We Fixed It, You're Welcome - CEOs Who Fail Upward

Episode Date: January 7, 2025

In this episode of "We Fixed It, You're Welcome" the hosts explore the phenomenon of CEOs who fail upward, examining high-profile cases like Adam Neumann of WeWork, Billy McFarland of Fyre Festival, and Travis Kalanick of Uber. The panel discusses the systemic issues that allow these leaders to continue ascending despite public failures, delving into the role of charisma, cultural intelligence, and the importance of surrounding oneself with expert teams. They debate the fine line between visionary leadership and unchecked ego, and consider the accountability of boards and investors. The conversation touches on the American obsession with singular genius entrepreneurs and the cultural factors that contribute to this trend. Ultimately, the hosts propose a checklist of red flags to help identify and mitigate risks associated with charismatic but potentially problematic leaders. Systematic Issues Allowing Failed Leaders to Ascend Examination of factors that enable CEOs to continue failing yet rising in their careers Panel members share personal experiences with such CEOs Charisma and Vision vs. Accountability The fine line between audacity and bluffing in leadership The role of charisma and storytelling in CEO success Oversight and Board Responsibility Lack of technical expertise on boards of companies like Theranos The importance of diverse, qualified board members for proper oversight Cultural and Emotional Intelligence in Leadership Discussion of how high cultural and emotional intelligence can mask incompetence The difference between snake oil salesmen and visionaries with poor execution The Need for Visionary Leaders The importance of bold, innovative thinkers in driving progress Balancing visionary thinking with accountability and effective leadership Building Effective Teams Around Visionary Leaders Comparison of leaders like Elon Musk to failed CEOs The crucial role of surrounding visionaries with competent experts Startup Culture and Founder Dynamics How startup culture can enable unchecked power for founders The challenges of transitioning from founder to effective CEO Investor Responsibility and Due Diligence The role of venture capitalists in enabling risky behavior The need for more thorough vetting and accountability in investments Fixing the System: Identifying Red Flags Discussion of ways to spot potentially problematic leaders The importance of cultural fit and risk appetite in hiring CEOs Balancing Innovation and Responsible Leadership The challenge of fostering innovation while maintaining accountability Cultural differences in approaches to CEO leadership and accountability __________________ Disclaimer: A quick disclaimer. We are going into this somewhat cold and nothing we say should be construed as legal advice, financial advice or anything that would get us in trouble. These are our views and opinions. We're here to ask the kinds of questions everyone's thinking. Have an engaging conversation and maybe come to some conclusions that we feel are worth exploring. By the end, if we fixed it, you're welcome. All trademarks, IP and brand elements discussed are property of their respective owners. Music by Milo W.Produced by Straight Forward Media Group See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info. Learn more about your ad choices. Visit megaphone.fm/adchoices

All right, here's how this works. In each episode, we pick a company we all know that has something going on right now. Then we put ourselves in charge and see if we can fix it. You'll be hearing from Melissa and Operations, Peter on finance, Chino on people in culture, and me on marketing. My name's Aaron. As always, a quick disclaimer, we are going into this somewhat cold and nothing we say should be construed as legal advice, financial advice, or anything that would get us in trouble. These are our views and opinions. We're here to ask the kinds of the questions everyone's thinking, have an engaging conversation, and maybe come to some conclusions that we feel are worth exploring. By the end, if we fixed it, you're welcome. All trademarks,

IP, and brand elements discussed are property of their respective owners. Melissa, what are we talking about today? So this week's episode delves into the perplexing trend of CEOs who fail upward, where leaders repeatedly rise to prominent roles despite major public failures. And so we have some key examples to talk about, including Adam Newman at WeWork. You know that there was a massive valuation crash and questionable leadership decisions. And a lot of it is just amazing to think about how he has somehow maintained an image of success. And even through this mismanagement of the failed IPO and heavy losses, he's quickly found new opportunities after he stepped down. There's a different type of leader that we're going to be also talking about, which is Billy McFarland in the Fire Festival.

And so some of you know about that. He actually went to jail for the disaster that was the fire festival. And yet, Fire Festival, too, is in the works. And then last one at least is really kind of a very interesting and something that we see a lot of with CEOs is with Travis Kalinick in the Uber world. And that's really where visionary leadership transformed Uber, but it also birthed this really toxic culture marked by harassment and legal battles. And despite all of that chaos, despite that toxicity and his exit didn't end his influence in tech. And he's remained very active. And I was already at a new place called Cloud Kitchen.

