By Guest Author Tony Scott
Building Global Teams – Case Studies in Failure
A VC that we frequently work with asked our firm to take a look at a very interesting optical networking company in Silicon Valley with truly breakthrough technology they were considering funding. When we went to visit the company, we found that the founders and the entire team of engineers and scientists were Chinese, and the company was effectively operating as a Chinese company — all the conversations in the company were in Mandarin, and many of the signs in the office were in Chinese only. The founders, who were strong scientists, were not willing to let go of managerial control. They told us that they had attempted to bring in non-Chinese speakers in the past, but couldn’t understand why it never worked out.
In this case, the company had two very strong cultures, each of which taken on their own would be difficult for anyone to break into. There was a technical culture dominated by PhDs, which is similar to many technology start-ups. But on top of that there was a strong Chinese culture led by founders who were not particularly open to change.
In our opinion, the company would have a very difficult time growing to scale, because the talent pool of Mandarin-speaking PhDs in optical physics based in the United States who also have great managerial experience building a company to scale would clearly be tapped out quickly. Therefore, we turned down the search engagement. The company was unable to bring in a successful team, and they ultimately could not raise additional funding. The company ultimately sold the technology for a fraction of what they could have received if they had been able to achieve any scale in the marketplace.
The next case will demonstrate that it really is all about culture, not language, and how one person can destroy a company.
In this case, the company was from an English-speaking country in the Pacific. This software company had developed a very solid piece of middleware with capabilities in its market niche substantially stronger than that offered by the industry leader. The company decided to move its headquarters to the U.S., and engaged one of the world’s largest search firms to conduct a search for an American CEO.
The company’s board was relatively inexperienced in the U.S. The founders and team were accustomed to organizations that were much more hierarchical in nature, where a CEO had ultimate authority and was rarely challenged. The founders and board ended up hiring as CEO a person with absolutely no experience in middleware or enterprise software, and whose previous experience in the technology space was gained in a few brief stints in senior positions at consumer-oriented web companies. Prior to that, he had worked at two very large U.S. consumer products companies in quite senior positions, where his greatest success had been the introduction of a new line of steamed food items into one of the fast food outlets of one of those two companies.
Can you say Apple Computer and “déjà vu all over again”?
So why would the board hire a person who had zero experience managing enterprise or infrastructure software sales or product development?
They made the same mistake many U.S. companies have made when they first go overseas — they became enamored of a person’s credentials, rather than their capabilities. We’ve seen time and again U.S. companies that hire someone in Japan, China or India who speaks excellent English, and often went to great schools, but who turns out to be a terrible leader. They were hired primarily because the U.S. executive staff found it easy to communicate with them.
In this case, the CEO had gone to a well-known undergraduate program and had a Harvard MBA, with honors. The company was impressed that he had the “right school ties” and senior-level experience at two icons of U.S. business known worldwide for their products. In their own country, with its much smaller and more close-knit business community, anyone with equivalent local experience would be completely connected to their country’s top business and government leaders. The new CEO also impressed the founders and board with his social connections, dropping the names of a number of people in the technology community that he had met or played golf with.
Of course, in the U.S., having met someone doesn’t mean that they are going to be of any help, and having played golf with a few senior people at a few tech companies isn’t going to cut it with VCs when you need additional funding. The new CEO spent his first four months trying to remake the company into a shrink-wrapped consumer software play, spending critical cash on marketing studies and plans to try to validate his own faulty approach to the market.
The founders and board didn’t question his actions strongly enough, because they thought the CEO obviously understood the needs of the U.S. market better than they did. And besides — he’s the CEO, the man in charge — shouldn’t he be allowed to run the company?
Ultimately, the new CEO set up an unbelievable severance package for himself, and finally snatched defeat from the jaws of victory, driving the company right into bankruptcy — all in six months.