Speaker 1: Welcome to the SBI Podcast, offering CEO, sales and marketing leaders’ ideas to make the number.
Greg: Hello everybody, this is Greg Alexander, CEO of Sales Benchmark Index, and welcome to the SBI Podcast. Today I have a special guest with me, Joel Trammel. Joel is the CEO of Khorus, a software company that drives a line man from the CEO to the frontline employee, making sure everybody is rowing the boat in the same direction, and that was my description. I’ll give Joel a chance to describe it in a moment. Joel and I met at Black Box where is the member of board of directors, and he recently engaged that firm to help them with some sales strategy work. Prior to Khorus, Joel was CEO of NetQoS, which he successfully grew and sold to CA, generating an outstanding outcome for his customers, his employees, and his shareholders.
The reason I’ve invited Joel to the show today is he recently published an outstanding book titled The CEO Tightrope, which discusses how to be a successful CEO, particularly if it’s your first time as a CEO. We have many first time CEOs listening to our show. I thought the summary of the book would be helpful. With that, Joel, welcome to the show.
Joel: I’m glad to be with you, Greg.
Greg: Let’s jump into it and discuss the premise of the book. Would you mind giving everybody and overview of why you decided to write it and what the main points are.
Joel: Sure. I started my first business about 25 years ago. At the time, there wasn’t a lot of things to help people start a business. I really started it because I was interested in the CEO job. Of course, at 25 with no experience, no one wanted to give me the job, so I had to start my own company to get it. Throughout the years, I’ve spent a lot of time studying and researching. What I’ve kind of discovered and through my experiences that the CEO job is just very different than most other jobs in a company. Therefore, when people reach that role, they often are very unprepared because of the differences between that job and any of the functional VP jobs where they may have grown their career. My attempt to put a little bit of a methodology around the CEO job was what drove me first to start teaching a course here in Austin, and then write the book.
Greg: Where are you teaching the course?
Joel: I teach the course for the Austin Technology Council here in Austin.
Greg: Okay, great. All right, well very good. The book lays out 5 responsibilities of the CEO. It starts that way. Would you mind sharing with the audience what those 5 responsibilities are?
Joel: Sure. If I define the job based upon these 5 core responsibilities that I think CEO pretty much regardless of industry or size is responsible for, the first one is owning the vision. The leader of the organization has to be able to tell everybody where we’re going and why we’re going there. Second, you got to provide the proper resources. That can be capital, that can be human resources, that could be outside expertise, but CEO is the only that can bring people from the outside into the organization, and bring money and other resources from the outside in. The third idea is to build the culture. Once you got the first 2 in places, you’ve got to decide what things get rewarded in the organization, how do you want the organization to behave, how are you going to differentiate yourself.
Then the fourth idea is you have to make decisions. The CEO is ultimately responsible for everything that happens. There are many decisions that happen in an organization that only he can make. Often when you’re going across different functional or departmental areas, the CEO is the guy who has to make the call and balance the resources. Then finally, the fifth thing, the thing most people think about is the CEO has to deliver performance. If you don’t do the first 4 and get those in proper alignment, to me, it’s very difficult to deliver the fifth, to deliver great performance. To me, there’s an almost implied hierarchy here, one follows the other.
Greg: Let’s talk about each one of those a little bit. The vision, let’s start there. The CEO’s responsibility, number 1, is to tell the company where you’re headed and why you’re headed in that direction. When you became the CEO of NetQoS … Am I saying that correct? Is it NetQoS or Net-
Joel: That is correct.
Greg: Okay. NetQoS. First time in the role at scale I guess is a way to describe that. You were tasked with this job of defining the vision. How did you do it?
Joel: My wife and I founded the company and built the company up to about a 60 million in revenue company. We were very clear from the beginning, that we saw a position in the market that was available to be the network performance expert. Certainly, at that time, it was very unclear if you had a wide area networking problem from a performance perspective, it was very unclear who had the expertise to solve that problem. We thought we had the expertise and could develop the tools and methodologies around solving that problem. I would tell a couple of different stories to all the new employees at NetQoS to convince them of that vision. One I would tell them about the John Wayne movie, the Hellfighters, which is about a movie about a guy at Houston named Red Adair who did oil well firefighting.
He was very famous for being the best in the world at putting out an oil well fire. Obviously, when you have an oil well fire, it’s a major problem, because you have an almost exhaustible source of fuel to burn the fire. He would get in his private jet and fly anywhere in the world. If you were willing to pay enough money, he was the guy you wanted to solve the problem. I would tell people, that’s what we want to be viewed in the marketplace is if someone has a network performance problem somewhere that they look to NetQoS to solve that problem. We developed a tagline, “performance experts.”
