Know When To Declare Defeat And Toss Out A Bad Idea – Do Not Be Afraid To Say, “That Baby Be Ugly!”

Hitsville USAAs Founder and CEO of Motown Records, Berry Gordy devised an effective methodology to objectively evaluate and critique the label’s music.

Gordy created a unique culture which deemphasized cronyism and encouraged open and honest debate regarding the subjective quality of the company’s creative output. During the 1960’s, Motown’s artistic success was unprecedented. From 1960 through 1971, Motown released 111 singles which entered Billboard’s top-ten ranking, of which 28 rose all the way to #1.

Startups consistently identify more ideas and opportunities than they have the time or resources to pursue, such as potential partnerships, new products, entering emerging markets, etc. Motown’s disciplined quality control techniques can be mimicked by startups to objectively evaluate which initiatives should be pursued in the near-term, which should be considered in the future and which should be dismissed entirely.

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Idea Cronyism

The ability to objectively critique ones creative output is vital to an entrepreneur. Idea cronyism occurs when decisions are based upon the personalities, social status and other non-objective criteria associated with the idea’s champion(s). For instance, when a venture capital partner votes for a follow-on investment in exchange for the future support of one of her investments, idea cronyism is at work.

In the early 1960s, conventional wisdom in the music industry did not lend itself to a systematic manner of evaluating creative content. Record companies evaluated songs based upon a variety of informal means, such as the Old Gray Whistle Test. In addition, an artist’s stature dictated the extent to which promotional resources were applied to particular songs. In this subjective environment, established artists were able to exert disproportionate influence, irrespective of the underlying quality or marketability of their latest songs. 

Lincoln MercuryMotown’s methodology for assessing its songs was simple and effective. Gordy’s inspiration for Motown’s unique quality control process was the Lincoln-Mercury assembly line, where he worked prior to becoming an entertainment entrepreneur. The process started with Mr. Gordy and a non-partisan Assistant deciding which songs would be evaluated. This is analogous to a startup CEO selecting which ideas will be considered by a larger group for implementation. Someone must define the universe of ideas to be reviewed at the outset of the process, otherwise the task is impossibly inefficient.

Motown’s system was not just efficient, but it also allowed the company to avoid the cronyism that can infect organizations as they mature. Every Friday, Motown personnel convened to review the songs chosen by Mr. Gordy from those recorded during the prior week. Each song was played before a disparate group of listeners, each of whom had a yea or nay vote. A simple majority ruled, with Berry Gordy breaking any ties or close votes.

To emulate Motown’s methodology, instill the following characteristics into your adVenture’s opportunity evaluation process:

  • Menu – CEO defines the list of ideas and the opportunities to be evaluated
  • Blunt & No Reprisals – Encourage participants to be straightforward and honest, without concern for hurting a peer’s feelings. Everyone should understand that critiques are divorced from the person(s) supporting the idea. In his book Motown: Music, Money, Sex, and Power, Gerald Posner notes that Gordy established a culture in which, “…frank expression became not just a right, but rather a duty.”
  • Majority – Give each participant one vote per idea, irrespective of their title or status. Ideas with the most votes proceed to the next stage of evaluation. Do not allow participants to vote on their own idea.
  • Veto – CEO retains the right to override the majority. However, to avoid undermining the democratic process, such vetoes should be rare. It should generally be deployed only when the vote is close.
  • Snooze and Lose – Late participants are not allowed to vote. This ensures that all lobbying and discussions are performed in a single forum, thereby increasing the efficiency and transparency of the process.
  • Balanced Constituency – As detailed in Be The Beatles, balance is of utmost importance at a startup. You can inject objectivity into an inherently subjective process by exposing ideas to a cross-section of your organization. For instance, engineers will typically evaluate ideas differently than people engaged in sales, who in turn will consider ideas from a different vantage point from those responsible for product development and marketing.

