managers and executives actually do, otherwise, there would be no such distinction. There is no requirement for research to be influenced by real-life business. Many academics are therefore more concerned with theoretical concepts, which carry minimal practical applications.

Self Confidence

An American Psychologist, an academic called Terman was a pioneer in educational psychology in the early 20th century at the Stanford Business School of Education. He is best known as the inventor of the Stanford-Binet IQ Test. He is also famous for performing a longitudinal study of 1,523 children at genius IQ level. The objective was to understand better the relationship between human intelligence and human achievement. It continued for decades, and became world famous for its discovery that intelligence was the lesser of several factors that determined achievement.

Discipline and self-confidence were found to be more important than intelligence for achieving things. He also noted that the more successful had a tendency to set targets and goals.

Hand on heart I can state two things about the MBA I obtained from my university, which I took while also working full-time as a sales manager. It was a huge help to me in fast-tracking my regular career. It was of zero use whatsoever when I started my first company. Since then I have not resorted to a single thing I was taught. It is totally irrelevant to the start-up world. In fact I don’t recall a single lesson.

MBA School taught me how to manage in traditional companies. I learned to recruit, train, and motivate a staff, but nothing about outsourcing. I learned how to build effective functional departments with a hierarchy of employees and systems to support it all but nothing about going it alone as jack of all trades. I learned accounting, but heard not one word about cash-flow. I was taught about “critical paths,” project management, and Gantt charting, but nothing about decision making. It is all useful for a career in the traditional company. It is, however, as much use for the small business owner as learning about classic battle maneuvers is to the trooper who parachutes into a raging battle.

The course attendees were a mixture of executives from mostly large, well-funded corporations like British Telecom whose employees made up two thirds of our year class. There were, however, a handful of people who had built their own personal businesses and wanted to take them to the next level. The B.T. guys were being paid to be there. The self employed had paid their own course fees.

At the end of each night’s lectures, we would hang around in the university bar to share thoughts on the information from the day. I learned more tips and advice about good business practices from listening to the business owners describe the stories of how they had started and survived than I got from the course material in total. Their anecdotes about cash flow issues, and constantly changing challenges were priceless. They were also certain about what it takes to be a good leader of a small business.

Good CEOs are not born as CEOs, and we do not have special access to any secrets or talents. Everyone reading this is equally capable of being one. Everyone in that bar agreed that at the core of any good leader is the ability to manage a small group of people, a skill the business owners on the MBA course had in abundance, whereas many of the other students did not. The B.T. workers managed their reports, not to help their reports be fulfilled, but to help their reports make them look good to their own boss. The politically savvy got promoted, the more direct ones were bypassed. The business owners managed their employees or contractors to perform well and make a profit. Huge difference. Without profit you are history.

Managing Groups

When I worked in a hospital as a senior radiographer I had five Basic (the title at the time) radiographers on my shift. As a regional sales manager for the first time, I had eight sales representatives to manage. As a national manager, I was responsible for eight regional sales managers. As vice president, I led a team of six department directors. As CEO of a virtual company, I hired and directed seven contractors. When I reflect on it, I only ever had to manage a small group of people in every situation, each time with a different budget, and there is not much more to being a leader than that. Learn to manage a small group of people.

The key for you as the leader of a virtual company is to manage a handful of contractors who are all expert in what they do. Every contractor designates someone to be your account manager, and those people become the small group that you manage just as if they worked for you (but without the administrative headaches).  So, if you can manage a few people you are well on your way to survival.

Decision Making

In the traditional model, decision-making can be a slow process. Fear of messing up sometimes also makes people afraid to make any decision. The virtual leader mentality requires the ability to make quick decisions and stick to them.

It sounds simple, but fear of decision making haunts many a CEO. That is one reason why they put in place so many management layers. By the time the information arrives at their desk it has been tested and filtered, and the decision all but made for them. All the CEO has to do is rubber-stamp the recommendation of someone else.

Successful decision-making comes from achieving balance between the ability to analyze and  the ability to trust in your intuition. The traditional company prizes analytical skills and largely dismisses the value of intuition. If you are more analytical than intuitive, you need to fine tune how you pay attention to your instincts. If you like to fly by the seat of your pants, but ignore the data, you can end up with a chaotic company. The balance gets you a more calculated intuition. You learn to trust yourself more, and decision making becomes easier. My other course “Transformation” builds this balance within any person. In most cases intuition becomes much stronger and with that comes self-confidence.

Am I being unfair or unkind to MBAs? Have you experienced business courses that are relevant to start-up world?

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