So we'll love to examine the systematic issues that we have that allow these leaders to continue to fail. yet also ascend. It's a very interesting kind of problem to be solved. So do any of you here on the panel have experiences with these types of CEOs clashing of values, business acumen, character? Who wants to start? This is one of my favorite topics. Always, I have a soft spot for great business failure stories, leaders going to, you know, jail or falling off the mountain top or, or general this sort of thing. So I work in finance and tech. So you see it quite a bit. We're going to be talking about some of these tech examples. But I've got to say, I'm really excited to be talking about the topic. That's such a thin line too between audacity, right? And and bluffing your

way through it. And some CEOs wind up on the right side of history, I guess. They, you know, they're just crazy enough that it works. And some it catches up with them. So I think we'll talk about both cases today. I think it's actually quite interesting. I just finished reading Bad Blood, the Elizabeth Holmes book, where she was the CEO of Theranos. And it's like her counterpart, Bill McFarland, where a fire festival, there's a few Netflix documentaries, even movies about kind of their failing upwards.

And yeah, where they are today is. It's quite interesting. Well, and Chino, I'd love to get into this. And maybe this will be an outtake for later, but I actually interviewed with her. And I have my own bad blood story. And it was very, wow, it was, it was crazy. Yeah. You the voice?

I dodged a bullet there. It was right when all of this stuff started. I mean, at the time, she was actually on the cover of Forbes and Time magazine and all that stuff when I interviewed. But like very quickly afterwards, everything kind of fell apart. Were you the whistleblower, Melissa? Yeah. No. But I asked the wrong types of questions.

in the interview, that became clear. Wow. So you said, does it work? Or? Yeah, I said some, I had some questions about QA, because that was what they wanted me to help run was, you know, on an operational side. And I got my interviewer actually hung up. Wow.

And then she called me and she was like, sent me flowers. And she was like, oh, no, no, no. I was like, you know what? I think this is good. I think I'm good. So what do you, did that, does that tell you that the HR function was in on kind of the deception or what did you take from that? I think that it could have been. I think that there was an awareness that there was what was actually being shared with the public

and what the customer experience was, which is kind of one of the things we'll be talking about here with Uber and everybody else, was very different than what the reality was. Right? So for me, if I'm in charge of customer experience, client support, so I would have been working with all of, I think was it Walgreens that they were working with or whoever she, they had a contract with. And then, you know, like if there's a QA problem and the testing isn't, you know, Chino knows if the testing isn't correct, like, and someone is, you know, misdiagnosed, that's on us. We could go to jail for that, right? you know, those kinds of things. And so I had some questions about like, what kind of systems

were you utilizing? What was the risk management? What was that like? What did that look like? And the head of research that I was talking to was like, I am a PhD. And you're not. And he hung up. And I was like, I didn't feel like that question was off base for the job I was applied for. So, so I think that there, you know, it was, it was, you know, it's very interesting. And I think this kind of can lead us back into our topic because I think one of the questions is, where is the oversight for the CEOs on their operations, right? And, you know, Peter, like the finance side, like when you're not making your numbers or you're not hitting your OKRs or you're not hitting your KPIs, where is the oversight that says the data is telling me this, your charisma is telling me that everything is okay-dokey, right?

you know what I mean? But like that, it's a, it's a, it's a, it's not, it's not functionally. It's not the same thing. And I think you're breaking trust by when you think about for the customers, that's the thing is that you've made a promise that you're going to do something. And then when that doesn't happen, how do you solve that? Oh, it's so interesting. So in the case of Elizabeth Holmes and Theranos, it's FDA regulated, right?

You're dealing with people's health. the stakes are extremely high. I come from financial services, which tends to be pretty well regulated. So those sorts of highly regulated industries tend to clamp down on some of this. But some of these other examples that we've talked about, you can get a long way with charisma and polish, like the Billy McFarland's or the Travis Kalanix or even the Adam and Newman's of the world. These are all industries that are less regulated. And these people just are able to bull those through the objections with what seems to be. Number one, if we were writing a, you know,

a handbook on how to be a fail upward CEO is you got to have the Riz. Like, your charisma has to be on lock. You dial it up to 11, and then you just surround yourself with people who buy into the vision. You start doing things like, you know, with Elizabeth Holmes, she had Henry Kissinger on her board, and her grandfather was well-connected. She's well-connected into Silicon Valley.

