We do not believe that this is going to be another steep correction followed by an equally swift V-shaped recovery like we saw at the outset of the pandemic.
Sequoia Capital is infamous for its memos and presentations it shares with its portfolio companies during macroeconomic crises (“R.I.P. Good Times” was for 2008; “Coronavirus: The Black Swan of 2020” was another).
Its latest warning, which was shared with 250 founders on May 16th, was called “Adapting to Endure.” In other words, don’t expect a recovery from the current market downturn to happen quickly.
Over the years, Sequoia, the venture firm behind Google, Apple and Airbnb, has developed a reputation as the tech industry’s POV Master, through memos and presentations that it shared with the leaders of its portfolio companies during past macroeconomic crises.
In 2008, that took the form of a 56-slide survival guide to the Great Recession, entitled “R.I.P. Good Times.” In early 2020, as the pandemic began upending the economy, Sequoia sent its founders a grim memo entitled, “Coronavirus: The Black Swan of 2020.”
Its latest warning to its portfolio companies takes the form of a 52-slide presentation where:
Sequoia describes the current combination of turbulent financial markets, inflation and geopolitical conflict as a “crucible moment” of uncertainty and change;
Sequoia told founders not to expect a speedy economic bounce-back akin to what followed the start of the pandemic because, it warned, the monetary and fiscal policy tools that propelled that recovery “have been exhausted.”
The firm suggested founders move fast to extend runway and to fully examine the business for excess costs. “Don’t view [cuts] as a negative, but as a way to conserve cash and run faster,” they wrote.
You can view the deck here and it is worth a skim to see what a top-tier Silicon Valley VC thinks about the current macro climate.
Management consultants whether McKinsey, BCG or Accenture have made an industry out of identifying best practices and applying to specific company challenges.
Although most in-house legal and compliance departments have remained immune from this for many decades, the tide has been turning for some years now with many legal departments building out higher-performing teams, operations, and services. Leveraging best practice insight – from across all sectors not just legal teams – has been a key ways to support this.
“While every company and team has its own unique needs, the guidance in these functional areas – known as the “Core 12” – applies to many environments and requirements towards operational excellence”.
The Core 12 can be seen below:
Essentially these are the operations, services or capabilities which define the legal function. CLOC provide more context below:
“Legal operations” (or legal ops) describes a set of business processes, activities, and the professionals who enable legal departments to serve their clients more effectively by applying business and technical practices to the delivery of legal services. Legal ops provides the strategic planning, financial management, project management, and technology expertise that enables legal professionals to focus on providing legal advice.
The Core 12 allows any legal department leader or 3rd party consultant to assess their current state of performance maturity, map it to the ideal state, and then decide and plan what are steps they wish to take to improve which makes sense for their specific context and constraints.
The last aspect is critical as the Head of Legal in a Series A-funded start-up will have completely different challenges, requirements and objectives to a Fortune 100 legal team.
When selecting one of the 12, you can deep-dive further into that area of competence. For example, with Technology, CLOC provide the following high-level (and non-exhaustive) detail to help understand what good generally looks like:
TECHNOLOGY: Innovate, automate, and solve problems with technology.
Current reality: Teams often rely on manual, time-consuming, and fragmented point solutions. They may lack an overall technology vision and are deploying costly applications that are underused and disconnected from the team’s workflow.
Desired state: Create a clear technology vision that spans all of the needs of your organization. Automate manual processes, digitize physical tasks, and improve speed and quality through the strategic deployment of technology solutions.
Create and implement a long-term technology roadmap
Incorporate connected tools for e-billing, matter management, contact management, IP management, e-signature, and more
Automate repetitive or time-consuming manual processes
Determine where to build and where to buy
Evaluate new vendors, suppliers, and solutions
Assess emerging technology capabilities and incorporate into your long-term strategic planning
Structure an effective partnership with your corporate IT team
Although the CLOC 12 isn’t of itself a useable tool as far as detailed diagnostic, business analysis or benchmarking is concerned, it does provide a helpful introduction for legal leaders looking to learn more about what good looks like in terms of legal operations and capabilities.
