In an age of rapid change, more and more CEOs are turning to one another to help solve their companies' problems.
WHEN ERIC LESIN SET ABOUT building a proper foundation under his young company, he started with a problem in geography and wound up with a problem in geometry.
Lesin, founder and chief executive officer of Cipherlink Corp., in Los Angeles, returned to the United States in 1983 after a six-year stint in Venezuela with a division of Exxon Corp. A loner by nature, he had been far from home during the formative years of California's high-technology establishment and thus knew none of the local players -- nor did he have access to any of their collective expertise. What ties he did have to the high-tech infrastructure were through the venture capitalists on his board of directors, and they were often more a source of anxiety than a vehicle for acclimation. When serious questions about Cipherlink's marketing strategy arose a year later, Lesin found himself feeling more isolated than ever.
At roughly the same time, Lesin was persuaded to join a CEOs-only high-tech network just starting up in the Los Angeles/Orange County area. Known as the Southern California Technology Executives' Network, or SoCalTEN, the group offers data research, market information, and, as its centerpiece, a lineup of small affinity groups in which 12 to 15 CEOs can bounce one another's problems around a table in strictest confidence. Scores of CEOs were signing up. Conceived as a response to the kind of informal, highly dynamic information-exchange that goes on all the time in the restaurants and health clubs of Silicon Valley, SoCalTEN was part of a broad spectrum of formal support groups that have been springing up in recent years. As networks go, it was an elite model -- exclusive, expensive, industry-specific -- and, judging by its quick popularity, a good sell.
This is not to say that Lesin joined his roundtable group with no reservations. Like most growth-company CEOs, he had little time for idle socializing; one full day a month out of his working schedule was a sacrifice of no small proportion. At $3,000 a year, dues were not cheap, either. Perhaps most significantly, thanks to a seminar in board management, his sense of estrangement from his own directors had begun to wane by the time the group got going.
Still, despite the improvement, Lesin was beginning to realize that no matter how professionally managed and generously supportive, Cipherlink's board would never dig too deep for the unvarnished truth. They couldn't.It was geometrically impossible.
"The old pyramid drawing is not how things work in the real world," Lesin explains."It's really more like a great big ball, with the CEO sitting in the middle of it, surrounded by his various constituencies: shareholders, employees, customers, and so on. Each constituency wants to see something different in the CEO. What absolutely none of them wants to see is indecisiveness. You cannot walk into a board meeting and say, 'Hey guys, I have no idea how to sell our main product.' They'll start soliciting resumes for your job."
It was just such a situation, however, that he faced. Cipherlink's first product (a device that retrieves data from any application on any computer and loads it into any other computer, all without a programmer) was so different that it had no market competition. Without competition, there was no clear advertising or pricing strategy for the company to follow. "If the product's so good," Lesin kept hearing, "why isn't anyone buying it?" No good answer suggested itself.
Finally, Lesin took his concerns to his roundtable group. The group -- 14 other CEOs in such businesses as software, bubble memory, and fiber optics -- sat quietly at first as Lesin began walking them through the history. Ten minutes into the monologue, a colleague raised his hand and said, "Listen, Eric, I've been in the [electronics] business for 15 years, and I don't know what the hell you're talking about."
At that, the floodgates didn't so much swing open as explode.
"By the time it was over," says SoCalTEN assistant director Andy Paterson, who sat in on the session, "Eric was almost on the floor. I mean, if these guys couldn't figure his product out, what were his customers supposed to do?"
Lesin now credits that one afternoon with saving what might otherwise have been a failing operation. "We never changed the product," he says, "but we sure overhauled the marketing plan. Today, we advertise a front-end service to collect data and a back-end service [to input it]. Two different markets, both very profitable for us. Simple, right? It didn't seem so simple then."
Lesin's lesson extends far beyond the narrow framework of Cipherlink's marketing difficulties -- beyond, indeed, the broader issue of managing decisively in the cutthroat marketplace of high tech. In an age of information saturation, when managers can turn to any number of sources -- seminars, newsletters, books, trade associations, and yes, even magazines -- to cross-reference data or to find role models for problem solving, the evidence is mounting that the more enlightened executives turn mostly to one another.
The vehicles by which they do this take many forms. From CEOs-only clubs like SoCalTEN, with its focus on peer mentoring, to the laid-back boosterism of a Houston breakfast group emphasizing "lead exchanges" among member service companies; from the personals-column flavor of a Boston venture capital club to the extended Rolodex of Baltimore's National Alliance of Professional & Executive Women's Networks; from small-town greasy spoons to trendy urban health clubs; all over St. Louis (and down in New Orleans), networks and networkers seem to be finding more and more places -- and reasons -- to flourish these days.
"It's hard to get too academic about this, because it's so damn simple," says Ed "Networking-Is-My-Middle-Name" Moldt, veteran company builder and now entrepreneur in residence at Indiana University. "Basically, all 'networking' means is what I call 'the dynamic use of contacts.' It's [a technique] salespeople and investment bankers have been using forever."
