13.

Is Your Company More Than the Sum of Its Parts?

In becoming an entrepreneur, I’ve made every mistake one can make through trial and error. As I work at building a successful business, I still have to be relentless in the quest to maintain my company’s excellence and to repel the natural forces that can reduce even the finest companies in the world to mediocrity—or worse. That means that your company, mine—any company at any and every point in its evolution—can suck.

The solution is to admit it (“Okay, my company sucks at this point in time”) and then to act creatively and decisively, taking constructive steps to address the deficiencies and leverage the strengths. This is never easy, first and foremost because we must come to terms with our failures, shortcomings, disappointments, and egos. And once we scale that wall, we need a compass to guide the turnaround.

I remember one point in the early days of building MSCO. I had hired my first senior employee, a bright and creative woman with a prodigious work ethic. I loved to collaborate with her, to see the sparks fly, to make one plus one equal three when we put our brains together and pulled amazing strategies out of thin air. We were on this intellectual roll, fueled by a give-and-take collaboration, and the joy ride (mixed with the commercial rewards it produced) was a thrill.

She spent her days serving major clients, acting as their big-picture advisor, and at the outset, they all adored her as much as I did. Original thinkers, we all knew full well, don’t come along every day. When they do, and one has the opportunity of working with this rare breed, it is an enthralling experience.

But then the cracks in the picture began to appear, turning Ms. Perfect into just another well-educated woman with more than her share of frailties. In what I can only attribute to a strange and severely disappointing defect, she would consistently fail to finish projects. If a strategic presentation was set to be 50 pages, she would always, always, get to 49 pages and stop, make excuses, lie, promise page 50 was coming, try to cover her trail through alibis and subterfuge—but she would never deliver that last page.

For months on end, clients would call me asking, “What kind of sloppy business do you run?”

I kept asking my associate to change her ways. I kept making excuses for her. I kept hoping things would somehow get better. But they didn’t—because I refused to see that the employee I held out as a gem was really a smart, creative, and hardworking liability. And I failed to take the only step that would truly put an end to the problem: replace her.

My company sucked and it was my fault.

Ultimately, I did go on to replace her and to set the wheels in motion (with new hires and revamped policies) to turn a company that sucked into one that hummed. And ultimately, into a growing enterprise that was better than the sum of its parts—that had an exponent over its name.

So I talk not from a pedestal but instead from the crucible of the special kind of hell you go through when the business you manage is third-rate. When it sucks.

This kind of baptism by fire has enabled me to graduate from a set of learning experiences and epiphanies into the development and implementation of an overarching philosophy and boots-on-the-ground methodology for driving superior corporate performance.

Viewed through the prism of my experience, companies fall into one of three categories:

1. Less than the sum of its parts.
2. Equal to the sum of its parts.
3. Greater than the sum of its parts.

The fact that Number 1 sucks is likely apparent to all. Nothing that adds up to less than the sum of its parts can be of any real value. The idea that Number 2 (equal to the sum of its parts) also fails to meet the test of acceptability may be a surprise. But I have no doubt that this is true.

Think of it this way: for years, I have loyally and loving patronized a certain restaurant in San Juan, Puerto Rico, where I vacation annually. For years, one of this restaurant’s true charms was that it was nestled in a cool and edgy location in San Juan. The exceptional environment’s paintings flowed into the eatery and, fused with the chef’s innovative cooking, created a total dining experience that vastly exceeded the sum of its parts.

On a recent visit to the island, I was surprised to learn from the concierge at the Ritz-Carlton that my favorite restaurant had relocated to the lobby of a San Juan hotel. Crazy about the food and the staff, I made reservations for three nights of my six-evening stay at the relocated restaurant, confident that the flame would still be lit.

Wrong! Situated next to a noisy casino in a second-rate hotel, my favorite restaurant made the reverse transition to a still-good restaurant but without the exponent that had put it near the top of my favorite eateries around the world. I missed the once exotic setting. I wondered why the intense art that gripped you in the former space now looked like wallpaper. Even the staff, gracious as always, seemed to be deflated by the change of venue.

The new version of the restaurant was, to me, equal to the sum of its parts. Did it suck? Technically, no. It was fun, the food was good, but the love affair that had me addicted to the place was gone.