CLOC have a download guide with more information on the Core 12 which you can access here
Recently I posted here about how organisations can go back to basics and understand what digital really means. In the context of today’s rapid acceleration of digital and IT investments to support remote or new ways of working – from cloud to SaaS tools to desktop VC solutions – this is critical to understand.
Another key fact to consider is that some of the most successful companies ever were started during or just after times of crisis (e.g. GE, GM, IBM, Disney, Facebook).
For leaders who can seize the ‘re-set’ opportunity this crisis provides – and start to engage with more long-term, future-focused, and exploratory strategic planning with digital at the core – this presents a potentially game-changing moment.
This presents a critical question: how should firm’s approach and organise to make digital or innovation investments and transformations successful?
Whilst there is no playbook, below I pull together a number of perspectives from some of the world’s leading management thinkers and practitioners on strategy, digital, innovation and change.
Digital transformation is extremely complex and requires new ways of approaching strategy. Starting big, spending a lot, and assuming you have all the information is likely to produce a full-on attack from corporate antibodies—everything from risk aversion and resentment of your project to simple resistance to change.
Start Small, Think Big
Professor Rita McGrath calls this ongoing learning approach to strategy: discovery-driven planning (DDP). It was developed in the 1990s as a product innovation methodology, and it was later incorporated into the popular “lean start-up” tool kit for launching businesses in an environment of high uncertainty. At its center is a low-cost process for quickly testing assumptions about what works, obtaining new information, and minimizing risks. According to Rita:
By starting small, spending a little on an ongoing portfolio of experiments, and learning a lot, you can win early supporters and early adopters. By then moving quickly and demonstrating clear impact on financial performance indicators, you can build a case for and learn your way into a digital strategy. You can also use your digitization projects to begin an organizational transformation. As people become more comfortable with the horizontal communications and activities that digital technologies enable, they will also embrace new ways of working.
2. Soft and Hard Facts About Change
Managing change is tough, but part of the problem is that there is little agreement on what factors most influence transformation initiatives. Ask five executives to name the one factor critical for the success of these programs, and you’ll probably get five different answers.
In recent years, many change management gurus have focused on soft issues, such as culture, leadership, and motivation. Such elements are important for success, but managing these aspects alone isn’t sufficient to implement transformation projects.
What’s missing, we believe, is a focus on the not-so-fashionable aspects of change management: the hard factors. These factors bear three distinct characteristics. First, companies are able to measure them in direct or indirect ways. Second, companies can easily communicate their importance, both within and outside organizations. Third, and perhaps most important, businesses are capable of influencing those elements quickly. Some of the hard factors that affect a transformation initiative are the time necessary to complete it, the number of people required to execute it, and the financial results that intended actions are expected to achieve. Our research shows that change projects fail to get off the ground when companies neglect the hard factors. That doesn’t mean that executives can ignore the soft elements; that would be a grave mistake. However, if companies don’t pay attention to the hard issues first, transformation programs will break down before the soft elements come into play.
3. Breaking Down the Barriers
According to a 2019 article from the partners from Innosight, a critical reason for businesses failing to get the impact they want is because they’ve failed to address a huge underlying obstacle: the day-to-day routines and rituals that stifle innovation.
Innosight Partner Scott Anthony talks further about this below:
4. A Systematic Approach
A study by McKinsey here of leaders post-transformation has shown there are 21 best practices for organisation’s to implement to improve the chances of success.
These characteristics fall into five categories: leadership, capability building, empowering workers, upgrading tools, and communication. Specifically:
having the right, digital-savvy leaders in place
building capabilities for the workforce of the future
empowering people to work in new ways
giving day-to-day tools a digital upgrade
communicating frequently via traditional and digital methods
One interesting best practice was that firm’s who deploy multiple forms of technologies, tools and methods tended to have a great success rate with transformation (see below).