Then the second piece of it was the financial piece of it. That told us what we were going to do, and it implied a lot of things. When you say you’re going to be an expert, it means you’re going to be concerned at the high end of the market. We wanted the best. We wanted the Fortune 25 as customers. We wanted to train our employees. We’re willing to pay high wages for our employees, because we wanted them to be the best. Then on the financial end, our goal was to grow as rapidly as we could, without running out of money, pretty simple. We were in the company from 0 to about 60 million revenue run rate, often with not a whole lot of money in the bank, because we were trying to finely balance. Companies that grow faster obviously get rewarded with more value. For our investors that was the key. You could put those 2 stories together, being the network performance networks and growing as rapidly as possible, and that enabled a lot of decisions to be made within the organization just by knowing those 2 stories.
Greg: Okay. Interesting. Now, that takes us to the second step, which is resources. Now I know the vision, and I’ve got to put probably people, money, and time behind that vision, and those resources are limited in supply. It’s not-
Greg: That allows for the [inaudible 00:08:00] conversation?
Joel: Yes. First, we were very fortunate. We got out in the market in early 2000 raising money. Tight before the bubble burst in the market, it literally … We’ve waited 3 months longer. We probably would’ve not got the business funded, but we were able to raise $11 million in an initial round of investing, which sounded like an infinite amount of money at the time, of course it was since, but we got in just in time. Then we went through the bubble burst, even the recession, and then we went up to 9/11 of course, that cost IT spending [inaudible 00:08:37] has totally stopped. If you were in the industry then as well, you know what happened about the next year, but we did at least get enough resources to make it through that period from a capital perspective.
Then the most important thing, and the one thing that I emphasize probably more than any others in the book is the recruiting of the right talent, and hiring the right people. I had accumulated some people that I wanted to be part of the business in the early days, from my past experience. Then pretty quickly, you get outside that set and you have to build a hiring function that can bring in top talent and attract top talent to your organization. That’s something that I think I see a lot of CEOs not focusing personally enough time on as being the chief recruiter for their organization and setting the bar for what kind of quality people they’re going to bring into their organization. There’s one thing that … This is probably more important than any other in the CEO role. If you get the right people in, everything else is easier. If you get the wrong people in, you got to be a really good coach. I’ve always said I just don’t want to work that hard.
Greg: Okay. We’re going to take a quick break here to make our audience aware of anew offer.
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Greg: Hope you found that useful. Let’s dive back into the dialog. You know there’s another book on the market right now that I recently read, by I think it’s called Rom Charan or Ram Charan, and it’s the role that the board plays in managing companies. Now you sit on several boards, and your job is to select the CEO and make sure the CEO is doing the things that you lay out on your book. Tell me a little bit about that. How has your perspective changed from actually sitting in both of those seats?
Joel: I think it is very important to have people on the board who have sat in the CEO seat. It depends on the stage of the company. I’m on everything from small amount of profits to a public company board. There’s the whole range of interactions. I think there’s been a tendency lately, because of [inaudible 00:11:10] other reasons to diversify a way from having a bunch of ex-CEOs on the board. I think that is a mistake, because I do think the main role of the board is to work directly with the CEO, and fundamentally, hire coach, and ultimately, if necessary, fire the CEO, and certainly replace the CEO, because no one lasts forever, those fundamental skills. I think it’s very difficult when you haven’t been in the chair often to understand the challenges that the CEO faces. Again, it’s a very different role than most people expect. Even if you were CFO or CIO or something of a major company, you may not appreciate all the things that the CEO deals with.
Greg: Interesting. First time CEO. As a board member, would you take a shot and hire a first-time CEO?
Joel: Well, it’s tough. Sometimes, you have to almost. Jack Welch, he retired often to the sunset, and the guys who are very successful often do that, because there’s a lot of pressure, especially as you move up in public companies and bigger companies. A lot of pressure associated with the job, it’s 24 by 7 job. If you have a lot of success, you make some money. You may say, “Hey, I don’t really want to work that hard anymore.” It’s like the head football coach, you don’t get to hire Nick Saban. You got to take a chance on the guy who maybe ran a smaller company. I think you want somebody that has had some type of CEO experience, all of the things being equal. I would much rather take a CEO from a small company and put him in a bigger company, than take a division manager from a very big company and put him in a smaller company. I don’t think that model works near as well just like you would … I think if you needed somebody to fly your 747, because the pilot passed out, I’d really have somebody that flown a Cessna than a stewardess who had just ridden a lot in a plane.
