Fallacy of the Wartime CEO



Transcript below, for those of you who prefer reading over listening!

Jeff, one of the things that we’re hearing a lot from our clients is they see themselves in this moment as wartime CEOs, wartime generals… or they’re hearing investors say that they’re now in a wartime situation versus a peacetime situation. What do you think about when you hear this?

When people talk about wartime, it’s sort of saying that there’s one way you operate when things are going well, and another way you operate when things aren’t going well. When you step back and take a look at how great companies are built, that’s not really true. It’s always important to make sure that you are paying attention to what’s happening around you. And of course, if you’re heading into a macro economic downturn, you have to make sense of that and plan accordingly. But to get yourself into a wartime footing means that you’re making yourself especially sensitive to threat. And what the psychological research shows is that when people make themselves especially sensitive to threat, they tend to orient to fear and the things that are scary.

When people are oriented to fear, we actually start to work at cross-purposes to our goal. Because our goal isn’t to be in wartime, our goal is to build a great company, or be a great leader, or bring a great product or service to market. That’s our goal. And then we have to achieve that goal in different circumstances. Sometimes, money is easy and cheap, and sometimes it’s not. Sometimes there’s lots of customers, sometimes there’s fewer. We have to respond to the problems we face, but we stay focused on the goal. And when we start to orient more to problems than to goals, and say we’re in wartime and have to be on a wartime footing, what we’re really saying is you need to make the problems the goals. That’s a big mistake. I think it leads to bad performance, and to us getting what we don’t want – failure. We’re saying, you have to really pay attention to the circumstances you’re in because you don’t want to fail. Of course, nobody wants to fail. But if you take a look at why people fail, it’s rarely because they’re not paying attention to how they would fail. It’s mostly because they spend most of their time and attention on all the things that scare them, as opposed to keeping their time and attention on their strengths and the things that will help them succeed.

So what I experience when people think “I really got to gird myself for wartime” is that they’re putting themselves in the wrong mental frame, they’re putting themselves in the wrong emotional state to deal effectively with an unpredictable future. And let’s be clear, if you’re building a high-growth company, or a rapid change company, or a disruptive company, or an innovative company… you’re in the business of leading in the middle of an unpredictable future. That’s what you do. You’re hoping for an unpredictable future, because if it was predictable, you wouldn’t win. So moving into an unpredictable future is what you’re supposed to be good at. And the best way to move into an unpredictable future is to keep your eyes open, focus on goals, not get bogged down in anything that scares you, deal effectively with what scares you, and make sure that you’re dealing effectively with what you’re experiencing in front of you – learn fast and make rapid shifts.

So when somebody says to you, “Hey, listen, I’m going to war, you get on a wartime footing,” the most effective translation of that is “the future is probably even more unpredictable than we thought, and we probably have to do an even better job of making sure we’re clear about our goals, getting in sync with other people on our goals, and taking smaller bets and gambles so we learn faster.” Rather than betting everything on a one-year “we hope at the end of this year this goes well” approach, which is always a big gamble because a year is a long time not to be learning anything, adapting, and adjusting… Try to set smaller targets and learn faster through that, so you can stay adaptable to this increasingly uncertain future.

Jeff, what I hear you saying is, if you’re constantly worried about what’s going to trip you up, and you’re looking at your feet because of that, then you’re not actually working towards your goal on the horizon. Are there examples that come to mind from the founders and CEOs that you’re working with, of some of the scary things that might be causing them to look at their feet versus the horizon?

So what do we know about people that are looking at their feet? They run into poles. It’s not even that you don’t know where you’re headed – because that’s the big problem, where you’re not really walking towards a point on the horizon – it’s that you just end up on the ground unconscious because you walked into a pole. It’s the sort of obvious things that are right in front of you, that the more you’re afraid, the more you’re going to miss. Just as a background in the science of this, your brain’s a fabulous tool that’s there for you to help you achieve what you want to achieve. But mostly, it’s there to help you survive long enough to make more little copies of you. For six million years of biology, that’s what brains have been doing super well. But the way the brain does that is when it’s under threat, it sort of shuts out everything else, orients just to the threat and becomes very myopic to that. Nobody who sees a lion running at them is sitting there thinking, “Wow, I wonder what I’ll have for breakfast tomorrow.” You’re not even thinking. You’re just responding and running away. We want to stay as much as possible out of that fear state, so that we can actually be oriented to the goal and where we are.

