a16z Podcast - a16z Podcast: Crisis Time -- What to Do When Things Go Sideways

Episode Date: February 3, 2015

A crisis can be an opportunity to change your culture. But you have to get through the crisis first, and that starts with getting to the truth of what happened. a16z's Margit Wennmachers, who co-founded The Outcast Agency, and Judy Smith, the founder of a crisis management firm but also "the real life Olivia Pope" (the inspiration behind the ABC show Scandal) draw on their long experience managing all types of crises to walk us through what steps to take when things go bad.

Welcome to the A16Z podcast. I'm Michael Copeland, and this is our crisis segment. I'm not in crisis, but we have two people here who know everything about crisis. Judy Smith, founder of crisis management firm Smith & Company. She's an author and the real life Olivia Pope. So if you haven't caught up on your episodes of scandal, go online and catch up right now. Also with us today is Margaret Venmockers, a partner here at Andrewson Horowitz, the co-founder of tech comms firm outcast and the person in Silicon Valley who everyone turns to in a crisis. So Judy Margut, welcome. I know, right? So this is all crisis all the time right now. And so let's get into crisis mode. Let's start with the basics. And Judy, let's just define crisis. When do I know

that things are really not headed in the right direction? Anytime I don't get any sleep, which is most of the time, I might add. Look, you know, I think a crisis really is anything that, whether it's an individual or corporation, really fundamentally believes that it is going to affect their brand and, in fact, affect their reputation as well. I don't know, Margaret, what do you think? Yeah, I know. I agree. It's sort of like, what do people think of you today, and then all of a sudden you find yourself in a situation where if you don't resolve this well, they'll never think of you.

the same way ever after and are unlikely to believe you or buy your product. So I want to get unlikely to believe you and or buy your product, but what flavors do crises take? Are they, is it sort of a consistent theme of somebody didn't tell the truth, somebody did something wrong, what is it? They involve any range of things in here in Silicon Valley can be as simple as a site outage that is persistent, you know, Twitter back in the way in the day with a fail whale, right? That ends up being a crisis because your product fundamentally doesn't work and you can't monetize as a result. It can be personal foibles. It can be management shakeup. It can be hostile takeovers, you name it. I mean, there's endless flavors. And that would I think, Margaret would agree on

this is what makes our job interesting because it's always a variety of crisis that can happen. And so you find yourself never bored with it. Never bored, but always busy, I imagine. Yes. So let's pretend that we are moving right along as an individual or a company. Everything's going great. No crises on the horizon. But what do you do to prepare?

When everything's going extremely well, is it fair to say that it's not a matter of if it's when a crisis hits, but what can I do before it hits? I agree with you. I think it is that a crisis is going to come. It's just a question of when. I think part of what you can try to do to prepare is to have sort of in your top desk drawer a plan if something does happen.

The kind of research that we do shows that anywhere between 75 and 80 percent of the companies that do have plans, that their likelihood of recovery is higher. It doesn't even matter if the plan is on point. you know just the basics like if a crisis breaks who's our core crisis team right who's going to who's going to handle it is that person know how to speak to the the media is the financial person on touch all of those kinds of things right that's exactly right I think I would say there is the plan which I would encourage everyone to create one even if it goes out the window the minute something happens but there's also the cultural component because often in a crisis there's a lot of hiding under the desk and defensive crouching and whatnot. And if you set a culture of transparency and owning a crisis before anything happens, I think you're going to get through it a lot faster. I agree. And so what does that look like? I mean, is that your interactions with your customers? And I'm talking about the culture.

