John Chambers knows how to kick off an interview.
“How can we make this the best interview you do this year?” he asks.
That kind of inquisitive, progressive push forward is why John is a legend.
John has been innovating tech since the ‘80s. He spent 25-plus years serving as the CEO, chairman and chairman emeritus of the company he helped found, Cisco. Then he went on to found JC2 Ventures, the culmination of his experience honing the cutting edge of the last quarter century of tech.
Needless to say, John did exactly what he set out to do by asking us that question. As he always does, he pushed us to be our best.
Here’s a 360-degree aerial view from a living legend who remains instrumental in building the current tech ecosystem.
Master the basics
Scott: What are your thoughts on risk?
John: I bought 180 companies when I was at Cisco –– ones taught in classes about acquisitions at Harvard and Stanford business school, etc.. The common characteristics that get companies into trouble are about getting the basics wrong.
Scott: What are the basics?
Focus on market transitions, not the competition.
In this world, almost every company is a technology company, whether you’re in retail or healthcare or manufacturing. Understanding how technology transitions enable the business transitions is key.
Know what you know and know what you don’t.
Sometimes people can get lucky, but often they assume that, for example, because they’re a really good engineering lead they understand sales or finance. And usually they don’t. So I always coach my leaders to be humble. Know what you’re good at, but don’t think that just because you’re really smart in one area, it carries over. Surround yourself with people who can help you be successful and cover your weaknesses.
Get real about crisis management.
If as a leader, your company faces a crisis, don’t hide. Be visible and talk about the issue. Determine how much of the crisis was self inflicted –– any mistakes you made, and how much of it may have been market inflicted.
Outline what you’re going to do to fix it.
You’ll need to react quicker and deeper than you think. Identify the improvements. Then communicate with your customers, your employees and your shareholders on a regular cycle and show your progress. As basic as that sounds, some very large high tech companies have done all four of those wrong.
Find your tribe
Scott: I’d like to see more founders be honest and not have to always “fake it till you make it.” Everybody does it, but it’s actually detrimental, especially if you have early success.
John: I would agree. When I first became a CEO, I thought I should have answers to every question. As I got more comfortable and more experienced, I realized that people are realistic. They know I don’t have all the answers. I have a lot more credibility saying, I don’t know that area, but I can get back to you on it, instead of saying I have everything completely under control.
Your investors know that if you’re in a startup, you have a problem every other week. They expect you to hit some bumps. However, depending on the maturity and experience of your investors, be careful about exposing too much. I like your view of transparency, but you’ve got to adjust, based upon your audience. If your company’s in survival mode, your employees want to hear that you’re a rock.
Develop advisors who can help you through these transitions. Originally, most companies I’ve invested in would tell you that they asked JC2 to be involved because of our investment. Now they say that what they value most is mentorship. We’re there when they’re trying to decide how to recruit people, how to handle problems, where to go to when we get into areas we don’t understand well enough and how to transition founders who are no longer able to scale with the company.
Earn a mentor
Scott: I coach a lot of founders on finding somebody who can give you valuable feedback, but who you can be honest with. Maybe someone who doesn’t have much to gain or lose from your relationship. You hope that you also bring some value back to them.
John: I do. It’s a challenge for many startup CEOs. They’ll tell you that they don’t have a good advisor. But that’s something I did throughout my career. I earned the trust of people I liked and asked them, after several meetings, if I could periodically gave them a call for advice.
Don’t do that right away. In my first meeting with Luke Platt, the CEO of HP, I asked for another meeting. By the third one he said, “if you want to do this every quarter, I will.”
He did for three years. After that I said, what can I do to pay you back? He said –– this is classic Hewlett Packard at the time –– “just do it for the next generation.”
Now I do that regularly for others. But the point here is, you need to develop those relationships. I think it’s especially true for female CEOs. According to surveys I’ve seen, 65 percent of the women who are CEOs don’t have anybody who’s a trusted advisor without a stake in the game.
If you’re asking somebody to advise you, be careful about giving them stock too quickly, because their advice might change. Make sure the relationship and the advice is working before giving them a piece of the action.
One of the best ways you develop a relationship is to ask for advice. Then write it down. You’ll remember it, but you also you show that person that you think what they’re saying is important.
Scott: Nothing quite prepares a CEO for leadership like learning the value of scaling a company. Did you learn to see the micro and macro picture at a young age?