So she had this cachet that comes with the kind of like running in the right circles. And I think networks are something that we're going to be talking about. But that tends to help a little bit. And just having that confidence, you know, you see it a lot in tech. You see it a lot in tech where there's a fine line between, you know, confidence and arrogance, I would say. And the arrogance can easily lead to, you know, misleading investors, less so. So you don't see it's so much in the public markets by the time a company kind of gets to the public markets that gets found out pretty quick.

But that certainly wasn't the case for Adam Newman. I mean, we can talk about him for a little bit, but really had took a lot of that soft bank money, which is a famous soft bank, famous investor was very close with their, their founder, Mottesha Khosan. And he basically got them to commit billions of dollars as lead investor and then worked towards that IPO. And then as soon as the IPO came, I mean, you start taking. getting the scrutiny of these analysts,

they start taking it into the books. And when you're flying on private planes and you're hiring your wife to create a preschool curriculum and you're doing all of these different things, taking the corporate jet on surf trips, you know, the analysts are gonna start looking into it. And then that starts to make the board look bad and then the board has to step up.

So lots of examples of people falling off the mountaintop. But yeah, I think it's fast. fascinating how these early earlier kind of, I don't know if you call them conmen or what, but they're running a version of a scam that preys on, you know, either early investors, a desire for a quick buck or for a return, or even in the case of Theranos, like there, I think a lot of people who went to go work for them were just optimistic about the story. And it makes sense. You're going to be able to do blood testing on a drop of blood. This is going to be game changing. it makes sense and that's enough to get you in the door.

I find it interesting because I think you're kind of getting to this around, again, I don't want to put it all on one person, but like when you think about like all of these people are amazing storytellers, they're visionary, they're enthusiastic, they have the right type of energy, they got all that. But when you think about the boards that were kind of the purse strings, you know, Chino, you just read the book. so you know this, but like there weren't scientists on that board. They, you know, Henry Kinstner, not scientists, okay? They were big names, right? Like they were all politicians. They were all banker,

whatever. And like the scientist, so my husband's a neuroscientist. So he's the first thing when I told him I was interviewing. He's like, that doesn't work. He's like, I'm sure it doesn't. There's no way, right? But then what was interesting to me was like when you're reading the book about how she went out and got money and got investors and got this amazing board. And so then, you know, if Henry Kissinger's on it, then all of a sudden all these other people want to be on it, right? Because that's, you know, and you see these boards that are really diverse. But don't you need someone in the business to tell you, like tell Adam Newman to, you know, to tell Travis? like this is what operationally and this is from a business perspective, these are the watchouts that you have to think about.

Like, how are you going to pay for insurance, you know, for all the Ubers? What are you going to do when there are claims and when they're bad drivers, whatever, whatever, whatever? But also like, you know, we work was a great idea and it still is. But like, how is it that like it's just become kind of the joke. Yeah. It's really based on his leadership. And, you know, I mean, what's your thought from like a, God, from the poor team and the people and the recruitment piece.

I think it's a really interesting. And I think we bring up a few pieces that I love to highlight. So, you know, we've all heard of emotional intelligence, E.I, right? It's a basis for literally any job because we work with people. What's a little more nuance is cultural intelligence, CI. I mean, it blends the two. And where you find these. kind of feeling upward CEOs, they are very high when it comes to cultural intelligence as well as emotional intelligence. They know how to work a room. They have that charisma that we're talking about. There are certain features of this person, like the high network, you know, the ability to sell. They do have, you know, again, every single one of these people aren't coming from a background of nowhere. And I think it's really important as, you know, if you were a board, trying to hire a CEO and kind of figuring out and vetting what that candidate profile should look like.

All of those pieces are important. But as you said, Melissa, some of that differentiator is the actual skill and technical skill pieces, right? I can surround myself with experts. And I think a great CEO does that. But if there's only one expert on the board or if there is no real experts on your team, This is where you run into problems, especially when you look at something like a Theranos, you know, what's interesting when you look at a fire festival, for example, you know, there is a scale between kind of snake oil salesmen and maybe, you know, you had the right idea, kind of like Adam Newman, where, you know, it's a beautiful vision, but it just wasn't executed well. And then, of course, the toxic culture, there is a line. So we, I wouldn't put everybody on the same kind of snake oil sales. man ranking, but there is a factor of that. And I think as a board and as kind of those folks that are vetting it, you need to make sure that there is some form of credibility in their background

and experience outside of them just being able to schmooze really well. I'd argue we need some of those renegade CEOs to put a stake in the ground, you know, go beyond incremental innovation, say, I'm changing the world. I have no idea how we're going to get there, but it's going to happen. Who's with me? Right. We need those types of leaders now, whether they are leaders of people and know how to, you know, be, be effective, be kind, be, you know, accountable along the way. That's a question that we, you know, we'll continue to debate because we've seen examples of leaders that go unchecked, right? So, but my question back is, where is the accountability? Is it all on that, that visionary?