Is that interactions with media? What are you trying to build? I think that is to start with an internal thing. So let's just say, you know, I remember the IBM systems at the 96 Olympic Games didn't work. So instead of your long jump result, you would get the shoe size of the athlete. That's pretty bad, particularly when you have 15,000 accredited reporters relying on those results to cover the games. And you're the world's largest tech company. So what you need to do is you need to get the engineers to say like, okay, here are the problems. Let's make a list of the problems. If you haven't set a culture of transparency and honesty and it's okay and in fact encourage, it's going to take you a lot longer to resolve the issue. That's exactly right. And

that to me is the culture is key to success and it also demonstrates leadership because in a culture if you have a culture where people don't feel confident and feel free to tell the truth and to voice their opinions when a crisis or problem happens that is going to make it much worse. Right. And today, you know, we have a lot more scrutiny. Look at the, you know, all the hacks that's been happening. Now, they're boards and CEOs being sued and fired, right?

You want to be the engineer who goes like, I kind of messed up over here. Right, right. The culture component ends up being super, super, super. Yes, that's right. So crisis hits. Judy, you show up either literally or figuratively. What happens first? And how, when you walk in the door,

What is your role on how do people sort of know what you, what you're there to do? Shake it up. No, they, uh, right. No, that's exactly right. Look, I mean, they certainly know that, um, you know, that we are, that we are here to, to, to help. I think the first thing that you want to do in any situation is to gather the facts. And, um, that is not always easy because sometimes, um, people may not be as forthcoming. coming as we might want them to be with facts.

And then there are just some sort of facts that you don't know. You know, you have to deal with it. Truth versus truthiness. Yes, yes, absolutely. That's a great way to describe it. Great way to describe it. Well, speaking of truthiness, things are going south. And they're like, whoa, why don't we just say this?

Can't we just say this? I like to say a crisis is a terrible thing to waste. Because the thing that I like to ask at the coming in is, do you want to use this as an opportunity to make a company better or do you just want stuff to go away? And it's very telling how people react to that. And I think if a good... Do you find most people say go away or... I think most people say, of course we want to make the company better all the time. But they don't meet it. And then what happens, what gets said after that, it ends up being very telling.

If you want to make the company better as a result, you know, you're going to take your time to really investigate what is the truth and you know the size of the companies that judy deals with probably much much larger than our companies here in silicon valley but i will tell you if you're the CEO and you're working you can't name by name everybody's all of your employees it's probably that's the time where you you're entering truthiness land and so that's where you really really need to make sure you get your facts straight and you really understand what is going on in the company and what led to the crisis, and then as a result, how to resolve it. So once you have that truth, and we can talk about truth,

but you might not have all the information because maybe nobody does it, as things are unfolding. But what do you do next? And if you don't have the whole picture, how do you talk to people? When do you talk to people? What happens next? I think it's important even when you don't have all the facts, and it depends on what kind of steam the crisis is mounting.

But I think it's important to communicate with people. Even if you don't have all the facts, you can clearly indicate it's the facts, as you know them to be now. Because the issue is a lot of times when you are not filling that void with information, somebody else is going to plug that hole for you. Yeah, and then you enter land of speculation and someone else tells the story for you. The problem with crises and problem with facts is they weren't built. for Twitter. That's tend to take time.

You actually want to find out what really is going on and who did what or what system failed or what legal issue, what the complications are. You need to take time. In the meantime, I think the spokesperson, whoever it may be, needs to be transparent about what the company does know and what it's doing and, quote unquote, buy some time. And if you don't engage, people just think you're hiding. If people think you're hiding, they tend to think you're lying. Yeah, I mean, as a journalist, I certainly didn't like to hear no comment.

Oh, yeah, that's the worst. But have you ever a time to be silent? Yeah, but as you know, there are tons of ways to say something, but not really say anything without saying no comment. So, yeah, I mean, sure, there are times, there are times for that. But you have to, you have to weigh that in particular, I think with social media, It makes it so much harder to do that because things pick up so, so quickly and take on a life of its own. How do you manage that speed? I mean, we talk about rapid response teams or rapid response, but everything now seems to require rapid response.