Greg: That’s well said. Very, very interesting. You became a CEO because you said, “I want to be a CEO” and you just went and started a company with your wife and raise some money, and guess what? You became a CEO. The guys or gals that aren’t going to take that path for whatever reason, and yet they still aspire to be a CEO, how do they get the job?
Joel: I think it’s important to try to get as broad of experience as possible. I think it’s very easy to get focused in a particular area of function in a business. You’re a sales guy, you’re a finance persona, and if you’re not careful, you can spend 20 or 25 years in sales, and be a great expert in sales, but that doesn’t necessarily make the next obvious step, the next appropriate step for you CEO. I would encourage people that are interested in the CEO role to get some experience in other part of the organization, and get experience in roles that are broad, even if they’re not necessarily huge roles. Don’t worry about that it’s a small division or it’s small piece. Worry more about how much autonomy do you have, how many of the decisions are going to come to your desk.
I think that’s what surprises people who’ve only have a functional role. Let’s say they’ve only been CFO. They think they’ve seen the CEO role, but about 8 of the 10 questions that comes to the CEO’s desk don’t really have anything to do directly with finance. I think by getting broader experience I would encourage people, and maybe going to a smaller company in order to do that. You don’t always feel like you have to move into a bigger role, maybe a broader role with a smaller company is a better choice.
Greg: Yeah. That’s good advice. We’re going to take a break here to make you aware of something that I think would be helpful, so we’ll be right back.
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Greg: Welcome back everybody. Let’s dive back into the conversation. Let’s move to the third item here, which is culture, which I really enjoyed this part of the book. You’ve committed so much time in the book through this concept. It’s a tough thing to talk about, because it’s not one of those things that easily measurable, but you know it’s so important, especially for a mid-sized company where your ability to compete often times comes down to having great talent and having them behave the way you want them to behave. Tell us how you formed … I guess, first, define the culture at NetQoS, and then tell us how you formed it.
Joel: Yes. Pretty early on, we sat down and when we were going from about maybe 20 people to about 40 people in that year, at the beginning of that year that we’re going to make that transition, we sat down as a management team and as the founders, and people have … I think it’s very much true. The companies tend to take on the characteristics of their founders and the personalities of their founders. What I viewed the exercise was not coming up with the perfect culture per se, but was explaining my values and my wife’s values to everybody that joined the organization. That was what we really needed to do. We came up with the set of value statements that we thought were important, started with … Number 1 was we cultivate, retain, and hire exceptional talent. Exceptional talent was the way we thought about [inaudible 00:17:18].
My wife have [inaudible 00:17:20] PhD from the University of Texas in electrical engineering. She met that role, maybe I didn’t, but she met that standard, and that’s what we wanted in the organization. We started with that. It was really an exercise to describe the way the founders were going to look at the business. I think that’s very important. You can’t … I see companies try to form a committee to talk about what the culture is going to be. The culture is going to be what the CEO and the key executives, the way they act and what they believe. What you’re really trying to do is capture what they believe.
Greg: Interesting. Okay. Now we’ve got vision, We’ve got resources, we’ve got culture. Now you’re in the seat, and here come all these decisions that you have to make. Being an effective decisions maker and the process to actually make decisions was something that you talked about in depth in the book. What advice would you give our listeners on the becoming an effective decision maker?
Joel: First, this is an area that there’s a fair amount of scientific research and knowledge around. There are certainly some good books, one, that’s fairly easy read. There’s by the Heath Brothers called Decisive. That explains what we’ve learned about good decisions making, what are the natural biases that people have I their decision making, how to avoid those natural biases. I think there’s some good material out there around that. The first thing as CEO, you got to be very about what decisions you want to make, what decisions you think you should make, and what decisions you want your team to make. You first do that triage, “Is this the decisions that I should be even be making?” Generally, if you my sales person comes in and has a question about what price we should charge for the product or whatever, or what he should do a deal at, I’ll say, “Well, that’s your decision? If you want my opinion, I’ll give you my opinion, but that’s your decision to make, and I want to see you making those decisions.”