you know, can we, can we give them on the positive side, can we call them visionaries and game changers? And on the negative side, can we call them charlatans or, you know, whatever. But is there shared accountability or is it all not one individual? I think that I totally agree. One of the things that's interesting is the difference between, you know, these charismatic people and they go on and, you know, the proof kind of is in the pudding and time kind of sorts it out. but the difference early on between an Adam Newman and maybe another, you know, well-known entrepreneur that's very comfortable at taking risk like an Elon Musk, those kind of like characteristics look very similar early on.

And it's almost like it's an asset to be risk-taking, to have the charisma, but then very quickly you need to backfill it in with a very, very adept, you know, like ring of experts. So like Elon had J.B. Straubel. He's got the head of SpaceX. I think her name is Gwen Shotwell. And so like there's all of these people that he's able to rely on. And even though he might be casting huge vision, he very quickly back fills it with.

He's a very good acquire of talent of the skills that he doesn't have or he acquires skills himself, but he gets people to bring the vision alive. When you're somebody like an Elizabeth Holmes that, you know, you couldn't make that leap. early on, she really could have, like you said, Melissa invested at had a board that had technical expertise, really have a technical co-founder, those sorts of things. And instead of, you know, taking the tact of trying to backfill with experts that would be able to bring the vision of life, seems like she just kept giving the lie more and more air. You know, this was, at once one point, Elizabeth Holmes was the only self-made American billionaire woman in, you know, in U.S.

history. And so imagine, like, I think her net worth at one point peaked at around $4 billion. Imagine the pressure that that creates to keep the lie going. And, you know, it's the same thing with Adam Newman. What was he risky if it worked? It was a zero or a one to him. He wasn't coming off of any sort of other reputation or any other source of wealth. He had to keep it going. and he had only upside to keep, you know, to keep the charade going and no downside almost. And the downside would be in stopping. So I think what's interesting about this is there's a risk component here. And it's good to a certain degree and that dial, fine-tuning that dial.

But if you're going to disrupt an established industry or try to be the next, you know, 50x, 100-X startup, your point of reference when you're judging that, they look, people, charismatic, visionary people, they all kind of look from the rest of us. They all kind of like look like similarly, you know, like outliers. And it's hard to gauge. It's very difficult to gauge, I would say. Well, I thought it was interesting what you said about Elizabeth, too, because I don't feel like she felt it was a lie. I think what she felt like this was her vision, Erin, what you said, right? And she just was not able to translate that into action and actual outcome. Right.

So she had this vision and she thought that they would be able to build it. And her team was not able to do what she wanted them to do. And so she kept selling this because this was her vision. But I don't think that she ended up being able, obviously, to deliver. And so the question is, like when you look at someone like Elon, he talks a big talk too. but like he delivered right like SpaceX like he delivered Tesla he delivered like people were like that's crazy crazy talk like you're not going to be able to have a rocket ship go up and land that that's not going to happen right you know you're just going to have to throw away that 500 million

dollars right and he was like no no they're coming back and he did it and so I think I mean not that he's the leader I want to follow but like what I would say is that ability to deliver on the actual dream is the thing that kind of, I think, is missing with these others. And then ends up hurting the brand because the brand can't be kind of, you know, divided from the actual leader because of kind of what they've done already. And I think that difference. And again, like looking at it from a recruitment talent perspective, like, why is Elon? And again, no matter how you feel about Elon. And of course, with. all of his companies, there's room for improvement. But the difference between Elizabeth or Adam or Billy, it's the people around them, right? You need the charismatic. You need the risk take. You need

to be able to sell a dream and be a vision. Like that is what a leader needs. Like a CEO, that's a part of the job. Like that's, you know, there's personality tests that look for that for CEOs when I'm hiring. But the key difference is who do you surround yourself with? And That I would say is the difference of what become successful, again, pointing towards Elon, versus the others that we've mentioned where they just didn't have the expertise. And it's about talent at the end of the day. And the problem is, is when you start selling, you know, a book of bad goods, essentially, right? There is a point when, you know, both Elizabeth, Billy, they realize, you know what,

