By Cale Guthrie Weissman
Originally published on www.fastcompany.com
When a company goes weathers a big change, it can be a test of leadership. Here’s how what some CEOs who have been through it learned.
Sometimes it’s clear that the writing’s on the wall for an organization: Things aren’t going well. And during those times it’s even harder to communicate and lead.
Whether a company figures out its end vision is unattainable without the help of a deep-pocketed investor, or if it simply sees the financials and understands that the run rate is coming to a close, these are pivotal and emotional times for individuals at the top. More importantly, they’re the hardest moments to strategize.
Yahoo, for example, is in a somewhat analogous situation right now. The online behemoth has been quietly laying off droves of people, trying to position itself as an acquirable company, while also fending off PR disasters—including a former employee filing a lawsuit disputing the company performance review system—and other internal strife. Thanks to closed doors and nondisclosure agreements, it’s difficult to figure out precisely what’s happening on the inside. But CEO Marissa Meyer surely has an uphill battle to lead her company while in the midst of continuous tumult. All eyes are on how she steers the ship, or if in the end a new CEO is called on to replace her.
After talking with several business leaders who have steered companies during times of crisis, it’s clear that this is one of the most defining moments in an executive’s career. When things are going swimmingly, a founder can gin up an image of success and determination. But when business goes south, that’s the real moment a leader needs to show his or her true colors.
For many, the hardest struggle was figuring out when it was time to retool. For former Rdio CEO Anthony Bay, who led his company through a $75 million acquisition with Pandora, it was when the company realized it needed to shift business models. His music streaming service, though niche, was very highly regarded by people in the industry. At the same time, it wasn’t making money.
He was brought on as CEO in 2013 during a massive restructuring. His sole intent was to figure out a long-term strategy—”essentially figure out a way for us to be independent,” he says. The competition was fierce and new players were continually entering the ring.
For him, the goal was to build morale internally (the company had lost a third of its employees before he was hired), and assess what could be done to make the music app profitable. A year later, with the business yet to rebound, he had what he describes as a “gut check.”
Music streaming is a tough business, and no company has perfectly figured out the best way to appease customers and artists while actually netting real income. Though Bay was seeking out potential avenues, he and his team began to wonder if investors had an appetite for investing in such a long-term plan. If not, they needed to figure out who could help keep the business afloat.
Meanwhile, Bay had to be communicative to those around him. He was in talks with numerous potential investors and acquirers, but had to figure out a way to keep those inside motivated and at least somewhat in the loop. “There’s a lot of balance” about how you discuss these kinds of moves with an entire team, he says. “You can’t do a ton of talking.” The problem specifically with Pandora was that it was a public company, so any leaks could make for an even more tumultuous situation.
Ultimately, he envisioned his communication strategy as a way to keep employees personally invested in the company. He had to figure out a way to “not distract people . . . You want to continue to be honest and authentic, you don’t want to tell untruths.”
Matt Galligan, who cofounded the now-defunct news app Circa, faced similar struggles. He spent two years building and evolving the app and concept to bring in an audience, but the company needed more money to continue. Ultimately, he was unable to raise enough money and had to shutterand then sell the company.
The problem was that though the app had great engagement and retention, it wasn’t drawing enough users at a high enough rate. Investors want to see viral growth and interest, and though Galligan says his company was truly doing exactly what it planned, for investors it was the “sheer numbers [that] matter the most.” Because of that he was unable to drum up enough interest for a larger round.
During this process Galligan was in the uncomfortable situation of meeting with investors and advisers, gauging their interest, and then going back to the company to lead. While he was soliciting VCs for a Series A, he found himself returning to the office unsure of what to say. “We weren’t as transparent as we could have been,” he says. “I do regret that.”
In times of tumult it’s difficult to strategize and theorize. But according to Lars Sudmann, the former CFO of Procter & Gamble’s Belgium/Luxembourg arm and current management consultant, that’s exactly what you have to do. The first move when faced with a crisis is “stay the leader and stay calm,” he says. This is how you avoid what Sudmann calls “headless chicken syndrome,” where everyone in an organization runs around asking repeatedly, “What should we do?”
In times like these, communication is key. Instead of holding everything in and waiting for a time when all questions are answered, it’s best to acknowledge what’s happening as it occurs and make sure parties are kept abreast. And with the communication, you may need to prioritize which key players you need to keep happy. Part of this is just keeping people up to date with current events and the course of action.
Even more important, says Sudmann, is being prepared for these kinds of moments. Companies should develop scenarios so that teams are prepared for crises before they happen. He recommends making decision trees, which will ultimately prepare a company to react if a certain outcome occurs.
No CEO wants to think about the hard times. So it’s hard to create a plan that hinges on things going poorly. This, however, is a real tool that can help leaders engage with those around them.
Perhaps most jarring is the fact that after a crisis hits, business doesn’t abruptly end. Indeed, if a CEO is filing for bankruptcy or facilitating a liquidation, specters of the company will follow for months after. “The process of shutting down a company is dramatically harder than the process of starting a company,” says Galligan. Tying up loose ends like insurance and debts takes time, and this all happens after already dealing with the trauma of shutting down. For him, this is one of the biggest lessons he had to learn—being ready for what comes after the fallout.
For Bay, selling to Pandora and watching his service shut down was also traumatic. “You have a house, you spend a lot of time remodeling the house,” he says. “Then they tear it down.”
But, of course, this is what happens in business. Some companies work out and thrive, others don’t. For many this isn’t a deterrent, but a way to grow. While Silicon Valley is known for using past failures as an entrepreneurial badge, many leaders aren’t ready for the tailspin such a process creates.
There’s no map for how to operate when in the midst of gargantuan changes, yet there are tools and strategies that can help a leader conceptualize the challenge and move forward. And the scars may feel exposed, but they do help steer and educate future endeavors.
“We do this became we love the game,” says Galligan. “We love the opportunity . . . If it fails, it fails.”