Formidable tools like cheap computing power and Big Data promised to ease the guesswork in business decisions. That’s true for myriad tactical maneuvers. Should the “Buy” button on a company’s website be green or red? Test, measure, move on.
But for CEOs navigating a wrenching global economy running at web speed, the really hard calls—what markets to attack, which deals to chase, when to raise capital—might be harder than ever.
Even oracles whiff. When Warren Buffett orchestrated a $36 billion megamerger between H.J. Heinz and Kraft Foods in 2015, he could taste the synergies. Buffett’s Berkshire Hathaway amassed 27 percent of Kraft Heinz stock, even as more consumers were junking processed foods. The bet curdled in February when Kraft Heinz wrote down $15 billion worth of intangible assets, erasing $16 billion in market value. So much for sober analysis and sound judgement.
“There is so much change going on, owners aren’t on solid ground,” says Joni Fedders, president of Aileron, a Dayton, Ohio-based boot camp for middle-market growth companies, who has worked with hundreds of CEOs on their decision-making skills. “We talk about this all day long because it’s at the core of most people’s lives.”
Most people have trouble making clearly considered choices. In his award-winning Thinking, Fast and Slow, Princeton University psychologist Daniel Kahneman merrily exposed our most common cognitive biases, while Wikipedia catalogs a humbling 200 of them (including, of course, the tendency to think we are less biased than others). The hardest decisions also tend to have long-range consequences that are tough to quantify—and you’ll only experience the outcome of the path you chose. In the end, you may never truly know if you made the right call.
To recap: Increasing uncertainty, biological handicap, low measureability. If Buffett can miss, how can mortal CEOs hope to compete?
We sought decision-making inspiration from battle-tested execs willing to relive their toughest calls. Our advice: When in doubt, trust the process—and make the call.
One executive shares her tips on how to make a tough call in six steps.
In late 2013, Andrew Geant, founder and CEO of Wyzant, was riding high. His Chicago-based online tutoring and coaching service company had just raised $21 million from the VC firm Accel Partners. To hit his backers’ aggressive growth targets, Geant needed a new marketing chief. “The rewards were massive,” says Geant, 35. “If we could accelerate our growth, we saw a path to 10X-ing the business.”
The problem: All the best candidates were in San Francisco and feared Windy City winters. Months passed, pressure mounted. What if he hired the wrong person? What if the team couldn’t coalesce from two locations? Finally, Geant made the hard call, opening a new West Coast office with a $5 million personnel and marketing budget.
Shutting it down 18 months later—and laying off 18 people—would be much harder.
The cracks formed within a few months. The new team’s Silicon Valley swagger irritated their Midwestern colleagues. Cultures clashed, productivity suffered—and cash burned. Based on his projections, Geant recalls, he’d have to raise more money in just a couple of years: “We couldn’t rationalize it.”
But Geant couldn’t just pack it in, either: “These were good people, whom I had sold on the opportunity.” Revenue, meanwhile, was growing 40 percent a year—not a moon shot, but still impressive. Would shuttering a new office harm the company’s reputation? Would the core crew in Chicago get nervous and bail?
Geant leaned on his team. His co-founder, Mike Weishuhn, a computer-science major and dear college pal, reminded him it was the CEO’s job to make the tough calls and think long-term. Geant’s five-person advisory board (including bankers, VCs and a vice president of product at Groupon) also chipped in, as did his confidants at YPO, a leadership organization for CEOs under age 45.
Breaking the news in San Francisco was draining, but Geant also took pains to justify his decision back home—even sharing proprietary financial data to support his argument. “The numbers help people calibrate, but that’s uncomfortable,” he admits. Many projects had to be scrapped, and there were gaping holes in the operation—the entire performance-marketing team, for example, was gone. At least the talent pool in Chicago had expanded over those 18 months; Wzyant’s rebuild, for the most part, could be locally sourced.
Looking back, Geant says the challenge was not just knowing the right decision, “but needing to muster the courage to make it in a swift, decisive, complete fashion.”
Five years later, it looks like the right call. Now with 70 employees, $60 million in revenue and some black ink, Wyzant is investing in longer-term projects, such as selling tutoring services directly to universities aiming to boost student performance and shrink dropout rates. The San Francisco “experiment,” as Geant calls it, also forced the company to revisit core values like “enjoy the journey” and “always be learning.” Those words mean a lot more since the crisis, he concedes, but having them already in place fortified morale.
All in all, “[the team] appreciated having a CEO who was willing to make a tough call and be transparent about the reasoning behind it,” says Geant. “In some ways, it was galvanizing.”
Watchfire Technologies, a family-owned sign-maker in Danville, Illinois, has made everything from sports video displays to large commercial billboards—60,000 around the globe—since 1932. Steve Harriott had been at the helm for six years when, in mid-2016, his job took on a whole new light.
Word had leaked that Fremont Street Experience, a Las Vegas entertainment company, was looking to upgrade the giant digital canopy shielding its downtown pedestrian mall. Harriett’s engineers started roughing out possible designs.
When Fremont issued a formal request for proposal a year later, Harriott’s industry was ablaze about the $30 million project. Most new jobs attracted five bids; Fremont’s pulled in 50. For Watchfire, which generates $150 million in annual sales, it was a huge opportunity—and perhaps an even bigger risk. “A one-time, $30 million job is great,” says Harriott, 50.
“But it can really break a company.”
