The Importance of Great Leadership
Chris Anderson’s piece in this weekend’s WSJ, The Economics of Giving it Away, has sparked a lot of digital conversation over the past few days.
As I’ve stated previously on this blog, I fundamentally agree with Chris’ notion that in order for online businesses to create big profitable companies they will have to start charging for great (making them great is not trivial of course) services. Advertising alone will not be able to fill the void.
This is not a new concept for consumers, even on the web. For years, consumers have paid for dating sites, listings sites, gaming sites and others.
Keying off Chris’ piece, Fred Wilson wrote a provocative post extolling the virtues of Internet business models that drive cash flow through a rigorous focus on scalability and cost minimization. There is of course truth to Fred’s point that revenue and cost have a 1:1 relationship and a dollar lost of one is as good as a dollar gained of the other.
But, as I commented on A VC, in order for a company to be both big and profitable I believe they need to do both — maximize revenue and minimize cost.
Part of the distinction here is simply a stage thing — earlier-stage companies benefit tremendously from lean teams and nimble operations that can move quickly to build product and adapt it to market needs. But over the life-cycle of a great company, without investing to grow the top-line there is a fundamental cap imposed on profit and value.
So how do great companies manage to effectively do both? I believe it all comes down to great leadership. This may sound trite or obvious, but I don’t think it can be emphasized enough. This is a CEO’s fundamental challenge — maximizing revenue while minimizing costs, investing in the strategically important and positive ROI projects while maintaining a relentless focus on efficiency that always has the organization feeling one person short of fully staffed.
How do great leaders do this? They hire and empower incredibly talented people in all key functional areas, and those people in turn do the same all the way down the line. They focus almost all of their attention on capital allocation, to make sure money is always spent prudently and in the right places balancing all of the company’s short-term and long-term interests. And they create a culture of performance and accountability that permeates the entirety of the organization.
And that’s why the right leader is so critically important to the success of a company. If there’s anything that’s been confirmed for me in my early days in the venture business, it’s that great people best great ideas any day of the week.
