by Tony Scott
In the recent past, in the U.S., Europe and Asia, there were simply too many companies chasing too few people – resulting in across the board shortages of the human capital skills necessary to build and grow technology companies. In the U.S., working for an Asian or European company was often viewed as a second choice, at best. U.S. based executives were concerned that they were likely to have difficulties managing across geographic and cultural gaps, and that their wealth creation opportunities through IPO were limited.
Today, of course, much has changed. But while the talent market has relaxed, it is important to realize that executives with the skills and experiences typically sought by core technology companies are still in high demand and relatively tight supply – particularly for those professionals who can work effectively across multiple cultures.
Most companies in core technology – such as semiconductors, networking, photonics, or infrastructure software – must operate globally to be successful – and they have to have a plan for global expansion almost from day one.
The older model of U.S. businesses going overseas was to have different, independent operations for each country, often with each country reporting directly back to the U.S. That may still make sense for very large markets, such as Japan, China, and the U.K. However, an increasing number of companies are moving to pan-Asian or pan-European organizations to manage their activities across a wider region. The human capital skills necessary to be successful in that kind of an environment demand people who can easily work and interact with multiple cultures – not just those of their home country and the U.S.
Whether a company is from the U.S. going overseas, or is a foreign company is coming to the U.S., perhaps the most critical factor to their success or failure is their ability to build a cohesive organization that can operate effectively in a global environment. Most VCs will tell you that they’d rather invest in a company with a B+ technology and an A+ team, rather than the other way around. Every technology center in the world is littered with companies who had superior technology, but failed because they didn’t have the right team.
I’d like to share a few case studies that I think will illustrate my point about culture and team building being so critical. I’ll try to disguise the companies to protect the guilty from embarrassment.
First, some dismal failures:
A VC that we frequently work with asked us to take a look at a very interesting Photonics company in Silicon Valley with 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 Ph.Ds – which is similar to many technology start-ups – but added on top of that a 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 Ph.Ds in optical physics who also have great managerial experience would be tapped out very quickly. Therefore, we turned down the search engagement. The company was unable to bring in a successful team, and they lost their ability to 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 senior positions at consumer oriented dot-com 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 steamed chicken pieces at one of the company’s fast food chains.
Why did the board hire this person?
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 or China that 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 had senior-level experience at two icons of U.S. business known for their products worldwide. In their own country, with its much smaller 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 6 months.
Now, for a couple of success stories:
We were asked by one of the world’s largest Japanese technology companies to help them find someone to lead their corporate VC organization, which is based in the U.S. The corporate VC organization’s charter was to help identify and nurture early-stage companies in the U.S. that could ultimately either enhance the existing technologies created and developed by our client, or be added to the sales channels developed by our client. In this case, Japanese language capabilities were absolutely not a requirement.
The company evaluated many candidates from the VC arena, but interestingly enough, all of the finalists happened to be non-Japanese Asians who were born overseas, educated both overseas and in the U.S., and had lived in multiple countries. In this case, the company had been burned previously by Americans who didn’t understand and were frustrated working within a Japanese environment, so they were quite sensitive to making sure they found someone who was able to bridge the cultural divide between the U.S. and Japan. They ultimately hired two senior executives who have been very successful for the VC organization, and are held out as a model for the company overall.
Cultural sensitivity is important, but at the end of the day it is also critical to match skills and experiences to a company’s stage of development. We were asked to help a very fast growth, $1 billion enterprise software company with their global expansion – to find Presidents for their Japanese and Greater China business units, and a Country Manager for their French operation. These were similar roles, and all needed the right cultural fit and cross-cultural sensitivity, but different issues arose for each role due both to location and local stage of development.
In these three cases, the finalists for the roles all had great cross-cultural experience, cultural sensitivity and flexibility. But other than all of them coming from similar industry spaces, the experiences and personalities of the finalists within each of the three groups were quite different from one another – to fit the development needs of each of geography. They wouldn’t have been very interchangeable at all.
To summarize, what are the key lessons learned from these cases?