That's the world we live in. So how do you prioritize? How do you make sure that the sort of response follows the logic and the sort of truth that you want it to? Well, I think that you need to hear other voices. So if you're in a situation, you're running a company, and I'm sure we've both been in that situation, it is easy to get defensive. So I think it's very important to get outsiders to go like, okay, so this is what's coming across, right? And so you need to manage according to that. I will say, not everything is a crisis, right? So there'll be Internet trolls. There'll be people who are just doing performance art. They're just, you know, slamming you for no good reason. And that's if you have to just develop rhino skin and let it roll off your back. You don't want to over-respond to a crisis. Right.

Or over-respond to... Create one. Yes, that's right. That's right. Then is it just sort of a sense you have that, okay, this doesn't warrant a response. This is just trolling. Is that just gathered over time? If you're a young company... Well, it's gathered over time. It's looking at the profiles of the people who are doing the commenting and what

credibility they have, what social or other footprint they have, right? you know, is this 60 minutes calling, or is this one lonely person, not to make fun of a lonely person, just doing this. Who's blogging at home and it jammies, right? Exactly. So, and that, I mean, of course, big companies have lots of analytic teams who hopefully have some sense of that, you know, as it happens. And for a smaller company, it's sometimes you discovered as you go along, right? If you are a company that caters to developers, you know,

and the developers are complaining, that is super, super important. If you're a company that sort of doesn't really cater to, or two developers, and yet you have upset developers, you know, you can filter that out. So it's a function of knowing your constituents and who's really most important to you and your company. And checking yourself, because what you may think is a completely legitimate response because you have 50 details that the outside world doesn't. You need to check your gut reaction with someone who's on the outside.

I see. Let's get to apologies. Judy, when is it okay to apologize or necessary to apologize? And when do you stop apologizing? after you do it once I look I think what's key about an apology

is that it has to be authentic sort of the worst thing is to have somebody else I think write an apology for you because the American public no matter what it is I think is very forgiving but

there are a few things that have to happen is one they have to feel that the person is sincere that they meant the apology and that they're truly asking for forgiveness. And I think if that doesn't come across, we've all seen them and heard them when someone apologizes and we'll say, oh God, that person's not really sorry for it. I mean, we've seen that. Yeah, and to put a bit spicier language on it, if you're going to eat shit, don't nibble.

If the company's made a big mistake or if you've made a personal mistake, and you're going to go admit it, don't make that one short little sentence and then walk off the stage. Like make it an actual apology and then... You want to own it. You want to own it. And particularly if your company

and it involves your product or involves corporate structure or whatnot, you want to really credibly explain what you're going to do about it to prevent something like that from ever happening again. And who needs to deliver that message? Again, a question of authenticity and belief, if I'm a spokesperson, is that okay?

Does it depend upon how severe the crisis is? I think it depends on how severe the crisis is. I think if it's something that goes in direct relationship to the core of the company, something like GM, you would want to see the CEO out there apologizing and owning that and making sure that CEO is communicating what they're going to do, differently so it doesn't happen again you can't a spokesperson can't convey that because I have no authority I completely agree I think I would quote unquote save the CEO for when you actually know the facts and you know the plan versus have the CEO the day to day like look we're still

looking into it you know that's just a waste of time because that person's also going to be very busy if if the company is going to be better after this but when the actual moment is you as judy said you want to do it once you want to tell it all and you want to tell it yourself, right? Those are sort of the three rules. And then you have an opportunity to move on. This gives a question I have about individuals versus companies. You know, you're an individual CEO, apologizing on behalf of a company.

But, Judy, you work with celebrities and politicians and companies, and Margaret, you work with companies and individuals. Is there a different kind of approach between me, the person, and the organization, the company? I don't think so. It certainly depends on the crisis. But I will say the difference certainly is on a company side. You have a lot more issues to consider. You've got shareholders to consider.

