I feel like it’s a common script that most good companies eventually fall to short term focused management types who are happy to shred the company as long as they get their golden parachute.
Why does this seem to be the case? If you wanted to build a company that was more immune to this sort of thing how would you go about it? Examples and counter examples of these sorts of companies would be awesome to hear about.
Eh, none of the answers you’ve received so far really explain it correctly.
“VC” or venture capital is a financial instrument by which people with millions of dollars to piss away do so by funding a series of startups. These days, those startups are usually tech/sw companies but VC funds other things, too, with similar results.
When a startup is very small, it usually only needs a little bit of VC money–such a small amount that often it’s difficult to even find a VC firm interested in buying in. But once they get seed funding, they must exchange some control over their fledgling company for that cash. They hold onto and spend that cash, losing money in the process but building their product and their team and becoming a real company that has the potential for (at first) any revenue at all, and (eventually) the potential for profit.
Then they get another round–these rounds usually have letters like “A round”, “B round”, etc. At each stage, the stakeholders in the previous round either cash out or trade up to more leverage. They start to have more of a voice, and as these rounds build up, the founders usually have less of a voice. It becomes hard for the founders to tell their funders “no”, even if they retain a majority share: if they never listen to the whims of their investors, they will have more trouble attracting new ones at each successive round. This is especially true since the higher you climb the VC ladder, the fewer players there are, and the more they all talk to each other about what kind of a business you run.
The trick, of course, is if you run a customer- or employee-focused business, they will put you in the spreadsheet marked “losers” and nobody will talk to you again. They want you to run an investor-focused business, and they’ll get their way eventually.
Most startups simply collapse quickly, of course, and you hear nothing about them.
A few make it past a couple of rounds of funding before dropping out, and you would be forgiven for ignoring them.
The few that get big enough for you to hear about them, the investors are already tucking their napkins into their shirts and getting ready to dine. These companies get a few years in the limelight looking like tech darlings, and then the investors get their dinner. In many of these, the original founders simply do what the investors ask for, whether they like it or not; no need to speculate about hiring short-term thinkers, this is the original founder doing it! In some cases, the founders are forced out by the board that runs them, and somebody new is put in. We must be clear that, while the new CEO is certainly not blameless in the fall of the tech darling they’ve been given, they’re still just a pawn of VC.
How do companies become resilient to this? Don’t take VC. Fund it yourself if you can, and then whatever you say becomes the law. Sell your product for money, and use the money to run the business. Even taking a bank loan is better than VC, if your top priority is keeping control; the bank just wants their interest.
How do companies become immune to this? They can’t. Even if you are independently wealthy and seeding your company out of your own cash, even if you are the most ethical capitalist to ever fund a business, you’ll die or retire someday, and then all bets are off.
This is the fate that will befall every for-profit company.
I’m curious what would be your reply to this? Do you think a society can regulate or educate this problem away?
The problem is capitalism, and it’s beyond the reach of education or regulation. There are other methods that could overturn it, of course, but not those two things.
Even if you established another economic system, though, that system too would be subject to corruption. I don’t know how a society regulates itself in such a way that economic systems never get corrupted by the desire for short-term personal gain.
To expand on that, even if you didn’t want to take the VC funded money and bootstrap your own business, the deck is stacked against you. If you compete in the same space, a VC funded company can do more marketing, develop the product faster, have more connections to important business partners because of large amount of money and connections they have.
And they will “outcompete” you at a loss, until the bootstrapped business goes under or settles for a tiny market share in a niche. So when they say, the economy is rigged, this is what they mean. You will need large amounts of capital to compete in the tech space. Even if you are two times smarter and work two times harder, you will never be able to compete with a VC funded company flushed with money in the same space unless you get reaaaally lucky.
Makes me wonder if a stronger system of government subsidies could replace the need for VC for some startups. The government agrees to back your expenses for X number of years until you have the means to pay back the investment, and if the startup flops in the end, the government takes the IP. If the startup is still deemed to have potential, the government continues operating the company as a state-sponsored org or folds it into a state agency to ensure the livelihoods of the startup’s employees.
End result is that startups aren’t forced into situations by VCs where they have to go public, and if they end up going under anyways by failing to pay back the government’s investment (tax payer money, basically) it is seen as a purchase of potentially valuable IP which can be made available to the public for the betterment of society and industry.
It starts with a staff shortage while scaling up, or a small project that current employees don’t have capacity for.
The execs have a decision, find and hire a long term employee(s), train them up, make sure it’s a good culture fit, and pay their benefits and compensation
or get a contractor firm to fill seats and pay the contract.
It’s all downhill from there once they pick a contracting firm.
The contracting firm is a Trojan horse for the short term philosophy, while also eroding away the skill pipeline of raising juniors to senior talent so the company eventually has to keep going back to firms.
Instead of scaling up and building the knowledge pool as the company grows organically, they want to massively scale up and down and cycle through many people and skim the good contractors off the top. But this does not work.
The bad contractors overflow the org with tech debt. Seniors don’t have juniors to train, nor do they work on the core stuff to keep their skills. The seniors and good contractors skimmed off the top turn into contractor babysitters. The juniors don’t exist. The seniors eventually turn into managers or leave for greener pastures where their original skills are wanted and respected and fostered.
Eventually the company is left a husk of past talent and mountain of tech debt, and no in-house skill to turn things around, so the options are to stay with contracting indefinitely or start at ground 0.
Combined with not increasing wages to match cost of living and inflation, not giving bonuses when there profits, and now you’ve got most of corporate America with their burnt out workforce skeleton crew.
