June 2017

 

When a company’s ownership is dominated by a small number of stockholders related by blood, it is often hard to distinguish between what is good for the business and what is good for the family.

This blurring can be a positive thing. As someone who grew up in two family businesses, I saw both the positive and negative: the satisfaction my parents gained from having autonomy and getting a new order from a customer but also the long hours and unpredictability of entrepreneurship.

When dinner conversation at home is as likely to be about whether the family business will be able to make payroll as what the children did at school that day, it does leave an impression.

One of the biggest determinants of whether someone will be an entrepreneur is if they were exposed to it as a child. For those who grew up around it, starting a business is much more natural and therefore likely. For good or for ill, children surrounded by a family business know what they are getting into by choosing entrepreneurship in adulthood.

However, there is also a potential down side to a family business. To understand this better, I reached out to David Pellegrini, a psychologist who specializes in family business matters. He pointed out that unlike a “normal” company, the CEO in a family-run business is usually both the generational and professional leader. This can be challenging because, as he puts it, “being the boss of one’s own children tends to lead to an expectation of fealty, loyalty and appreciation from the children.”When this happens, the offspring who are not in charge tend to be deferential.

In my consulting business, I have often seen this pattern of behavior to be very damaging. The head of a family-owned company who does not exercise care can become convinced that there is no need for outside viewpoints, particularly if things are profitable.

Pellegrini notes that this stifles the leaders’ personal growth, because “they have less need to develop skills of persuasion, consensus-building, or true engagement.” It also puts the business at risk if unexpected challenges arise, since it will not have the benefit of a broader experience base to draw from, or lessons to be learned.

Another downside is that viewpoints of non-family members are often treated with suspicion, if not contempt. The entity becomes a self-referential echo chamber, with the business leader in the middle of a sycophantic group offering only news he or she wants to hear. This issue cannot be solved through marriage; often, those who marry into a family are still treated as second-class citizens, since they are not blood relatives.

So, what can break this toxic dynamic? In my experience, the only remedy is for the family head to consciously separate family dynamics from the business, involve professional management and entertain contrary views.

Without making these changes, a family business leader may succeed for a time, but long-term success is highly unlikely.

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When a company systematically breaks a law, we are often surprised. We shouldn’t be.

Every business leader is taught that success depends upon creating an organizational culture with a shared sense of purpose and values between employees and leadership.

Uber’s ongoing allegations of hostile and unfair treatment of female employees and Wells Fargo’s secret creation of millions of unauthorized deposit and credit card accounts at the expense of customers show that company culture can actually incite coordinated illegal activities. How does this happen?

Jack Ewing, author of “Faster, Higher, Farther” looked at this issue in connection with the fraud surrounding Volkswagen’s corporate decision to sell hundreds of thousands of cars with diesel engines that did not comply with environmental regulations. Over many years, VW systematically built engines designed to cheat on emission tests and to obscure inspections on just how toxic they were.

How it got to this point is instructive. It begins with the corporate culture.

A “corporate culture is never written down; it’s just what everyone knows,” Ewing told me. CEOs who do not tolerate failure or who are not interested in dissenting opinions rapidly create an environment where issues of legality or social norms become irrelevant against the broader goal of growth.

Tension inevitably builds because at some point in any large organization, employees will have to exercise judgement and decide for themselves what is right or wrong. When faced with that choice, will employees do the right thing?

As an observer of business culture, Ewing says the answer is clear: employees will not always do what is right, that “it’s up to management to set an example.”

My experience in the business world very much supports what Ewing observed through his research on Volkswagen. Leaders must encourage employees who might have bad news to deliver to speak up, and create an environment where subordinates can express themselves about uncomfortable situations. A mercurial founder who makes it clear he or she won’t tolerate contrary opinions is less likely to hear about important issues.

For VW and its substandard diesel engines and Uber with its perceived negative treatment of female employees, we have learned in retrospect of ample opportunities for the companies to change their paths and do the right thing, but employees didn’t feel safe to raise their concerns, and leadership didn’t show an interest.

It really does start at the top.

Stories like these serve as a reminder that without rules governing conduct, we should not assume that businesses will always act ethically. Business leaders are generally evaluated against the twin metrics of profitability and their ability to achieve effective collective action. If a company is justifiably motivated to pursue profit, we should not expect that every business will act in society’s best interest.

Let’s be fair to our business leaders; their job is to maximize profits and work within the rules, not to create new ones.

If we want to eliminate pollution, benefit from a fair financial services industry, and enjoy equality in the workplace, it is wise to have rules for business to follow.

We do not assume that citizens will always do the right thing — that’s why we have laws to regulate conduct. Why assume that it is any different for businesses?

A company can be objectively well-managed, yet willfully violate the law. Like a well-schooled crew team, frantically stroking as it tips over a waterfall.

This column originally appeared in The Washington Post.