Now, what happens is, as human beings, we are all receiving information constantly. I talk to leaders all day long, and what they’re hearing is mostly really disorienting, scary, or disturbing things… “We are headed into a macro downturn; war is disrupting supply chains; the labor market is incredibly tight, even as we head into a recession, when has that ever happened before; stagflation…” Whatever the thing the leader is being told, it’s predisposing your mind to start sensing threat. Your brain is starting to be hyperacute to threat all around you. We all know that state – you’re happy and excited, and then someone says “boo,” and you laugh, but then the totally same situation but you’re tired and exhausted, and you’re looking for phantoms everywhere, someone says “boo” and you jump out of your skin, right? So the leaders we’re working with are becoming increasingly predisposed that when anybody’s going to say, “boo,” they’re going to jump out of their skin and overreact in that moment. Now, what are the kinds of shocking or surprising or agitating events that happen? Well, I think they’re pretty much the same as what leaders always experience.

But the reason I gave that ‘boo’ example is because the context is changing. Every leader I’ve ever worked with says fundraising is really, really hard, even during the salad days of one-week term sheets. There was just so much work that went into fundraising before they ever got to that point, and it was so much rejection and putting yourself out there. It was always hard. And now they’re like, “I’m never going to fundraise.” That’s not true. It’s going to be harder, for sure. But your goal is still the same. You are just going to have to be able to learn fast and adjust around it. Labor problems, people problems, have always been difficult. The most common thing I see amongst leaders is that they’re afraid of conflict. The biggest fear on their plate is they don’t want to say things to other people that will make them angry at the leader, or cause them to leave the company, or cause some disruption. So a lot of leaders don’t engage in conversations about difficult topics because they have this really deep-seated fear – which we all have inherited as a species, by the way – of conflict. Well, now you’re going to be even more afraid of conflict, because you’re living in this environment where you’re being told everything’s going wrong, and you’re exhausted, you’re just coming off COVID, and you don’t have much gas in the tank. And now you have to deal with conflict probably more frequently. And even though the conflict itself probably isn’t any more serious, it’s going to feel more difficult to deal with.

And then, of course, making good strategic decisions right now. If you’re in a place as a leader where you aren’t saying no and making hard choices, then you probably are building up debt that you’re going to have to deal with later on. That’s just a general principle of how this all works. A lot of very cheap, easy capital has enabled leaders to not deal with the fact that they’re bad decision makers. And when I say they’re bad decision makers, I mean they can’t say no – everything’s easy, and everything’s yes. And then what happens is, you have a lot of things that aren’t going to go anywhere; a lot of people who aren’t great fits for their roles are really struggling; a lot of projects that are consuming resources, especially attention budgets; and you just sort of keep them going on because saying yes is easier than saying no, and getting money is easier than killing something. And now, of course, with funding being more difficult to get, I think it’s going to force people into a position where they’re going to have to say no, and they’re going to have to pick winners and losers in the project game, and in the product game, and in the innovation pipeline. And I think that’s going to feel especially like “Wow, I’ve been put in this position… Things are going to hell in a handbasket. And now I’ve got to make the hard choices.” And okay, maybe, but let’s recontextualize that for a second and reframe that to you always should be making hard decisions, you always should be learning, you always should be having tough conversations. It’s just now you’re not going to be able to paper over that fact that you weren’t doing that. So to the extent when we’re working with leaders, we can help them see this as an opportunity to actually put some reps in on building some comfort or at least familiarity with these more difficult things. I think there’s a real opportunity there.

Jeff, what would you say to leaders who buy what you just said, and are feeling daunted by the fact that they’re going to be putting in their first reps or practicing this new skill at a moment where the stakes feel higher than ever? Because bad decisions are more costly when capital is not readily available? And the talent market isn’t booming in their favor.

What I would say is – and this is a pattern you always hear me go back to – what are humans like? Let’s just make sure that we’re all in sync – I call it apes with calculators, I heard someone else say hairless apes that wear clothes. I’m sure there’s all sorts of clever phrases, all getting to this notion of, we’re clever, and we’ve got language and all these things, but ultimately we’re pretty instinctual and react intuitively to things as they’re coming to us.