Harriott sized up the project—as he does all new business—by asking: “Do we have the right to win this job?” A third of Watchfire’s 330 employees work in engineering and R&D, bringing technical firepower to intricate projects like Fremont’s canopy. The 1,500-foot-long, curved circuit board—with 130,000-square-feet of digital screen—will be slathered with 49 million tiny LED bulbs, trimmable to shape and vivid in daylight. It will let air flow through the top while shedding rain, and tourists may be allowed to flash messages across it via smartphone app. “No existing product met the spec,” says Harriott. “That was a nice starting point.” Harriott’s other criteria: margin. “We weren’t going to buy the job” just for the marketing buzz, he adds.
Turned out Harriott’s hard call wasn’t to chase the deal, but to keep chasing it.
Fremont winnowed the field to five bidders. A month later, Harriott got the unofficial word that Watchfire was the favorite, but nothing in writing. “Every 60 days I thought we were 60 days away,” he says. Another five months later, a story in the Las Vegas Review-Journal reported Fremont was “contracting with Watchfire.” Still no contract.
Meanwhile, Harriott had to plead with his suppliers—thanks to a global shortage of electronic components—to hold his inventory until the deal was inked. His engineers, intoxicated by the scope and complexity of the project, were clamoring for a green light, while his private-equity investors were tallying “hundreds of thousands of dollars” in sunk development costs.
It took 21 months from the initial design work for Fremont to sign. (The canopy will be unveiled in December.) “The project touched a lot of people,” says Harriott, who made company t-shirts celebrating the team’s big win. “By the end of it, I had welders say to me:
‘Did we sign?’ It became a rallying cry.”
Cenedella, 48, launched Ladders with a partner in 2003. The Manhattan-based job site, which pairs seasoned professionals with six-figure salaries, quickly raised $7 million in venture capital. It opened a UK outpost with 35 people in 2006, and revenue was doubling annually. Clones had sprouted in Germany and Japan, and there was urgency to launch in continental Europe: “[Everyone thought] if we want world domination, that’s what we gotta do,” recalls Cenedella.
In October 2008, Cenedella gathered 14 members of his leadership team for an off-site meeting to decide if they should open a German operation. They had already spent a year preparing an assault: A dozen developers beavered away while Cenedella hunted for office space and a managing director.
Meanwhile the global financial system was teetering. By the day of the team’s vote, the subprime-mortgage crisis had claimed the likes of Bear Stearns, Fannie Mae and Lehman Brothers. Despite the scary headlines, Cenedella’s co-founder, who was French, and others wanted to push ahead. But Cenedella was losing resolve: The company already had “two or three million bucks” into the project, and the total initial investment would likely hit $5 million.
They voted. Result: 7 to 7. An hour later they voted again: another dead heat. “It was clear who was making the decision at that point,” says Cenedella. “It was all on me.”
Cenedella pulled the plug. “Everybody hated me for months,” he says. “The developers were like: ‘What did we spend a year of our lives doing?’”
Vindication arrived a year later with the Great Recession. Today, Ladders sticks to the U.S. and Canada, where compensation tends to weigh more heavily in career decisions. (Cenedella sold the UK division to its manager.) While the company is thriving, with nearly $30 million in revenue and 200 employees, world domination will have to wait.
“When I look back, it seems crazy to think you’d try to establish a new operation in Germany at that time,” chuckles Cenedella. “But internally, it was a close-fought thing. How was I even remotely persuaded? And clearly I was, because it was painful.”
In early 2015, Brian Reale was weighing the possibility of raising money for his software startup, ProcessMaker, which automates document workflow. Oklahoma’s Tulsa Community College, with four campuses and 2,700 employees, uses the software to share forms that require multiple signatures—like system-access permissions, staff-performance reviews and student-leave requests. Result: better productivity, fewer errors.
Reale, 48, started his company on the side while earning a living running an Internet service provider in Bolivia. Seven years, four name changes and many pivots later, the company had built a handful of custom workflow applications, using open-software to entice clients. By 2015 ProcessMaker had a scalable subscription model, $5 million in revenue and growth dreams.
Time for a cash infusion—or was it? “I felt we needed the money, but we didn’t have a clear path for success,” Reale recalls. “If you’re pivoting on someone else’s dime, you get into trouble.”
Another concern: As earlier-stage investments go, ProcessMaker was too big for angel investors but too small for growth-equity firms that prefer targets with $10 million to $20 million in sales. One distributor offered to invest, but after a few meetings, Reale demurred. “When you’re dealing with non-professional investors, it makes it even harder,” he says. “There’s no common language for valuation.”
The cap table was complicated, too. While Reale had majority control of the company, his two main investors—one a close friend from high school—together owned a significant chunk. Neither was involved in daily operations, and both saw a chance to cash out. On the one hand, Reale wanted new teammates who could add strategic value; on the other, he couldn’t afford to burn long hours brokering a deal for his partners’ shares—and risk getting sued if the company took off and they felt stiffed. “There were never moments of clarity,” he confesses.
After six months of soul-searching, Reale says, “I defaulted to what I knew well, which was running a business.” It proved wise. Four years later, ProcessMaker has 140 employees and over $10 million in sales. The growth-equity crowd is calling, but Reale has no plans to take on new money anytime soon.
“We think we make better, healthier decisions when forced to do it with less capital,” he says. “At the same time, you see other companies moving into nicer offices, outspending you on advertising. It’s always knocking at you.”
Read more: Three Small Actions To Make Better Decisions
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