Never go public
It’s the way the system is set up to work. Nobody cares about the stock price of a public company in 10 years - rather, everyone cares about the next quarter results so they know whether they should sell or buy or whatever.
It’s the stock market that fuels this short term gain mentality. You don’t see this happen as much for private companies.
Short Answer - Money.
Long Answer:
Money and Greed :p
But in reality, it’s usually just money. Ultimately if a company has decided that it’s sole purpose for existing is maximization of wealth for it’s owners, it will inevitably tend to go to the traditional business routes and hire executives who are educated in doing exactly that.
Technology companies in particular are prime for that because everyone hopes to eventually either become the next Apple/Microsoft, or be bought out by them. It’s fast, short term and big money.
Only time in my career I was laid off was because of this. Brother owners had been running their business for 40 years very well and very employee friendly. We got lots of bonuses and pay outs based on revenues and was an awesome place to work.
one of the 3 died and so the other 2 decided it was time to retire, and they did exactly this. Went out and hired a CEO who came from a reputable business school, who has done nothing but “be an executive” since graduating, and was purely a sociopath.
within 3 years the company was a horrendous place to work for. our bonuses nearly all disapeared, or started getting pegged to arbitrary company performance standards and other bullshit. by the end of 3 years 30% of us were then let go.
All because this shmuck’s primary objective was “maximize the value of the company above all else” and for him, that meant going after the employees. Since we released ZERO product in those 3 years since he took over.
Their CVs are full of 1 to 3 year stints at organisations. The first thing they do when they get somewhere is make “big changes”. They think you can turn a supertanker like a speed boat if you could just shed all that extra weight. They’re good at telling you what they don’t want but not so good at telling you what they want instead. Their real passion in life is something expensive (flying their private plane, collecting cars, buying new homes, etc). They’re overly confident about products or services without spending time getting to know them from engineering leadership etc.
How to be immune? Honestly, look for leaders who do long stints at organisations; 6+ years. Look at the health of the businesses they were at during those time periods. If they had downturns, grill them about what the org and they themselves did to turn it around. Look for leaders who have signs of empathy. Look for leaders who are there because it’s their passion (and not what payrolls their Rolex habit). Look for leaders that know an org will remain a supertanker unless you kill the products and codebase that made them one and there’s nothing wrong with supertankers, you just have to plan your turns and be watchful for hazards so you can turn much earlier.
The empathy part is a big part of it. If a leader has to make headcount cuts, it should hurt emotionally. It should feel like a personal failure (hiring too many, hiring for wrong projects, etc). The redundancy package or whatever you call it should be above and beyond the legal or industry minimum. Staff should be supported through the journey of finding their next position (internally or externally).
I’ve worked with leaders like this in huge companies (Fortune 500/FTSE 100 etc) and thankfully still do - and I’m currently trying to be one myself.
They’re the leaders that engineering managers sing praises about, support teams love, sales engineers idolise. They get consistent growth year on year but not at obscene, obviously unsustainable rates. They’re the leaders who don’t push for things to be delivered early, but push for things to be delivered reliably. They don’t need to raise their voice to “win” an argument. They use words like “honesty” instead of “no bullshit”. They’re open and supportive about mental health and enact regular “mental health” days off for the whole company as extra, free, paid holiday.
They’re the leaders that are everywhere but don’t make the headlines because they’re not as attention grabbing as psychopaths and sociopaths and they’re too busy being the backbone and cortex of their respective businesses.
Great to hear! I guess others who are not in leadership roles would like to hear more about guys like you, and would like to know that some of you are also taking the time to teach other leaders take a different approach to work management and leadership culture.
Honestly, I think a huge number of leaders are like this and it’s only a loud minority however they often turn up in executive positions with a complex and desire to make a mark and justify their presence. I also swear their playbook is set about huge change so that you can make excuses for poor performance then bounce off to the next org and do the same.
Making cuts is often a necessity - to stay afloat or cut the losses from a failing or failed project. I think anyone who works at a large org has to accept that - I’ve been let go of before. It’s about how you implement them that is the difference between a leader on paper and a leader of people.
Last big round of cuts we did many years back, we set up interviews with our direct competitors for our outgoing staff, provided licenses to training platforms for a year, did CV work with everyone, provided references, and several months full-pay beyond statutory or industry standard.
It hurt us financially but it gave us the breathing room we needed to turn, and it helped both our remaining staff know we valued those we lost which helped retention greatly, it also meant that several engineering architects that we loved but had to lose rejoined us a couple of years later and the experience elsewhere before returning made them even more valuable.
The thing is, we didn’t get a news story about it, it didn’t make waves on social. Being good to people is sadly not a big deal and thus I think everyone just hears about the bad. There really are good orgs out there, just talk to staff. Ask about the last wave of redundancies/lay offs. Ask about the pandemic period. You should know how an org acts in time of struggle.
We let people work from home full-time (still do) and increased number of holidays. Productivity went up.
don’t hire management externally. search loyal long time staffers who want to be promoted. don’t just promote them; make sure they want that change in their tasks.
some employers think promoting staffers to management removes a person who is good at their job, but some become fed up and bored and will leave anyway, so might as well promote them. signs are, when they ask to work in a different department/position; it means they are loyal and want to stay, but are bored/frustrated with their current tasks.
Short answer: tech companies are still companies doing business, so they hire business people who do stupid business things.
“Infiltrate”? You’re just describing capitalism.