The salient point is that I canceled the two additional nights I had reserved there, tried a place I had avoided during my only-eyes-for-that-other-restaurant love affair—and the experience ignited a new loyalty. Now it was Il Mulino that had an exponent over it!

I gathered that my old favorite had moved to take advantage of a lower rent option. Costs are, of course, important in business. But we must always ask ourselves what expense reductions will actually cost when measured against the toll they can take on customer appeal. In the case of this restaurant’s change of venue, it lost my patronage.

The owner should have detected this and he should have declared war on his decision to relocate so that I (and others) wouldn’t have encountered the disappointing experience.

Phantom Employees

Paradoxically, in many cases, the Declaration of War that must be announced from time to time must be focused on an individual, a culprit, a force who is not officially an employee of the company.

Take the case of the archetypical family-owned business. The founder claims to be in retirement—and in fact, may no longer be on the W2 payroll—but in actuality, has simply relinquished his title and his corner office while continuing to exercise the most insidious type of power: manipulating, second-guessing, and vetoing (without the dignity and process of an official vote) the decisions of his successor (usually a son or daughter).

This charade creates a surrealistic environment where the offspring “in charge” is really a puppet for the parent who can’t bear actually ceding control. This leads to a black comedy, culminating in a once-robust business inevitably coming apart at the seams:

• There is a wholesale lack of order, direction, and process. Employees are confused about whose orders to follow.
• Even worse, employees play both sides against each other, agreeing with whoever they are talking to at the time. In the vast majority of cases, there is no venal intent here. The family feud turned power struggle forces the team members into this survival mode.
• To further compound a bleak situation, the entire team loses respect for the two managers (the one now occupying the spacious office and the other pretending to be in exile).

As this destructive pattern plays out, a Shadow Government forms, one that has no meaningful title or defined managerial responsibility but that wields power through equity ownership, parental influence, or, in the most egregious scenario, both.

The existence of a Shadow Government (the founding parent and his/her palace guards) is highly destructive due to a set of odious factors that compound one another:

• The CEO (the son or daughter of the founder) and his team are essentially puppets. They make decisions, announce them to their team, and then are countermanded by the legacy of the past, still rearing its head in the present.
• This leaves the team, ostensibly in place to execute the strategy of its leadership, with two sets of often-conflicting instructions, one from the CEO and another from the Shadow Government. Over time, confusion reigns and turns into chaos. The question looms over the company like a cloud: who do we follow? The boss or the Shadow Government, which like the Wizard of Oz, operates from behind the curtain.
• The CEO becomes frustrated, angry, and often loses confidence in her decisions and, even more damaging, in her ability to control and run the company.
• As the situation spirals into ever more perilous levels of dysfunction, employee morale deteriorates as the company becomes essentially leaderless and rudderless.
• In this vacuum, employees develop agendas of their own. In effect, it is not one company but several units operating without a central philosophy, culture, or command structure.

Due to this, the customer experience varies widely, depending on who the specific customer works with within the organization. This, too, may be perplexing, as a customer enjoys a rewarding experience in one area, such as sales, and is then treated as a stepchild in the service department.

Quite often, cliques and cabals develop, with some loyal to the CEO and others (often those who have been with the company for years) linked to the Shadow Government. This leads to a constant state of internal debate and conflict, deflecting the company’s focus from the marketplace to its own internal bickering.

In time, this always proves to be a doomsday scenario—but one that can be averted if decisive action is taken to reverse course and reclaim control of the business. Every company operating with two power bases is a broken organization, which makes it absolutely necessary to declare war. The CEO must take the following actions:

1. Confront the Shadow Government with an ultimatum: either you cease and desist in undermining me or I will force the issue (legally, if you have the equity or by-laws power to do so) or I will quit (this show of resolve is often enough to get the Shadow Government to back down, as it really does not want to run the business full-time.)
2. Gather employees and make it clear that you are the boss and that you will not tolerate anyone taking orders from others nor will you brook team members developing agendas of their own.
3. If your orders are dismissed as just so much talk, terminate anyone who is a leader of the opposition. This demonstration of strength and resolve sends a clear signal that insubordination and the chaos it unleashes will not be tolerated; order is being restored and you are in charge.

You not only win the battle—you win the war.