What is the difference between “leadership” and “management”? 

This past Wednesday night, over 50 CEOs and Founders from across the Trinity Ventures portfolio gathered together for our annual CEO and Founder dinner to debate this question.  Imbued by energized networking and copious cocktails, we explored and debated the fundamentals of leadership and management in difficult times, since, especially in this economic environment, world class leadership and management skills are crucial to the success and growth of a business.  While our portfolio company leaders represent an extremely seasoned and high caliber group of executives, all enjoyed revisiting and reflecting on these fundamental values.   I thought it worth summarizing the key examples and takeaways as I found it a good fit with the spirit of IronGiving.

The discussion topic, Leadership in Difficult Times, was facilitated and led by our guest speaker, Professor Charles O’Reilly from the Stanford Business School.  Professor O’Reilly’s discussion included aggressive Socratic style cold calling of the audience (after all, he is a business school professor) and spirited debate.  We examined three real world scenarios brought to life via video clip interviews with three high tech CEOs: Bill Campbell, former CEO of Intuit, current Chairman who covered a situation where his authority as a CEO was openly challenged, Kent Thiry, CEO of DaVita who covered an instance where a high performer on his team clashed with the existing company culture  (be sure to click on his name to watch the YouTube video and get a flavor for his colorful leadership style) and Brian NeSmith, CEO of Blue Coat Systems who covered a scenario where an engineering rock star was disrupting productivity.

The most succinct answer to the above question came from Brett Wilson, CEO and cofounder of TubeMogul, an online video analytics and advertising startup Trinity invested in earlier this year.  Brett stated emphatically, “Leadership is about inspiring the team to win the game, and management is about the x’s and o’s of how to win”.  I couldn’t agree more and as a former crew team guy, I thought the image above captured this mixture well - inspired team members can pull hard on the oar but they also need to do so in unison and with rhythm. 

I won’t go into the details of each scenario but the high level takeaways include:

-          CEOs need to embody BOTH leadership and management to be effective.  This was the simplest yet biggest lesson.  The best CEOs do both.  It isn’t easy, but the rewards and returns are even greater for those who can. 

-          CEOs are signal generators.  What they do and say ripples across an organization in unspoken and obvious ways faster than you think.  Be aware and cognizant of your actions at all times.

 -         Firing someone is hard, but not acting quickly and decisively to address performance and/or culture fit problems is usually even more damaging to the company and other people involved.

I’ll try and get the full set of slides that Professor O’Reilly went through and post them here as I think they are useful for any reader to take a quick look at, stay tuned for those.  In the meantime, I welcome any comments or examples of great leaders who balance both leadership and management.

Update – here are the slides from Professor O’Reilly. They don’t contain the embedded video interviews we went through during the dinner but it should give you a good sense of the material covered and ideas discussed, enjoy —

During this debate, we looked at the investment activity of ten VCs from the last downturn of 2001 – 2003 to see if there were any lessons to be learned.  Here is one of my own takeaways and the data (caveat – this analysis is not scientific, just for discussion purposes):

2002 Was the Best Year To Make “New Investments” During the Last Downturn

After parsing the data, we found that 17 of the 73 (23%) ”new” investments which were made across these ten VCs in 2002 ultimately yielded a $100m + exit in  (vs. 15% in 2001 and 8% in 2003).   73 “new investments” was also clearly a dip in investment rate as one can see in the following chart that shows pre and post ’01-03 downturn # of new investments/year.  2002 was the nadir of that downturn in terms of investment rate, yet yielded the highest rate of winners during that ’01-’03 period.

Broadly speaking, what could this mean for today?  Having worked at a startup (PolyServe) in the Valley during the last downturn, I personally liken 2008 to 2001 (both had cataclysmic events happen in mid September that truly pushed the economy over the brink), 2009 to 2002 (both seem like the real trough year when the economy bottoms out) and 2010 to 2003 (hopefully the year of the start of actual recovery).  So, if we really are in the midst of “2002 all over again”, one should expect VC funding pace to slow down (as it certainly has to mid 1990′s levels) but I’d echo the now well documented sentiment (here and here) with some new concrete data that this is indeed the time to seize the day.  I believe 2009 will be like 2002 and some great new companies will get founded and funded, despite the gloomy macro environment.  I thought I’d share this with the hopes it emboldens the “Iron” spirit in entrepreneurs and investors alike. 

Notes:

• “New Investments” defined as the first time one of the ten VCs funded a company in a given year, regardless of round (e.g. could have been a Series A, B, recap, etc)

 

• Data considered new investments only, publicly disclosed exits, domestic US early stage funds only, and leveraged VentureSource data which has a bit of a time lag to it.
• Thanks to my colleague Patricia Nakache and our intern, Atul Kumar, who assisted in pulling together the data and analysis.