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We as a society need to be schooled on how today’s young people learn, why technology and gaming are not the enemy, and that traditional classrooms with rows of desks and 30 sets of eyes directed toward the same blackboard are outdated.

The computer gaming industry is booming, and we should better harness its power. Whether it is augmented reality Pokémon Go or massive multi-player games such as World of Warcraft, the opportunities for start-ups are mind-blowing. In 2015, the global computer gaming market was worth $70 billion.

Capturing the imagination and encouraging gamers to engross themselves completely is a very rewarding skill for designers, who have learned how to balance the attributes of a successful game including playability, plot and engagement. The best ones create a feedback loop between game and player; the more the user participates, the more rewarding it is.

When it comes to education, many parents still see video games as the enemy of learning. Nothing but a time suck. Yet, a growing number of educational experts are proving that the attributes of popular computer games get high scores when applied to learning.

EverFi co-founder and chief executive Tom Davidson felt that the education sector was missing an opportunity to adapt gaming principles for positive effect. Founded in 2008, EverFi is one of the fastest-growing education technology companies in the United States. When I interviewed Davidson on my radio show “What’s Working in Washington,” he explained how the top-down model that prevailed 100 years ago was clearly not the way to teach today’s computer savvy students. The 21st century classroom needs to provide a more personalized educational experience — one where students learn at their own pace.

Davidson wants to expand education into areas defined by life skills: don’t teach just math, science and reading — include everything else necessary to be a successful member of society. He says EverFi’s mission is to tackle this country’s “most intractable issues, from financial education and sexual assault prevention to workplace health, diversity and inclusion.”

His business has grown, educating millions of students through games that instill valuable knowledge and insights. Recently, EverFi received $190 million in venture capital funding to expand its business and products. This impressive financing sets up the company for success, but is also indicative of another trend.

To Davidson, this is part of a larger story. The greater Washington region is a hotbed for education technology startups.

“There is literally no better place in the world to launch impactful education companies,” Davidson says, citing as examples Blackboard, 2U, Laureate Partners and Ellucian. He heaps praise on the region, predicting even more valuable education tools sprouting here because this “is the best place on earth to hire great educational leaders.”

Nurtured learners become leaders themselves eventually. Davidson speaks with several former students, including one who became financially literate through EverFi’s products, helping his family avoid financial ruin, and another student who navigated a highly-charged personal crisis through life skills he had learned.

For Davidson, this double bottom line — the combination of meeting the challenge of being an entrepreneur, and hearing how EverFi products impact students — provides a rewarding experience that “shoots him out of bed in the morning.”

It also reminds us of another fundamental truth: opportunities to make tangible impact through technology abound in the D.C. region. The unique cross-section of policy makers and technologists is fertile ground indeed.

This column originally appeared in The Washington Post.

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Everywhere, lines between business and political values have blurred, and often the actions of commerce challenge us to “take a side” in a political debate.

To this point, greater Washington’s tech community has largely stayed out of the fray. However, a group of well-respected start-up leaders is looking to change that, forming a group to respond to political issues through a grassroots initiative called the Capital Tech Coalition. They are taking a big risk while at the same time creating a huge opportunity for our start-up ecosystem.

I recently spoke with three members of this group’s steering committee about their hopes for its activities.

I learned that from its inception, the Capital Tech Coalition has had a political position and viewpoint. It originally came together to generate a letter expressing its position on Trump Administration policies on immigration and travel.

“We decided that we needed to speak together to represent our community of D.C.-area companies,” says Joshua Szmajda, the chief technology officer of Optoro, a Washington company that helps retailers deal with excess inventory.

Dan Berger, chief executive of the event-planning software company Social Tables, says taking a position on political issues is something large companies have done for a while yet smaller businesses in the D.C. region have been slow to embrace. To him, it is an inevitable outcome of a workforce becoming “more civically active.” Berger says he saw a growing number of tech employers realizing that their employees expected them to “take on more advocacy work.”

However, for this group, there is not only a need to provide employees with a sense that their employers are engaging in advocacy, but a broader need for star-tup leaders to be vocal about political issues.

From the perspective of Rosy Khalife, chief operating officer of the children’s gift-box service Surprise Ride, start-ups have a “responsibility to speak up on issues that impact our businesses, employees and community.”

I am sympathetic to the mission of this new group. Entrepreneurial people find meaning in their work. Yet, as we have learned in other parts of our society, once a discussion of values is introduced into business, dysfunction and distrust may also result.

For a community priding itself on collegiality and inclusiveness, this may be the largest challenge of all. Will the open nature of D.C.’s tech community withstand the introduction of discussions of values?

Last week in a blog post, Donna Harris, co-founder of 1776 and a leader in the D.C. tech community, suggested discussing values need not be divisive if opinions are respected, differences honored and “enough of us decide that kindness will win over fear.”

Will the newly-formed Capital Tech Coalition provide a template for resolving conflicts of values that shape our society? Time will tell.

This column originally appeared in The Washington Post.

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