But while networking is "a very natural process," Moldt adds, "it has also reached a level of sophistication we've never seen before. With the computers and new databanks available today, networking has become a science. I tell all my students that the one thing they should walk out of here with is a dossier on all their classmates. If they don't, they're missing out on a great opportunity."
As Moldt suggests, the science of networking is being enhanced immeasurably by the power of the microprocessor (see sidebar, page 62). Hardware aside, however, this notion of "dynamic use of contacts" -- which can mean anything from getting casual advice to having peers redefine one's basic business plan -- describes a process not easily quantified in a computer program. Whether informal or highly structured, every network builds its peculiar circuitry around the personalities of individual players. As the science gets refined, so do the organizational principles used to weld these personalities together.Today, for instance, networking groups borrow liberally from work in the behavioral sciences, or from the grass-roots style of political organization that came of age in the 1960s. And yet, while each group has a signature -- and a purpose -- all its own, the organizations all answer the very basic need to plug into shared human experience.
"Independent operators have this hunger to stay in touch," agrees consultant/author Tom Peters, "and it's probably been that way since the end of the Middle Ages. Today, however, we're in the middle of an information explosion. Even with all these new databases to give you clues, you're not smart unless you humanize [that data] before you believe it."
Humanizing the data, as Eric Lesin and others in SoCalTEN have discovered, is an activity ideally suited to small affinity groups, where trust -- and attendance -- are highly valued commodities.But CEO-mentoring was not born in California, nor is it restricted to technology companies. Thirty-five years ago, for instance, at a meeting of young executives in New York City, the groundwork was laid for the formation of the Young Presidents' Organization (YPO), a worldwide network now numbering some 4,600 under-50 CEOs in 50 different countries (average company size: $40 million in annual sales, 343 employees). Through its Presidents' Forum program, YPO sponsors smaller idea-exchange panels much like SoCalTEN's.
Some criticize YPO as "too social" or "too trendy." ("Ten years ago," says Jerry Goldress, an ex-YPOer who specializes in turnarounds, "all the talk was of mergers and acquisitions and estate planning. If your expertise happened to be turning around failing companies, they looked at you like you carried the bubonic plague.") But YPO has its defenders, too, Tom Peters among them. "It's probably the strongest network I've ever seen, and that shocks me," says Peters, who admits a bias toward more informal networks. "These guys are fundamentally no-bullshit, aggressive types who like to work hard and play hard. Seminars are not their style, yet they seem devoted to [group functions] and rarely miss a monthly meeting."
Charles "Red" Scott, CEO of Intermark Inc. in La Jolla, Calif., offers a perspective on YPO that is slightly contrary to Peters's. A past president of the Southern California YPO chapter, Scott praises the group highly (he still speaks at YPO functions) but thinks it lacks the "pull-down-the-blackboard, blood-and-guts approach" that worked for Lesin and Cipherlink. For a dozen years, Scott has been part of a 13-person CEO roundtable sponsored by The Executive Committee (TEC), another group to which SoCalTEN acknowledges an organizational debt. Founded by a Milwaukee businessman in 1957, TEC puts the same premium on group dynamics that SoCalTEN does, but with more of a mixed membership to draw from. Intermark, for instance, was a public holding company (among its eight current partner firms are Pier 1 Imports, Munson Sporting Goods, and U.S. Press) doing about $30 million a year when Scott joined TEC in 1973. On his roundtable panel were CEOs from the housing, construction, and pharmacy industries.
"I thought I'd made a terrible mistake that first year," says Scott, rather wistfully. "I really thought about quitting.They weren't giving a lot to me, and I wasn't giving a lot to them. But I finally decided to stick with it."
He is happy he did. Intermark soon took a multimillion-dollar turn for the worse and started posting disconcerting losses. Employees had to be laid off, expenses were slashed; still, no one step stopped the bleeding. Finally, at the urging of his TEC group, Scott sold off one of his weakest subsidiaries, a bus company, and plowed the capital into a more profitable venture. Intermark bottomed out, took off, and this year will climb all the way to $550 million in revenues.
"I try almost all my ideas out on my TEC board before I take them to my big board," Scott says almost matter-of-factly now, "because they can pick them apart without fear of recrimination. The more mature we become, the more candid -- the more brutal -- we get."
Most recently, the candor of Scott's TEC group forced him to confront a painful (from his perspective, brutal) decision. It involved the replacement of one of his senior management people, an act he could not bring himself to execute. Two months in a row, says Scott, the roundtable laid out all the manager's pluses and minuses on a blackboard. They worked dispassionately: no axes to grind, no emotional ties to the situation. After the second session, he says, he went straight back to his office and did the deed.
Shifting metaphors, Scott likens the process to "trying out a play in Hartford before you take it to Broadway.TEC's my testing place, my audition. The guys in here, they're all green, you know? They're still growing. Maybe we've become 50-year-old multimillionaires, but we're still learning, still growing."