So I like to ask, why do people eat Twinkies? Well, they don’t eat them for nutrition, and they don’t eat them because they’re starving… they eat Twinkies because they taste good. Even though the price you pay for eating a Twinkie, statistically, is much higher than any possible benefit you get out of it. And the reason I’m bringing this up is so that you can understand the stakes aren’t higher. I’ve worked with a lot of companies that have had the good fortune of growing in the midst of a very frothy and vibrant capital market situation, where they could go get extraordinary valuations for companies that really weren’t working very well – where there wasn’t product market fit, poor management, and all sorts of things that were just getting papered over. I would talk to the leader and I’d say, well, all we’re doing is eating Twinkies here. You’re setting yourself up for diabetes sometime in the future and, speaking as a diabetic, I have a lot of empathy for people who made the Twinkie choice. I’ve made lots of Twinkie choices in my life. But the reality is, you are only delaying problems, you aren’t solving them. And so this is where we come up with this idea of debt – you’re accumulating all this debt that eventually you have to deal with. It’s very difficult for human beings. Because we’re good at making Twinkies. And we’re good at eating Twinkies. We’re really bad, as we’re eating Twinkies, at thinking “I’m gonna pay for this later,” and then actually doing something with that thought.

There’s lots of people who have built companies that aren’t what they originally envisioned, or what they really hoped for, or what they aspired for, or they aren’t the leader they aspired to be. Because they sort of started just building the Twinkie company and building the Twinkie enterprise. And now, the doctor has come back and said, “Hey, listen, I think you got diabetes,” and you’re like, “Ah, now all my diet choices are really high stakes.” No. The high stakes diet choices were happening before, because that’s what got you to this place.

Just to be clear, we are heading into an economic downturn, the market is down, capital markets are closing, all that stuff. That’s absolutely true. But there will be winners and losers in any market, in any disruption. There will be companies that are well set up to not only get through what’s about to happen, but to take advantage of it and win when other people are losing. And I believe either that’s because of just completely dumb luck – and frankly, there’s not much I can do about that – or because those companies are making the hard choices and having the hard conversations. Those founders are running companies based on a certain set of principles, a culture where they’re actually trying to avoid the debt in the long term and really solve the problems today.

There’s another thing about human beings. You could take the healthiest person in the world, and put them in a room full of Twinkies, and two days later, that person’s going to eat Twinkies. The reason I say that is because systems influence behaviors. The system most founders built their companies within is a system that, over the last four to five years, has been very cheap, easy capital. And that has enabled people who could otherwise build really incredible companies – what we call clarity companies – where people want to come to work, build great products and services, serve customers well, and have outstanding financial results. They could have been building those companies, but they got on the Twinkie path instead. And so now’s a really good time, since the Twinkies are being removed from the room, now is a really good time to start to see the opportunity of this and say, “Okay, how can I use this to my advantage? “

There’s a basic principle in Talentism, what we call the three Cs: Clarity, Confusion and Certainty. The three Cs are about the mental states that we’re in, or the cognitive states that we need to get in to turn inevitable confusion into success, into learning to get better. What the model basically says is, confusing stuff happens to everybody. And the difference, especially if you’re a leader in a fast growth or big change sort of environment, you literally are banking on confusion, that’s the business you’re in, you’re banking on confusion, you’re banking that the future will be different, that expectations will change, that you can actually disrupt something or bring something new, all of which is inherently confusing to the human mind.

So you’re banking on confusion, that’s what you’re betting on. And then we get in these situations which are inherently confusing, and we don’t see that now we have just as much opportunity as we had when we felt like we were driving the confusion. Now that confusion is sort of being driven towards us, it’s happening in the wider world and there are factors that we can’t control. But the opportunity to metabolize that confusion and turn it into clarity, turn it into something that’s a winner, that still exists. Even more so in times like this.

And so how do you do that practically? Well, the Twinkie is just another example of that, like, “Okay, right now I’m diabetic, I’ve got a diet that basically gave me an insulin and carbohydrate response problem. Now I gotta go solve that problem because the Twinkies are gone.” That’s a good thing. That’s not a bad thing. It’s going to require different capabilities, it’s going to require you to sort of step back out of the fear of all the things we’re talking about. But it’s not a bad thing to have the circumstances change to where you can get back to building the company that you wanted to build, not just building this sort of perpetual sugar high that’s moving downstream.

I think that’s great. I think what I hear you saying is that there’s actually no difference between peacetime and wartime – all those labels do is put us in threat. In reality, if you’re making bad decisions in peacetime, you’re creating debt and you’ll pay for them later. If you make bad decisions in wartime, you’ll experience the consequences more immediately. And then, add to that the fact that when you’re driving the disruption, what we would call creating confusion deliberately, it feels great. When you’re at the effect of the disruption, it feels terrible. But the opportunity in both instances is similar or the same.

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