John: Yes. But there’s also a lesson I learned that I think could be very important for your audience. I alluded to it earlier. I always compete against market transitions, business model changes and technology –– never against competitors. If you focus on competitors you’re looking backwards. Entrepreneurs should get market transitions right and have the courage to take risks.
If you’re within your comfort zone, you’re probably not taking enough risks. But if you’re outside your comfort zone, get people around you to advise you on how to navigate through.
As a venture capitalist, I prefer to invest in leaders who’ve worked at other startups –– who’ve had a combination of successes and failures. They’re a much safer investment for me than somebody straight out of school.
If you’re coming out of school, realize that you aren’t going to have as many life experiences. You won’t have all the answers. Find people who can give you good advice and direction. If you’re a seasoned investor, you’re much better off betting on a team that’s worked together and has a few home runs already.
Scott: I’ve seen a lot of deal flow lately –– just spraying money. Venture firms seem to play a volume game. What’s your thesis on this?
John: Any VC who tells you they can pick one winner from the beginning is overconfident and wrong. Good VCs will tell you it’s a portfolio play. They decide how much risk they’re going to take. Some of the best-returning funds bet for home runs but they have as many as 50 to 70 percent failures.
I anticipate that if I do my job really well, only about a third of my companies will fail. But I’ve got to be good on identifying which way they’re going to go.
You don’t know until you get a couple of years into these companies –– which ones are riding the wave right. I don’t believe in spreading money blindly. I look for the same pattern: market in transition, great CEO, customers telling me I should invest here, near a threshold of improvement, et cetera. That pattern gives me a dramatically higher rate of success.
It’s a similar set of golden rules that I followed when we did 180 acquisitions at Cisco. It was probably more successful than any high-tech company has ever done. I think most people in the market would agree with that.
Consider the conservative
Scott: As an investor, what are the pitfalls around companies we see flying out of the gates, launching an IPO with no profit?
John: I think of Jeff Bezos at Amazon. Do you make profits first, or get market share first? You can make either strategy work.
At Cisco I focused on profits and market share –– hand in hand. We were one of the most profitable companies in history, very early on. If you invested $1,000 at Cisco when we went public and sold it when I left the CEO role, you made $156,000.
Both approaches work. But if you’re going public with financing, yet you don’t have a clear path to cash-flow positive profits, your odds of success drop dramatically.
I personally believe that profits first is a much better way to go, with a much higher probability of success. Most startups you talk to have only seen the longest economic run in history: the last 10 years. They’ve never seen a downturn. I saw 2001. I saw 2008.
If you go into a downturn over-extended, you’re roadkill. So I argue for being more conservative. All of my current 18 startups will have a very clear path to profitability, a very clear path to cash-flow positive if they’re not there already, before I encourage them to be sold or to go IPO.
Risk = reward
Scott: All of these lessons culminate in your book, Connecting the Dots: Lessons for Leadership in a Startup World. Talk a little bit about it.
John: I open the book with a story about how I almost drowned at the age of six while I was fishing with my dad. He was upstream, and he told me not to get too close to the edge. But of course, I fell in. The rapids were very challenging, and he yelled at me from way up above: “hold onto the fishing pole.” Every time I surfaced, I got pummeled down through the rocks. But he kept yelling to hold on.
So I was focused on the fishing pole. He finally caught up to me, swam in and pulled me out. He asked me if I understood why he told me to hold on to the pole. I didn’t. He said, “if you focus and don’t panic, you can deal with almost anything in life. It’s when you panic and try to swim against the current that you can get into real trouble.”
It’s a lesson that stuck with me.
The reason I wrote the book was that as I traveled around the world, the questions were very similar: John, write a book that encapsulates what you’re teaching us so I can use it as my go-to book in business. That was my objective: write a book that startup leaders, not just the CEOs, but leaders in general, could learn from.
There’s nothing that makes me more excited than when somebody asks me to autograph my book and it’s dog-eared with notes on the margins.
I’m dyslexic. Early on, people had doubts that I would graduate from high school, much less go to college. But because I had two parents who believed in me and a special teacher that dealt with learning disabilities, I learned how to take this weakness and make it a strength.
Having the courage to be a risk taker, and regularly reinventing yourself, is key. Get outside your comfort zone.
How you handle setbacks is what makes you a great leader. Jack Welch taught me that you’ll never have a great company without a near death experience. And he was right.