this isn't working. And going back to the original question of, like, where, those the accountability taken. At that point, if you're not bringing in people to fix it or to execute, like we can all have a vision. I want to be a billionaire one day and live this life and that life. We can all, you know, I want to change the world. We can all be visionaries, but if you don't have the backing or the team support or you don't bring in the resources you need, especially when you're worth over billions of dollars where you have all of the resources in the world to do that, then it becomes your problem. Then you are accountable. And of course, there's a board

of directors in the background that, you know, in some cases, CEOs are just figureheads, but with all of these folks, they were the people driving. They were the ones building their board of directors, who eventually kicked them all out, funny enough. But it's on you as that's a senior to say, you know, you're the one that's driving the ship. So if the ship is crashing and you're going right into an iceberg looking at Titanic, like, you know, do you keep driving the iceberg or do you turn around or do you, you know, do something else? And it's, you know, I would say it's the CEO's accountability there once you realize that. But you know, how does that happen culturally and institutionally where a CEO is allowed that much bandwidth, right, to just run rampant, right?

Is it a fear-based culture? Is it, I mean, what happens to, to an, to an, institution that just allows one unchecked individual to have car knowledge. You know, when you look at like the unconscious biases and going into that, right, authority bias is a huge thing. The person in power, you know, we can all sit in a room. But if there's someone that has the power and they say, well, no, actually this is what I think about this.

Guess what? Everyone's going to agree with them because they're the ones that are paying all of their bills, right? That is just innate in nature with any type of. workplace. And so when the person at the very top that is kind of controlling the strings isn't checked or they don't have a team around them where, you know, that aren't just yes people because that's another issue as well where if you create a board of directors that are just going to tell you what you want to hear, not how we need to execute and how to make whatever

we're building successful, that is also a problem. And you actually do see that. Again, in the case of Elizabeth Holmes, you didn't have the technical expertise. You had people that were saying to her, yes, yes, keep going, keep going. You didn't have a scientist to say, you know what, this is not, this doesn't work, right? And, you know, I would say these are really big exaggerated examples, but in your own lives and careers, I'm sure you've seen it before where there's a leader who's gone unchecked and maybe their ego's a little bit big. And, you know, maybe they have a really loud voice and, you know, big presence where people get smaller in those cases. Again, there's that power dynamic that you need to always remember in any workplace.

And as much as there's HR to help mitigate sometimes, the reality is if you have a leader that's going unchecked, that's going to remain unchecked until like a border, you know, some higher power comes in. And if that person's at the highest power, you see things like we work or just becomes incredibly toxic. People are running at the gates. And then, you know, you go to things like Glass Door where, you know, people have the opportunity to. share their feelings kind of unfiltered or without that fear because they're away. And, you know, the truth comes out. Right. I think the other thing is, Aaron, to your point, is that there are so many startups where the founders end up being the CEOs or the top leader, whatever role they're going to be in. And when it's that scenario, the leverage they have

because they actually usually have the highest percentage of shares of the company, allow them to let go the people that are not yes people, Chino, right, that are going to challenge them maybe. And also, I think, makes that dynamic, again, of the investors and the board a little more, like, in reverence to them. And which is not always the right thing, because when we talk about, like, how do we keep them accountable for results, how do we keep them accountable for a healthy culture, you know, growing great talent and actually delivering the outcomes. If you're the head

captain and you're all in, I mean, you're just going to do what you want to do, right? So I think that's kind of the problem that there have been in startups where you see this. And then now when people are trying to go public, there's a lot of due diligence that's done by all of these financial institutes, and I'm sure Peter you know about all of that. And I've been at some of these companies that have been wanting to go public. And the amount of questions that kind of come back at you, it's really a little shocking. And I think it's, it's, there's a lot of fear from founders that when they go through that, they're going to be asked to leave that role. And you see that a lot of times when companies, you know, have somebody come in and look at them.