That's important. You don't want the market to be affected. I mean, all of those kinds of things are different. But at the core, I think it's certainly about reputation and brand. and making sure that however you communicate that it's in a way that is putting that either individual company down a path of rehabilitation, I think. I would just say that I think there are some nuances in terms of audience,

shareholders, obviously a very important one, that are more complex for companies. I think for an individual, it is a lot harder in a lot of ways because there's no new product cycle. You can't actually ship a new car Right So if you're Anthony Wiener And you do the whole New York Times thing

And you apologize And then the same version shows up There's no new version of you You're essentially kind of toast Right It's harder to get a second act So to speak when it's an individual versus a company because you can make up for it

Right You know Release a better movie ship a new car Have a new job on up Like you know There is a way out with product That people can fall in love with all over again Well, let's talk about that second chances for companies.

And have you seen it? And when and how does it work? We're going to be talking in generalities all this time because there's very few stuff that we can talk about. I think there's one company that would be okay with me mentioning them, and that's Jawbone. Their first up fitness tracker, just by the way, a gorgeous product, and I'm wearing right now, had product issues.

So there were flaws and there were just too many upbans that didn't work as advertised. out of the box. And so we did our own, like, heart-to-heart, and the CEO Hussein did a great job, saying, like, okay, I'm going to make the company better, and here's how I'm going to resolve this. And it spent the associated amount of money, you know, to pull the product from the market, ship a successful new product. And I think there was one headline that was my favorite headline, and it's at Job Ones or Hussein's beautiful failure.

And that is sort of the perfect bookend that you want, right? you have the problems you've got the Twitter people on Twitter complaining some legitimately so some piling on you actually gather the facts you come up with a plan and say here's what going to do you're going to bite the bullet and spend the money to make that happen you eat shit don't nibble on your apology and then people will go like all right I'm moving on right you understand the story you understand what the company did you believe in the new plan of the company and the new product comes out and that tends to work I remember I was reporting on Jobbone during this time.

Well, you tell me that. Did that work? You had a job bone that failed and then they took it back and then they gave you another one that worked. And so everyone was willing to give them a second chance. Right. That's right. And that was their way of an apology. Right.

Yes. And it was authentic. It was very substantial. Yeah. Oh, yeah. That was a big apology. So let's talk about style. You know, we invest in young companies.

You guys work with both young companies and established companies. Apple, for example, Apple has this style of you, we will release information when we think it's okay, but they are Apple. Google had a much more open style, but are there different styles and can I afford as a young company to act like Apple? I think Apple, it's sort of hard to separate Apple and Steve Jobs in this particular instance, I think, and I think the company has actually been a lot more open on a lot of different issues, including China, all of all those kinds of things in the new era of Apple, and I think it's actually, by and large, been well received. Back to the core of your question, I think you need to match the style

of your crisis communications with the actual style and culture of the company. So you're going to be having a different style of your virgin and you're quintessentially irreverent than if you're GE and you quintessentially rely willing to stand for quality, right? So, you know, crisis is never time to joke, but I could see Richard Branson getting away with a little bit of some sense of humor in a crisis situation whereas a company where that... Because we expect that

from them. Yeah, that's right. And it's an established pattern. This very sort of top down, you know, one channel out going to the masses that Steve Jobs embodied things to a large degree is over because we just have

too many channels, too many constituents, and you know, there's Twitter, there's you know, that is just a really, really tough stance to take. This is a question that I want to ask. I don't know if you can answer it, Judy, but it's been reported publicly that you were brought in on the Sony case. What was your observation before you came in on how Sony handled this? And then I want to get to the larger question of,

in this world of hacks and personal information on privacy, you know, Target, Home Depot, banks, you name it. how do we respond as a company what is disclosure um are we still working out the details of how and when and who and are we getting any closer to that well let me just say this let's use target as um by way of example i think try michael i hadn't lost this touch right i think one of the things that Target tried to do early on was to communicate the amount of credit card uses that was lost, you know, by individuals. Now, that number kept going up, but they tried to get that out pretty soon. I think overall, though, what this has shown with Target and with other companies is that it's