They come in and say they need resources from other part of the company, well, that’s a decision only I can make. That’s the first step that you got to make sure you’re making the right decisions. Then you got make them quickly, because decisions are really the fuel that drives the engine of a business. I’ve seen many businesses that just run very slowly, because at the end of the day, the CEO is just very slow to do everything, even decisions that are relatively trivial. It’s one thing If you’re making a decision on $100 million acquisition, but just the day to day decisions that have to be made, if everyone has to be studied for a month. Really the engine of the company can just grind to a halt, and that’s probably the biggest mistake I see first time CEOs make particularly. They’re scared to make the decisions until they get more information, and you just never know everything. You just got make a decision. Then you got to follow up if it’s wrong and change it later, but better to ahead and make the decision and move on down the road.
Greg: I don’t know if you have any statistics on this, but even just a gut feel, it would be helpful. For every 10 first time CEOs, how many make it?
Joel: That is very interesting. Depending on what you define as make it. If you use a stringent definition of … Improve the value of their company and were allowed to stay as long as they wanted to stay, it’s probably much less than 50%, probably [inaudible 00:20:44] 30% are successful. That’s really interesting to me, because all those people, before that they got the CEO job, wouldn’t have been concerned for the CEO job if they haven’t been incredibly successful at every job up into that point. That’s where it really hits you that, “Hey, this job must be different” because if it was very similar to their previous jobs, you wouldn’t have this very high failure rate. You don’t have a lot of time these days either as CEO people. Expert performance certainly within a few years. You don’t get to warm into the job over 5 or 6 years and learn it. You have to be prepared to hit the ground running, because most boards, especially public company boards relive their patients 2 or 3 years down the road if they’re not seeing results.
Greg: In your book, you talked a little bit about Hewlett Packard and just other examples of bad hiring decisions in that CEO job. There’s been a lot of literature out there about how culpable boards are as the result of that. Then you’re on the spot answer to my question regarding first time CEOs is about 30% using that stringent definition. No matter how you look at it, the most important job in the company, we’re not doing very well picking talent. How do we get better at that?
Joel: I think that’s one of the reasons I certainly think that if the board needs to have a lot of ex-CEOs on it. It’s a tendency. I think it’s true across all hiring, but I think it’s even worse at the CEO level. The tendency is to be conservative and try to make sure you don’t make a mistake as a board. When you’re hiring a leader, I think that’s really the wrong way to look at it. What people tend to weight as values, experience in big companies for instance. I generally find that for a CEO is not particularly valuable. You and I both have experiences in big companies and seen the execs in those companies. Not that they’re bad execs. They may be very good in that role, but that doesn’t translate to what being a CEO on a mid-sized company for instance. Those jobs are not similar.
I always find it funny when you talk to the guy and he says, “I had the responsibility for 3 billion in revenue or whatever” but really, he didn’t have it. All he had was sales and marketing. He didn’t really have 80% of the business. He couldn’t make up an HR decision without calling corporate. He couldn’t make a budget decision without calling corporate. He didn’t really have the same role. It’s a very different role. I think, to me, boards place too much emphasis on experience in bigger companies and they think “Oh, we worked at GE. He’s just going to know, because he works at GE, how to run a company really well, even though he may have never even hardly met the CEO of GE.”
I’m always looking for proof points of people that have done it before. If they’ve done it at a $100 million company, then they can probably do it at a $200 million company. They might not do it at $10 billion company, but I’d rather see somebody that’s been in the chair and has developed a theory and a methodology around the job, and I think they’re more likely to be successful than somebody who’s been in other roles. Just like I think VP of sales, same thing. I’d rather have a guy who’s been VP of sales at a smaller company and has a methodology, see him expand it in a bigger role, than take somebody who’s never been a VP of sales just because they’ve been at a bigger company.
Greg: I agree. I see it all the time. In my own personally history is … I was in a big company for a long time and then I started this firm. We’re about the size that NetQoS was. I think about what I do now daily and your 5 responsibilities, and I laugh at how little I really knew. Back when I was in a big company, I thought I could be a CEO. How wrong I was at that time? You don’t know it until you’re in the seat. You really don’t.
Joel: You don’t know what you don’t know.
Greg: Exactly. We need to take a quick bream, we’ll be right back.
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Greg: Welcome back everybody. All right. Let’s pivot to the next big item in the book, which was the SCARF model, S-C-A-R-F. Would you mind just describing that briefly for our audience?
Joel: Sure, one of the things … Culture, when you talk about culture, for many people, it’s so nebulous, and we don’t have good words around it. I want to define something that people could represent as a way to think about culture. The SCARF model was created by a guy named David Rock. I’m not an expert in psychology, so I don’t know how popular this theory is in the rest of the world, but it works in the business world for me. He said, basically, that our brains are still wired the way they were, hundred thousand years ago when we were surviving in the wilderness on our own. Therefore, the number 1 way the brain is wired is to avoid danger. When we feel danger of any sense or stress of any sense, all our blood flow and everything goes to getting out of danger. At those times, we can’t be very creative and do the creative work that most of us are asked to do every day.