They'll say, you know, you actually need a season leader in, you know, this, whatever it might be. So it's very, it's a very interesting, I mean, concept of like, what do these, you know, these CEOs are bringing a lot to the table. But at the same time, you know, to be sustainable, I think we've all made points of like they need to have the right army behind them and right. group of leaders behind him. I look at it kind of like right now it's the middle of football season, right? And so you think about like how coaches get fired. I don't think head coaches from all these NFL teams get fired all the time. But then like by that by next season, they've just kind of moved teams. Like is there like only so many CEOs? Right? You know what I mean? We've kind of talked about that like CEOs that, you know, used to run like retail are now running like Campbell's Soup or something.

You know, it's like, wait, is that the same thing? Like running the gap versus running the, you know, whatever. So it's just kind of, it's a question of like if there's a feeling that there's a very small pond to choose from. And then you've got these big egos, you know, and they're saying, I can take it to the next level, right? Yeah. I think everybody, if you're an investor, whether you're an investor from a public company or you're an investor from a private company, especially venture capital. who they tend to be much more comfortable with risk. You're trying to take shortcuts here to, you know,

you see a lot of deals come through. So you're looking at a couple things. Yes, you're looking at the pedigree of the leader and what they've done in the past. So if they worked at Apple and they ran all of the retail stores, why can I not bring them in and have them, you know, run JCPenney? Or you're looking at the board, the pedigree of the board, perhaps. Or you're, and sometimes you just discount those things. you're like, I'm going to back a visionary co-founder out of the middle of nowhere, you know,

who's got a bold vision and is getting a little bit of traction. And, you know, I think one of the things I wanted to ask you guys, do you think that this is primarily a construct or a reflection of, you know, America has a little bit of an obsession with the singular genius, the lone entrepreneur that comes, emerges and, you know, transforms in industry, whereas other cultures, businesses aren't necessarily built around. that concept of singular genius? Is this simply a side effect of buying into that one person, that visionary that you need to have in the one spot as opposed to a more, a flatter hierarchy that gets attributed to the team? What do you guys think? I think it might be because when you're

talking about a glass door, you know, where employees get to get to have their say, it's a fractional, fractional audience, right? Compared to a CEO that has a cult of personality and is as a mouthpiece and also there's a 24-hour news cycle and a direct line to an audience that can be relatively unfiltered, right, depending on the restrictions of the company, but there might not be, right? So a CEO might take to the public and say, here's what I want to do with this company. They're not letting me and get on my side. And they have the power to do that.

If we went back in history and Henry Ford had a, you know, social media presence, he might think he might have been judged differently and the company might have a different fortune, right? Or it's a it's a byproduct of the time that we're in. I think that's a great question. How do you think this is our job here? We would be able to fix us. In my opinion, again, going back to, like, I do think that you do need a visionary. But does that visionary need to be the same visionary the entire time?

No, I think as a CEO or founder, you need to know when. to step back and maybe jump on the board and take a back seat and have somebody if your goal is to build and make whatever product or service you're doing the most successful. Sometimes it's okay to say, you know what, I'm not, I can't continue to be this leader because I don't have the skill set at the scale anymore. So I think there's that piece. You know, we talked about, again, rallying a team around you. but I think, you know, when you're looking at, you know, anybody can be a visionary as well.

I think there's another piece of succession planning. It's, you know, if we're looking at the same pool of CEOs, yeah, you're going to get the same thing a different day, just chopped up in another way. And I think it's really important as a CEO to, you know, do executive training, it's constantly learning. What is a succession plan if you're doing something that's completely different than everybody else, right? How are we training and building the next generation of CEOs to keep going? Because otherwise, they're going to get the same people at the top. And, you know, that's fine. But in 20, 30 years, you know, if you want kind of your company to be, you know,

forward-wanted generations, right? You're going to need to think what's next. What's that succession plan for you? What about you, Peter? What do you think needs to be done? You know, I've seen great. I've seen some companies kind of go through this phase. and then they're able to mature out of it and get on solid footing.

I don't think you're going to be able to stop like the singular visionary. I think that powers a lot of the entrepreneurial kind of progress in the economy. But I think that the red flags to watch out for would be a board oversight and the qualifications of the board. Look at that and see how active is the board. And then compensation's got to be another piece. There's not a lot of incentive. If you're a CEO and your goal is just simply to get to an IPO, there are things you can do in the short term that can compromise the long-term health of these companies. Like Adam Newman's a great example of that in WeWork. Or just simply trying to lie until you can get to the next milestone, the next funding thing, and then you try to figure it out. So I think probably the compensation is important. I also think the way, the structure in which companies are rewarded and, in the early capital formation stages with venture capital. Venture capitalists are very comfortable, you know, making 10 bets, losing on nine of them. And, and those sorts of odds instead of kind

of like looking for the singles and the doubles, I think it creates, you know, this environment where you're going to see a lot more risk taking because people are going for those home runs. It's every venture capitalist steps up to the plate and they are not trying to get singles and doubles. They are trying to crush every single one. So I think that that has a portion of I don't know how you can regulate that, but if I were a partner at a venture capital firm, I think that that is something that I would look at very, very closely. And then finally, if I'm looking on paper, like you guys mentioned, the succession plan, let's look at the strength of the team, the number two, the number three, the number four people.