This might seem counterintuitive, given that a broader suite of technologies could result in more complex execution of transformation initiatives and, therefore, more opportunities to fail. But the organizations with successful transformations are likelier than others to use more sophisticated technologies, such as artificial intelligence, the Internet of Things, and advanced neural machine-learning techniques.
The full list of success tactics are below with the full article is here.
Out of 83 practices that were tested in the survey, the following are those that best explain the success of an organization’s digital transformation:
Implement digital tools to make information more accessible across the organization.
Engage initiative leaders (leaders of either digital or nondigital initiatives that are part of the transformation) to support the transformation.
Modify standard operating procedures to include new digital technologies.
Establish a clear change story (description of and case for the changes being made) for the digital transformation.
Add one or more people who are familiar or very familiar with digital technologies to the top team.
Leaders engaged in transformation-specific roles encourage employees to challenge old ways of working (processes and procedures).
Senior managers encourage employees to challenge old ways of working (processes and procedures).
Redefine individuals’ roles and responsibilities so they align with the transformation’s goals.
Provide employees with opportunities to generate ideas of where digitization might support the business.
Establish one or more practices related to new ways of working (such as continuous learning, open physical and virtual work environments, and role mobility).
Engage employees in integrator roles (employees who translate and integrate new digital methods and processes into existing ways of working to help connect traditional and digital parts of the business) to support the transformation.
Implement digital self-serve technology for employees’ and business partners’ use.
Engage the leader of a program-management office or transformation office (full-time leader of the team or office dedicated to transformation-related activities) to support the transformation.
Leaders in transformation-specific roles get more involved in developing the digital transformation’s initiatives than they were in past change efforts.
Leaders in transformation-specific roles encourage their employees to experiment with new ideas (such as rapid prototyping and allowing employees to learn from their failures).
Senior managers get more involved in digital initiatives than they were in past change efforts.
Leaders in transformation-specific roles ensure collaboration between their units and others across the organization when employees are working on transformation initiatives.
Senior managers ensure collaboration between their units and others across the organization.
Engage technology-innovation managers (managers with specialized technical skills who lead work on digital innovations, such as development of new digital products or services) to support the transformation.
Senior managers encourage their employees to experiment with new ideas.
Senior managers foster a sense of urgency within their units for making the transformation’s changes.
4. Execute AND Innovate
For any followers of the work of the late Professor Clayton Christensen on Disruptive Innovation (view his HBR collection of popular articles here), this is a fundamental challenge for almost every established firm which often becomes a matter of survival during industry, business model, technology or other shifts.
According to Alex Osterwalder:
This continues to be one of the biggest challenges we see companies face: to create two parallel cultures of world-class execution and world class innovation that collaborate harmoniously.
Watch this video here to read more about how leaders can overcome this challenge.
5. Constant Learning
In a constantly evolving landscape, it is critical for leaders to keep learning and evolving their thinking and tool-sets for strategic planning, crisis management, innovation, problem solving, and other business processes.
There are lots of sources out there (including those mentioned above), but below I provide a few great ways I do this (NB I am not formally affiliated with any of these organisations):
There are a number ways to improve the thinking and planning of the approach to digital investment strategy. This not only improves the chances of benefit realisation and achievement of strategic goals, but in the current time of crisis, can set up the firm for long-term success.
Whilst there is no playbook for leaders, these initial set of resources can help organisations to refocus current thinking and initiatives during these extraordinary times.
I’ve just read a great interview with management guru Charles Handy here.
Here is a great quote from that interview:
“In this disentangled world, people try to talk about agile management as a solution but management is the wrong word. It only makes sense when it is applied to things; you can manage a communication system, you can manage resources, but you can’t manage people.
Management is about making sure that people have the right ammunition to fire the Kalashnikov; leadership is about making sure they use it for the right purposes and don’t shoot their team” – Charles Handy
One core question might be this: Is there still a place for management as we knew it, and if so, what does it look like going forward? This is what most leaders, consultants, management thinkers and more are questioning at the moment.
I’m working on some perspectives so I’ll be sure to share them here soon.