Esther Dyson: Moving From a House Divided to Divide and Conquer
The Executive Founder of Wellville and StartUp Health investor/advisor shares timely best practices for creating true “cross-silo collaboration” in health innovation, starting with startup teams and boards.
By Esther Dyson, originally published in StartUp Health Magazine: Issue 5
Somewhat sanitized, here is the last email from Alice the angel investor to Juan, the startup CEO who has run out of cash:
“I’m trying to make this clear. I do not want to make a commitment so that you can then go find someone else to make a commitment. I would like to join a group that commits together — straightforwardly. What that means for you: Write to all of us, at the same time, with CCs, and invite us to join the group. Why not CC everyone if you plan to tell everyone the same thing?“
Juan replies:
“My issue is the different timelines, stages of the diligence process, and existing investors vs. new investors. It will not help me close and needs to happen on more of a rolling basis. I’m trying to understand how this helps with the raise as it’s not this straightforward from this end.”
No, it’s not straightforward, and Alice knows he’s telling each party something different. She declines to invest.
If you think maybe I’m writing about you, Juan — yes, take a look in the mirror. But don’t out yourself by complaining. Instead, just keep reading and pretend you’re learning from what the other guy did wrong.
This “divide and destroy” mentality is pervasive in the startup world. I see it when startups engage with investors, but that’s not all. We talk so much about the importance of cross-silo collaboration in health innovation, and rightly so, but collaboration also needs to happen within teams and within boards. Here’s a sampling of what can go wrong when “divide and conquer” turns into “divide and destroy” and some ways to fix the problem.
Investors
As the case of Juan and Alice shows, investors’ interests are not always aligned, especially when it comes to transactions. And Juan made it worse by playing his investors off one another. He wanted the highest valuation he could get, so he kept telling one potential investor about better offers from other investors. Except those weren’t real offers; those were indications of interest. Or perhaps Juan was just believing what he thought he heard; there were no other investors present to provide a reality check. The latest I heard, he still hasn’t gotten his bridge funding.
“We talk so much about the importance of cross-silo collaboration in health innovation, and rightly so, but collaboration also needs to happen within teams and within boards.” –Esther Dyson, Executive Founder of Wellville
What could he have done better? He could have told all his investors the gory truth — together. They would have asked questions, and everyone would have heard the same answers. They could have negotiated with him for a realistic valuation; one that all of them would accept. And though Juan might have gotten a lower valuation, it would have set him and the company up for success, with a united group of investors with the same expectations, working together.
In other situations, where the deal is hotter (or at least not cold!), some investors get preferences for being the last money in, while others refuse to play. That creates divided motivations at best, and unrealistic valuations. In theory all these preferences are disclosed, but in practice they are not clearly visible. And then there are the cases where existing investors badmouth the company so that they can buy into the next round more cheaply, or so that another of their portfolio companies can acquire it. At the extreme, this is fraud… and yes, I have seen such cases.
Bottom line: the CEO should be working to keep all the investors’ interests aligned, telling all of them the same story, and encouraging them to communicate together as a group.
Board Members
As Uber and WeWork discovered, yes, the board’s job may be to support the CEO, but when things go south, the board is invested in the company, not the CEO. There’s a lot of wishful thinking, and probably some self-identification, when board members coach startup CEOs. It’s natural for the chairman of the board to meet one-on-one with the CEO and to reassure them they’re the greatest. But when the board meets together, it’s harder to ignore the facts (unless you have a dangerously self-deluding board). Diversity doesn’t just mean gender and race, but also true believers and skeptics, subject-matter experts and naïve questioners. Each member of the board, ideally, asks different questions, and each member of the board usually learns the most from the questions they didn’t think to ask.
Things go poorly when certain members of the board establish close personal relationships with the CEO and start to defend rather than question them. The syndrome is broad; often the CEO attends the board meeting on their own; the board doesn’t get to hear much from the other team members. Everything is filtered through the CEO.
“Bottom line: the CEO should be working to keep all the investors’ interests aligned, telling all of them the same story, and encouraging them to communicate together as a group.” –Esther Dyson, Executive Founder of Wellville
In short, the CEO never needs to confront reality. Running a startup is tough; lately we’ve been hearing a lot about the mental stress and depression it can cause. CEOs do need support, but they also need a clear grip on reality for their own and their companies’ long-term good. Enabling directors are not doing their job.
How to do it better? The directors need to work as a team, sharing their doubts as well as their enthusiasm for the company and its mission and its amazing CEO (sarcasm intended). They need to practice radical candor (H/T Kim Scott and her book of that name), letting the CEO know they have his/her back but offering constructive criticism and advice. For example, less “You’re a terrible manager,” and more “We’d like to invest in making you a better manager and offer you a coach.” The board should regularly meet with other members of the team, and depending on the company, use the product or sample its services for themselves. (Don’t you wish the boards of the companies you regularly buy from did that?)
The Team
Finally, there’s the CEO and their team. Juan’s brother Carlos was also a CEO. For the two years he ran his company, I later discovered, he never once held an all-hands meeting. Instead, he met only one-on-one with his direct reports, of which there were way too many. Each one got a different story, and each one told a different story, which Carlos pretended to believe. In fact, this was the ideal way of creating confusion and dissension. He played them off one another, catering to each of them individually but creating an environment of fake news within the company. Each one believed themselves favored and criticized the others, but in the end no one knew what to believe. Problems were hidden, and when they were discovered, they were always someone else’s fault. The company was riven with conflicting versions of what the CEO had promised to each individual.
One interesting real-world, real-name example of the need for teams is Elon Musk… or rather, the two Elon Musks. One runs Tesla, single-handedly. And by all accounts, despite its wonderful cars, the company is bit of a mess inside. This CEO smokes weed on TV, and fires people with abandon. The other Elon Musk is a collaborative founder of SpaceX who listens to and leaves much of the work to COO (and director) Gwynne Shotwell, a mature and experienced aerospace executive — if only because he’s spending so much time on Tesla. The difference between the two Elons — and the two companies — comes down to collaboration style.
How to Solve It
The best way for a CEO to manage, in fact, is not to manage but to collaborate. What Carlos should be doing is building a team around himself, a team that asks questions of one another, but also of outsiders so that all can learn together. In general, a CEO needs to ask for advice as well as to give it. She needs to hire a team that can do most things better than she can; her job is to help them learn and work together.
The CEO needs to create an atmosphere of trust, where people can count on one another and solve problems together, rather than blaming the other person. And yes, the team members should be diverse, with different backgrounds, points of view and styles. Together, they will amount to much more than any single CEO could ever hope to offer.
Last month I attended the wonderful BrainMind conference at Stanford. Of all the interesting ideas I heard, the one that struck me the most was from Patricia Kuhl of the University of Washington, about how babies learn best. It’s not by watching something on an iPad, certainly, but it’s also not by listening to their parents. They learn best by learning together, by watching one another’s reactions to what an adult is saying. (Home-schoolers, take heed!) In short, people need to share the same story. One-on-one communication has its place, but it’s no way to run a company or to raise money. Business is fundamentally a group activity.
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