And then beyond that, it's really just looking for red flags, you know, are they employing their family members? That's a big red flag. Is there nepotism that's happening? Do they have a personal relationship with their lead investor? Are there arm's-length transactions against non-affiliates? You see that becoming more and more of an issue. So I would say from a financial perspective, if I'm just looking at somebody's, you know,

whether it's their 10K or if it's their pro forma, or even if it's their pitch deck, I'm going to be asking those questions and trying to understand the business. Why are you different? And if they're playing on a lot of the intangibles and if it's a 90% bet on a founder, you know, I don't know if I have the risk appetite for that. So many people do, but you just have to know what you're signing up for as an investor, I think. Love that. I love how you mentioned like the, you know, the financial component of it and especially from an investment perspective.

Because as, you know, someone who's been at startups, I feel like you're constantly, And I did, this is the one thing that the founders did amazing, you know, work at and CEOs have to do this is just trying to go get money, right? And it feels like you're on a constant treadmill of like asking for money. And so to your point is it seems like there's a lot of, you know, Silicon Valley Bank, all these people that will give you money. But what is the, what is the accountability for the money? that you've been given, right? So I'm going to give you $150 million. You know, do they ever,

you know, yeah, you have board meetings every quarter and you kind of go through a little pretty deck, you know, that Aaron would make look really, really good. But are you really showcasing what you're investing in and what your actual, you know, strategic goals are and how you're going to hit those outcomes? And so again, I feel like there's a bit of like we're making investments into these startups or into these companies and following a CEO's vision and we're not necessarily going to follow up with it in the sense that you would if it was your own money, right? Like that when you said, I don't have that risk appetite because I, you know, I'm not going to just give it to somebody and not know what's going to happen with it, right?

So it's very interesting to me because I feel like that's a component that you see with these guys that it was like unchecked. It felt like it was very unchecked. I don't know if any lessons wind up getting, I don't know if any lessons wind up getting learned, though. Because you have, let's say you have a CEO that went through the ringer publicly, right, flamed out. They're still, and now they're a free agent. They're still a known entity, right?

And even a brand with a stain on it is, it has recognition. And so there's still maybe a cachet of being involved with that individual and bringing them and say, I learned so much from that experience and I know what to do differently. And now let me do it for you. We love a good redemption story, right? So maybe there's tolerance for that. And I don't know how many lessons are actually getting learned in the process. To add to that, yeah, to add to that too, I think there's a piece of there's going to be that grittiness, that unchecked part of just that's the nature of startups.

Right. You're figuring things out. And I think as investors, you know, how to check that. Like, what is the point of when you check it? Is it when you get to IPO? Is it before that, but you want to make sure that from like a cultural perspective, you have a succession plan, you have all of the things that Peter Carton have outlined in check. Or do you not care?

Right? Like, again, you know, when you look at it going back to Elon with Twitter, now X, that was a really rough transition. People were sleeping in their offices. people were so many. I'm sure we all have like individual stories of someone who worked at Twitter at that time. And just how brutal it was and how every day you're kind of feeling like you're walking on the plank. And, you know, thousands of, like, you know, right now X is thriving.

And Elon has done that for a lot of his other companies. And so, you know, as an investor, are you saying this is kind of the standard? We don't care as long as it's successful or it's going. then that's great, right? Not that it's great, but it's like, okay, that's your strategy. You don't really care. So as long as the product is shipping, you're doing what you need to do, we don't really question it.

And maybe that's your measure of success where there's other VCs and other investors who might say, you know what, that's great, but we don't want that state. We want to have and build an organization or a product where people look to and say, you know what, that's incredible. Not only did you push a vision, you've built a workforce that, you've built a workforce that, you know, believes in you and you have loyalty and, you know, people want to be here, not they're forced to be here out of fear. You know, it's really up to the board and the CEO at the end of the day to figure out what they want because you can kind of move in different directions.