Motown’s system worked because each song was evaluated on its merits and with consideration as to the impact each single could make on the company as a whole, without consideration to the contribution a particular song might have on an artist’s career. In the startup world, ideas should be evaluated in a similarly systematic and non-emotional manner. One way to evaluate and contrast the impact of your ideas against one another is to plot them on the matrix shown below.

Impact Matrix

As discussed in Beware The Consultant, an entrepreneur’s most precious assets are her Time and Money. The Impact Matrix attempts to assess the relative priority of an idea, based upon the following criteria.

Speed – How quickly will the ideas manifest themselves and begin to impact the adVenture.

Impact – The degree to which the ideas further the adVenture’s objectives. For instance, how much money will the proposed idea save the company or how much revenue will the proposed opportunity generate?

Risk of Defocus – To what extent is the idea aligned with the adVenture’s overall vision. The less strategically congruent a particular idea is, the greater the chance that its implementation will impede the company’s ability to achieve its broad, strategic goals.

Resources Required – At most high-tech startups, the resources will include developers’ time and the opportunity cost associated with alternative uses of the developers’ 12-hour work days. Additionally, many opportunities require financial investments which must be considered in tandem with non-financial resource requirements.

Evaluate each of the following metrics on a scale of 1 – 10. For instance, a particular idea might be scored as follows:

Speed:
8 – relatively fast
Impact:
3 – relatively small
Defocus:
-7 – relatively high risk (zero = a deal with no risk of lost focus)
Resources:
2 – relatively small

Total:
6 – mediocre opportunity

The higher the overall score, the closer it will appear in the upper right corner of the Impact Matrix and the higher it should be in the company’s implementation queue. In the above example, a score of 6 is probably not high enough to merit immediately moving forward, although it might warrant reassessment at a later date.

Once all the opportunities are mapped, they can be visually compared against one-another. An individual idea’s relative position will shift over time, as shown in the matrix below. For instance, from 2001 – 2003, I frequently lobbied for a Mac-compatible version of GoToMyPC. However, at that time, our resources were better applied to exploiting our primary, PC-based market. A Mac-compatible version of GoToMyPC was not released until 2010.

Fluid Impact Matrix

You will probably never execute most of the ideas in the Do Ad Hoc quadrant, but some, like a Mac version of GoToMyPC, may eventually shift to the Do Now quadrant as your adVenture acquires additional resources and markets shift.

Evaluating ideas via such a matrix force discipline on business development deal junkies, commission-driven sales leaders and engineers engaged in product feature creep. The Impact Matrix can be used at a departmental level with each department’s projects eventually rolled up to a more macro, company-wide view.

The Motown Sound Alike

For all of its commercial success, Motown has its share of detractors. One of the most consistent criticisms is the “sameness” of its songs. Motown’s finite stable of musicians, songwriters and singers naturally crafted songs which sounded similar over time. Gordy’s quality control process, which avoided the crony system, also disproportionally rewarded songs which were “middle of road” and relatively “safe”, which made the similarity of Motown’s songs even more pronounced.

Whats Going OnBy the early 1970s, Motown had become a Big Dumb Company. Its objective methodology had broken down and egos began to inappropriately influence the company’s decision making process. Barry’s Founderitis exacerbated Motown’s idea cronyism by frequently and arbitrarily wielding his veto right.

In particular, Marvin Gaye’s 1971 breakthrough album What’s Going On was initially rejected by Gordy. Marvin was forced to re-record many of the songs and eliminate the loose, party-sound which made the record unique. Fortunately for music fans, Marvin Gaye’s prior commercial success was sufficient to thwart Mr. Gordy’s capricious veto and the initial version of What’s Going On was ultimately released. In 2003, Rolling Stone magazine rated What’s Going On #6 on its list of the 500 Greatest Albums Of All Time.

As your organization matures, crony relationships are more likely to develop and ultimately disrupt the idea evaluation process. To avoid the creative demise which befell Motown, your Core Team must maintain a disciplined method of assessing the veracity of the potential opportunities faced by your adVenture. If you do this effectively, you and your team will always know What’s Going On.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
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Copyright © 2007-10 by J. Meredith Publishing. All rights reserved.

John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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