It's a new kind of crisis that companies need to prepare for. And I think it's an awakening for everybody that you have to be prepared for that. It's something, I think, you know, before Target and others that people never thought about. There was never this magnitude. I mean, you know, we have now 2 billion people on smartphones. We cite these statistics all the time. These people are doing all kinds of things online. And, you know, I've been around Silicon Valley, long.

than I want to admit. And in the olden days, no company, no big customer of a security technology company would ever want to say, here's what we're using, and that has not yet really changed. I actually think we're going to come full circle. And I think companies will be out in front and they're going to talk about their security strategy. They're going to admit that there's no such thing as 100% foolproof security. But they are going to make that part of their core messaging platform because you can't just like hide this stuff anymore.

Because if you are not on record as having any strategy, anything, and then something like the target hack happens to you, you essentially have no, your bank account of credibility is zero, and you're just going straight into the wall. And you know the other thing that's key about what you said, is that people believe anyway fundamentally that information is not protected anyway. So if you are trying to pretend,

that, oh, this is rock solid, nobody can penetrate that. I don't think people, I don't feel that people believe that. So are you seeing attitudes towards disclosure on the part of companies changing? So disclosure to my employees, disclosure to my companies. I know President Obama a couple of weeks ago brought up, like we're going to discuss how, you know, what the regulations ought to be around disclosure for my credit card number being out there. Is there a sort of strategy that you see emerging around this in terms of timeliness and or audience and and how you approach that? So through the lens of the portfolio companies, we have quite a few who sell security products. I have not seen a change in stance from their customer base. I think there's still

sort of, you know, we want to keep that stuff secret. And they have, by the way, they have very good reasons, right, because they don't want to point the hackers into like, you know, here's where they're solid, here are the potential holes and all of that. But there's got to be a middle ground there because I think you cannot sell, you know, forget the American public for a second. Countries around the world have very different cultures around security. I mean, I grew up in Germany and like privacy. It's a whole different topics. If you want to do business around the world, you're going to have to come up with a better communication strategy around security and around vulnerabilities. There's just no two ways about it.

The crisis has ended. You guys have done your jobs. It's authentic. It's truthful. People have get a second chance. What do you want to walk away from a good crisis with? You know, what in the post-mortem, for that matter, how do you conduct a post-mortem on a crisis to do a better job next time? I think a few things. I think one is you certainly want to assess to your point what went wrong. And the most important thing is, okay, what are we going to put in place now that we're past it to make sure that that does not happen again. I think that's critical. And I also think as well, we spoke about this earlier, is that it's no need to waste the crisis. Because it is always, I think most of the time, an opportunity to do better and to see things from a different

perspective, I think. Yeah, I totally agree. I think it's also important to actually dissect not just the problem that caused the crisis, but like how the crisis was handled to find that process. Because I think in many cases, you kind of have a crisis team, but you don't always have all the right people on the team, right? You, you, often, sometimes you have too many lawyers or too many PR people or too many people who tell you what you want to hear, right? So I think actually that's a big problem. Huge problem, right? Yeah. Yeah. Well, how have you seen that play out then? Well, that's why outsiders get called in because they leave so they get to say what they really believe and in fact

they get paid to do that but they also you know their job doesn't depend on it right that that's exactly right yeah working for someone and your paycheck depends on it it's just a much harder dynamic to go like you know what no one will believe when you say it like that that's right that's right or you know what we wouldn't be in this problem or situation if we would have paid attention attention to the internal memo that was circulated six months ago. So it's hard to, it's hard when you're in the inside to say that. And to your point, that's why outside voices are critical because we get to say what other people won't say, or can't say for whatever reason. Yeah, I imagine Enron didn't have a lot of outside voices as it hunkered down and tried to say. No, no.

The whole reality is what you're going on. Well, Judy, Margaret. I feel much better about the crisis I'm about to have, and so thank you guys. Just call us. Right, right. Keep us on speed down. Thank you guys so much, and we will continue the discussion. Thank you. Thank you.