And I would say with all of these folks, it was unchecked because it was okay to be unchecked. Nobody cared as long as the product was there. In Billy's case or in Elizabeth Holmes case, it was so so unchecked that even though the product wasn't at all where it needed to be, like Fire Festival was an absolute disaster. When you get to that stage where it's completely failing, that's where it becomes the onus on the CEO. So we have these companies that have created a bubble around CEOs and allowed them to run wild.

We have individuals that are hardwired to take advantage of those types. of opportunities or they get where they are by proximity and they're not necessarily the right leader, but they've been given leadership. And once they have a taste of it, typically they don't want to relinquish the power. So we've shown that it can happen once for someone that doesn't have a track record, can earn their way into an opportunity or find their way into an opportunity, get investors, get backing, get the support, whether it's culture of fear or personality or however they get to that. point once they fail out, did we fix it to the point where it's not going to happen again? Or is that just,

you know, is it so institutionalized that those CEOs are going to go on to have long and fruitful careers? I want to know if we fixed it. I don't know that we fixed it in that manner, right? Like there's always going to be these like amazing visionaries that are going to be like the Pied Piper. People are going to follow them. But I do think that we've brought up great red flag checklist. items, right, that can actually help sustain and grow the business and can also make sure that the culture, the people are all taken care of. The customers are taken care of. So in my mind, I think that we've raised awareness, that there are things that should be looked at in order to help to prevent, you know, a disastrous blowout like we've seen with some of these.

What do you say, Peter? Yeah, I think it generally comes down to I really am starting to more and more see it as a cultural thing. If you look at the way that Japanese CEOs are brought up and conditioned to serve the company and where it is from a compensation perspective and where it is from an accountability perspective, that is a uniquely Japanese-centric, culturally-centric approach to business. And I think the opposite, the pendulum swings the other way. When you're talking about American entrepreneurship, we are very comfortable with failure, you know, both personally and professionally.

And like somebody said on here, America loves a redemption story. So it creates a little bit more our bankruptcy loss. People are incentivized to take risks. You will survive and you can come back from it. And I think that that powers a huge portion of our economy, that kind of entrepreneurial spirit. which is great. I don't know if you can throw out the baby with the bathwater. When you have that little bit of an approach, you are going to see charlatans kind of get into the space. And oftentimes the people who are visionary or start off as visionary, they can become charlatans. Or sometimes

the charlatans can get far enough. They can get to the escape velocity and they can, again, hire that team that can actually bring people along. So it's really difficult, in my opinion, to separate what is powering, kind of like that risk-taking. in the innovation versus what's what's a responsible level of risk. So for me, I think that what we've talked about in terms of like red flags to look for, everybody's going to have a little, every company is going to have a little bit of their own kind of cultural dysfunction, I would say. The secret is being able to decipher. Is this too many red flags? Is this adding up? Are they able to be successful in spite of the dysfunction? It is the dysfunction kind of, is it at an acceptable

level and it's difficult. Even people from the outside is extremely difficult. You don't know the goings-ons, but it's even difficult if you're inside one of these organizations. I've been in many organizations where I've convinced, okay, tomorrow this thing is going to fail. It's going to fall down this house of cards. And I've been completely wrong. Those companies are still going. As opposed to, I've left companies where I'm like, this company's good. It's just not for me. And then something either on a macro level or something comes out of left field and it crushes that company. So it's really difficult to predict. I think the best you can do is make sure that you're comfortable with the risk and that you understand the risk.

I would say if we're looking at it from a perspective of do we fix spotting these types of people, I would say yes. We did fix it. But again, back to Peter's point, it really is dependent on the appetite of that company, how risk-averse they're willing, how talk. They're okay with having their workplace. So I think we've outlined some really good pieces on how to spot these people when you are looking to hire a CEO or a leader or if you're an investor looking for those signs. But, you know, that's, so from that perspective, I do believe we fixed it. Yeah, I agree with you, Chino. I think we came up with some indicators and maybe a playbook.

But just the fact with Billy we're talking about not even another investment. or another, another, you know, company. We're talking about Fire Festival, too. It's the same thing. Again, maybe we'll have a different outcome. Well, that time will tell. This podcast is produced by Straightforward Media Group, all rights reserved. If you'd like to learn more about how a podcast can help your company establish authority and generate leads,

please email us at Eric at StraightforwardMG.com or go to StraightforwardMG.com for more information.