Wartime CEO

It’s difficult to think about business stories to share when many of us are feeling hurt, saddened and angered by the horrific attacks on Israeli citizens by Hamas terrorists, and all the human suffering that has followed.  As I hope for peace for all, I will focus today’s comments on an aspect of war that relates to early stage companies.

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When I was in graduate school I stumbled across the following quote which appears in The Water Method Man by John Irving:

“… ‘The object of war is to survive it’. Which struck me as the object of graduate school... Such comparisons struck me hard in those days.”

It strikes me now that this is often the feeling that a founding CEO has when trying to get their business off the ground while regularly running into unanticipated obstacles. On most days you’re just trying to survive. Many successful entrepreneurs have commented about developing a hardened “wartime” perspective during such times (e.g., see “wartime CEO” in The Hard Thing About Hard Things by Ben Horowitz).

This was definitely the case at Transplant Genomics, where I was a co-founder. We had assembled an all-star team, committed to a common vision, and were addressing a substantial market opportunity with a chance to have a positive impact on the lives of 100s of 1000s of people. What’s more, we were leveraging great science from world-class academic/medical programs, who had substantial financial backing from NIH.

We thought we had a great plan, pulled together some initial funding from our personal founder contributions along with investments from high net worth individuals and industry insiders who had previous positive experiences with us and were attracted by our story. Then came the inevitable unexpected events.

The data previously developed under NIH funded studies could not be published for several years, which would seriously delay our plans for commercialization. We had no choice but to modify and revalidate our core test in independent studies. This required us to raise more funds. When we started talking with VCs we ran into a financing environment that we never saw coming.

First, we were attempting to raise a round just as the Theranos saga was playing out in real time, with investors wary of any company developing a novel diagnostic test. Second, over the prior decade most of the VCs who invest in emerging diagnostic companies had poured money into other similar companies only to see them perform poorly following IPOs, or get valued in acquisitions at levels too low to support an acceptable ROI. Third, there had been at least two companies which had pitched a very similar story a decade prior (whose pitch decks looked great!), and the VCs who invested in them did very poorly when those companies failed to execute on their plans. Perhaps the worst day for me was when I attended a conference in Napa Valley sponsored by Silicon Valley Bank where one speaker described the molecular diagnostics sector as “toxic.”

As if this was not bad enough, several competitors with inferior technology but stronger cash positions had no qualms about misrepresenting their products. They purposely confused customers by making claims to offer the kind of data that we alone could provide, spending lavishly to promote this misinformation during a time when we couldn’t afford to spend on counter messaging. As our cash position started to further decline we realized we had to cut back on some of our development programs in order to extend our runway, and focus our efforts on the single most important product we had in development. Perhaps most challenging, we had to ask our employees to participate in a furlough program under which they would reduce their time commitment and their compensation for a year, with a promise of getting compensated with a bonus IF we managed to get through this period intact and raise more money. Some people simply couldn’t afford to take the personal financial hit and left. Others were recruited away by competitors.

It was an incredibly stressful period of time, but we managed to survive. Our core team remained intact with people who were fully committed to our vision, and focused on executing on our plans. It took much more time and effort than expected, but we raised funds from non-traditional sources. It helped that we had maintained the strong backing of our high net worth individual investors throughout. We leveraged our academic partners to rapidly complete the studies needed to validate our new test and support our application for reimbursement by the Centers for Medicare and Medicaid Services. The close relationships we had developed with leading transplant programs enabled us to effectively drive word-of-mouth buzz about the unique and compelling nature of our tests, and how they would benefit kidney transplant recipients. We had to endure a roughly 18 month period where it literally felt as if we were doing battle every day to keep our dreams alive, and not only did we survive, but we ultimately thrived.

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Given these sorts of experiences, it’s no wonder that war analogies are commonly referred to and written about in the world of entrepreneurship. There are two in particular I’d like to comment on.

The Art of War by Sun Tzu was written sometime between 500 and 200 BCE with a focus on military strategy. I read this book many years ago. As a guide to strategic thinking, perhaps its most important point is that the best strategy in war is to defeat your enemy without ever fighting them. Similarly, the best strategy in business is to win in your target market without ever having to fight off competitors. This might be achieved by virtue of some aspect of your product design, performance or commercialization strategy that is uniquely compelling to customers and well protected.

Another memorable and important thought Tzu shared was in regards to the nature of strong leaders. He writes that a successful leader must have the right character, be able to motivate others, provide clear direction, have a sense of military (in business - domain relevant) and diplomatic genius, and work to make the nation (in business – the company) stronger. 

Other key messages in from Tzu include:

·      Knowing when to fight and when not to fight.

·      Knowing how to handle both superior and inferior forces.

·      Ensuring that one’s troops are animated by the same spirit throughout all its ranks.

·      Being properly prepared for battle, and waiting to take the enemy unprepared.

It’s easy to see why so many entrepreneurs have found this book to provide good advice for their competitive endeavors. The notion of being properly prepared is especially useful when encountering the inevitable unexpected events that will occur when one transitions from planning to actually competing in the marketplace.

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More recently I read Steven Pressfield’s The War of Art, which provides wisdom regarding creative endeavors such as an author writing a book, a scientist performing research, or an entrepreneur starting a company. Written with a “tough love” style, this book is an easy read and chock full of valuable advice for any entrepreneur. Some of Pressfield’s key messages include the importance of:

·      Doing; getting things done; and the fact that everyone struggles with procrastination or what he refers to as “resistance,” and how this must be overcome.

·      Turning “professional;” you have to treat your dream seriously, and make it your primary focus; its a full-time job.

·      Truly committing to a mission. If you do, then you just might change the world.

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As a company leader you have to believe you have a shot at success, which hopefully means a shot at changing the world for the better. It may take longer than you planned, and require more effort, but as many recent events have shown, there’s no shortage of opportunity and need for positive change in this world.