The SCARF stands for status, certainty, autonomy, relatedness, and fairness. He says anytime somebody is stressed about one of these areas, for instance, let’s take status. We all know if you take somebody and they have VP title and you make them a director, it doesn’t work very well.
The reason it doesn’t work, even if there’s a perfectly logical reason to make the transition, is it effectively creates stress in their brain. Therefore, they just can’t be as creative and effective as they normally would be. When you think about this model, when you think about all the decisions you make in the company, always evaluate against this model, how people are are going to feel about this kind of decision.
That model has really helped me to make culture tangible to me and to my managers to understand when you’re making a decision about an employee, how they may react. If it puts more stress on them, it’s not going to be a good thing.
Greg: What I liked about it when I read it was when the threat appears, productivity decreases because they’re going to survival mode. They’re not able to perform, especially if they’re in a knowledge job.
Joel: That’s a certainty. If people are always worried about, “What’s going to happen to the company? Are we going to get sold? Are we going to get … Is there going to be a lay-off? All these rumors.” The company would just not be productive.
Greg: Yeah. You’re 100% correct. All right. Let’s move towards your new company here, Khorus. When I read the book, what I loved about it was this concept of alignment. Making sure that the strategy that the CEO develops cascades all the way through the organization and becomes tangible to everybody, and everybody knows how they contribute to the organization, literally, on a daily basis. That creates the need for some type of system that allows for alignment to be maintained. As I understand your new company, that’s what the software product does. It allows an organization to stay aligned. Is that an accurate assessment?
Joel: Yeah. That’s certainly the first part of it. I’d say there’s 2 fundamental parts, there’s the idea of aligning everyone, and letting them directly see how their contribution contributes to the strategy of the whole company. Then secondly, for a CEO to gathered data from everywhere in the organization about what’s going on in an unfiltered and transparent way as possible. You put those 2 pieces together and it forms the basis of a management or an executional structure for the company.
Greg: What has me excited about it is that it’s predictive. What I mean by that is you’re looking at information that’s going to tell you if you’re going to accomplish the objective or not before whatever the time frame is has expired, so you can do something about it where, a lot of times, reporting tools are looking back on history after the result. I thought that was very effective. What I love about your model is that it’s easy to use. You purposely decided not to integrate it with other tools. That’s correct, right?
Joel: That’s correct. Absolutely.
Greg: That was for ease of use, is that right?
Joel: Absolutely. This is something that bothered me. I was slow to come to the realization on the predictive side. I can remember I would sit in our operations review meetings, and we would inevitably spend about 90% of our time talking about the sales forecast. Well, the sales forecast were certainly important, and [inaudible 00:30:39] sales coach would say the sales forecast is important. It’s not 90% of most company. We were building product, we’re marketing product, we were financial, all these other divisions and important things going on as part of the company. It would bother me in the back of my mind, but I didn’t really understand why. Why do we always just gravitate, talking about the deals and the sales forecast?
Then it hit me one day. The reason is because that’s the only group in most companies that by default provide data about the future. One of the fundamental roles of the CEO, like captain of a ship, is to look out over the horizon as far as he can see, and avoid the iceberg. To do that, you need predictive data. All the other groups are telling you what happened, the historical. I’d get the financials at the end of the quarter, and I’d look at them for 30 seconds, and then put them aside, because I already knew what had happen.
What we’ve done with Khorus is we’ve asked every individual in the company, every knowledge worker in the company, make a prediction about what’s going to occur. Now, instead of just have in a sales forecast, we’ve got a forecast in every group in the organization.
Greg: That’s brilliant. It really is. The website for Khorus is what?
Joel: Khorus spelled with the K, so K-H-O-R-U-S.com.
Greg: Okay. The book again is titled The CEO Tight Rope, and you can find it on Amazon.
Joel: Amazon and then most of the airports around the country right now.
Greg: Great. All right. Well Joel, listen, thanks for being on the show. Your insights on being a CEO, particularly a first time CEO, and your perspective from both a board member and a successful CEO was very helpful, and your contribution here of a taking the time you write a book, which I’ve written too, it’s no easy task, is much appreciated. I encourage everybody listening to get the book and check out Khorus. Thanks Joel.
Joel: Thank you Greg.
Greg: Take care.
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