The CEO of an early-stage post-revenue software company with over 100 employees thought he had a strategy that would rocket his firm to fame. His technology would enable new participants to join the industry. But the CFO and other direct reports began to lose confidence in the approach as the firm was unable to produce the results everyone had expected. After burning through $10 million in invested capital over two years, the product was dead on arrival. The company was sold at a loss and 120 people lost their jobs.
The company’s problem? Vision fixation – a CEO who falls in love with his strategy and isn’t willing to alter it to market realities that force it to change. Vision fixation is a big problem for every company, but particularly for mid-market firms. Without doubt, CEOs must be passionate about their vision for the business. They have to be enthusiastic about the opportunities ahead to lead their teams through adversity. But their vision can blind them to marketplace challenges, resource shortages, or simply ideas whose time is far in the future.
How does this happen? CEOs that have run middle market companies for years can get comfortable with success and assume the industry structure won’t change. They often don’t want to recognize shifting fundamentals, or choose to do anything about them. I saw this first-hand eight years ago. A distributor selling to small custom-picture framers (small retailers) had grown into a key industry player. But as the large chain stores and pre-framed art gained market share, the small retailers began fail. Yet the distributor did not change its business model. It doubled down and increased its product range, but to no avail because its customers were going out of business. Ultimately, the distributor became unprofitable and was sold off in a distressed sale.
Vision fixation can even happen to big firms. According to an Aug. 20, 2012 Forbes article titled, “Death by Hubris?”, Navistar’s CEO Dan Ustian bet Navistar’s future on unproven diesel technology to meet upcoming federal emission standards. Despite setback after setback, he refused to change direction, overriding his team’s misgivings. Finally, this year they abandoned the still unproven technology. However, the company faces stiff penalties, is losing money, and is at risk of bankruptcy.
But vision fixation is a much bigger problem for mid-market companies than it is for multibillion-dollar firms. Mid-market companies are like small prop-driven planes. Their much more limited resources require them to fly at lower altitudes, and thus don’t have much time to correct themselves when they begin to plummet to earth because of a flawed direction. Forbes 500 companies, on the other hand, are 747s. Their much bigger financial resources enable them to fly far bigger planes at much higher altitudes. Cruising at 30,000 feet or more, they have plenty of time to reverse a plunge.
So what can the executive teams that run mid-market companies do about a CEO who is fixated on a flawed strategy? The answer is not to reduce his passion. Mid-market businesses need a passionate CEO to survive and grow. Instead, CEOs need a rigorous business plan that outlines how they will achieve their vision. Then they must execute on that plan, providing the ultimate proof when the business that grows rapidly within the specified timeframe.
The business plan must have key milestones that will confirm that the strategy is on track -- or make it clear that it is not. CEOs must listen to their team as they advise them on how much money, time and talent it will take to achieve those milestones. Include market research and competitive analysis that support your vision. The plan I’m suggesting is not wishful thinking or a deck designed to attract angel investors—it is a solemn commitment that the CEO is making to himself and to others. Bluntly speaking, if a CEO is such a strong believer in his business, he must write down the results he’ll deliver and by when. There can be no excuses.
Each milestone in the plan must be a proof point that will confirm the ability of the strategy to scale. For example, if the CEO believes that the firm can sell through channel partners, an early milestone must be to get one or two channel partners producing revenue.
Companies should start small to leave enough money and time to make two or three big course corrections. Blowing your whole investment on the first go-around will leave you wanting to try it again. You’ll be enticed to borrow or fund raise again, increasing the risk. Of course, beware of a problem at the extreme opposite of vision fixation—strategy tinkering.
If the CEO creates the plan on his own, it greatly increases the risk that his passion will blind him. Too many CEOs ignore the executives on their payroll. If they won’t listen to, or don’t trust their team’s judgments, the CEO must surround himself with a board, savvy advisors or a peer group that will point out those missed milestones and speak loudly when they see the likelihood of success diminishing.
It also helps to have another strategy in the wings. Opportunity cost is powerful in preventing over-investment. It’s how venture capitalists spread their risk and stop themselves from getting too locked in; they do it by comparing investment opportunities. CEOs, too, should be comparing the opportunity they’re pursuing with the opportunity their ignoring.
It’s never too late for a CEO to self-impose disciplined planning and execution. The need for a vision is, for sure, important. So is being fixated on a vision that is correct. But equally so is being surrounded with people who will speak out and be heard if the vision proves to be flawed.
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