Organizationally, TEC retains an office in the Midwest, although most of its activities are now governed by an office in the San Diego area. Dues are not cheap (around $600 a month), but with them come extras like guest speakers and tapes of all roundtable sessions (so the participants don't have to take notes). Plus, they buy access to a network of networks. As TEC president Pat Hyndman describes it, "We don't have groups in all cities, but we like having several [roundtables] in each one we are in. It means they can plug into one another -- or, if appropriate, that we can move a member from one to another -- and it defrays the cost of some of our resource speakers."
Those speakers visit the monthly meetings and address issues of general group concern; afternoon sessions are then turned over to several CEOs to discuss particular problems at their companies. Sometime during the ensuing two to three weeks, a TEC chairman, or group leader, drops by the CEO's office to review implementation of the group's suggestions.
Jerry Sellers is the chairman for TEC's newest branch, the TEC 60 group in Houston. A behavioral psychologist by training, Sellers grew up in a small-business family and did extensive work in executive training and personnel development for several large Houston companies before moving over to TEC. Most of the companies he now works with fall within the $5-million-to-$50-million-a-year range. Membership (now at 15) could easily be higher, but, Sellers insists, "it's not just the numbers involved, it's the feel of the whole thing. We interview [potential members] rigorously. If they think they already know all the answers or don't show a willingness to share, we don't invite them. Put it this way: I've kissed a lot of frogs."
Willingness to share, surprisingly, seems to be a problem in Japan, where TEC has tried to establish itself with mixed success. There, says Hyndman, "CEOs are used to being treated like warlords, and brutal candor is not their style. They would no more challenge a guest speaker than fly to the moon." Within the first six months, he reports, one third of the charter members dropped out of the network's Japanese roundtable groups. TEC's measured response to this dilemma: a mandatory, yearlong training seminar for Japanese CEOs in alternative management style; then, and only then, will they be seated at a regular roundtable.
It's like having the major leagues and minor leagues," says Jerry Sellers. "Breakfast clubs are the minor leagues, TEC and the YPO the majors. Each has a different feeling. And, more importantly, a different kind of role to play."
Sellers is a man who wears both major-league and minor-league caps. The TEC chairman -- along with colleague Ron Harris, who serves as one of the chairmen of the Houston TEC group -- is also one of the players in the Houston Executive Club (HEC), a network that focuses not on running businesses, but on marketing them.
Houston businesspeople need HEC, as one earnest networker put it, because "if you weren't born here or aren't in the oil industry, you don't know how to do business in this city." Established seven years ago as a sort of swap-meet-for-success, the group meets over breakfast each Tuesday at 6:30 in the swank new Remington Hotel to trade leads, business cards, and shoptalk. Harris, a tall, effervescent, toothy type, is the ringmaster -- "the witch doctor," as Sellers puts it, who "keeps the tribe stirred up."
Among Harris's assembled tribe at a meeting in March were the heads of printing shops, marketing firms, telecommunications companies, even a photographer and a plastic surgeon. One by one, they stood up and introduced themselves, Lee Iacocca-like, pitching their companies to a closed-circuit audience of peers. "With our video services, you can have a whole new marketing dimension," said one with a conviction bordering on the evangelical.The good-time atmosphere grew even more infectious when Harris asked each person to list all the leads he or she had that week through network members. To wild applause, Tom Wright, president of Wright Marketing Communications Inc., got up and credited Gary Crouse, sales manager of Computervision Inc., with having supplied two leads over the course of the year that were good for $300,000 (of his $1-million total) in annual revenues. "It's like they're walking down the aisle at some revival meeting, professing their faith in the gospel," says Sellers. "The others get excited and want to join [the process], too, and that creates a culture that says, Hey, it's OK to sell."
Of HEC's 65 members, some 60% to 70% are company presidents and/or owners -- around half of them women. According to bylaw, no two companies compete directly with one another; otherwise, new applications are voted on by the full body. After a onetime initiation charge of $200, members pay $50 a month in fees for the breakfast series, small change compared with the dues at TEC or SoCalTEN. Besides the food, HECers thrive on a steady diet of motivational oratory, educational supplements, and leads, glorious leads. Unlike such ephemeral benefits as education and motivation, leads are easily quantified -- and quantified they are. Whether a direct sale, hot tip, or decent job prospect, each lead earns a public "thank you" and goes down on Harris's ledger, to be tallied and read aloud at the meeting's end. On one random Tuesday in March, the weekly number came up 309.
So the group clearly earns as it learns. Says Harris, "If you're an HEC member, the presumption is that you're a good risk to do business with. You can shop outside the network [for similar services] -- it's OK to do that -- but there's seldom much reason [to do so]. You don't want to make a client unhappy when you know you'll be seeing him over breakfast next week."
Just off the turnpike between Boston and Route 128, a different sort of network breaks bread in the function room of a local motel, professing another form of faith.
"We're looking for about half a million dollars in bridge capital, and we need it within the next 60 days," says the head of one small technology concern. "If we're the company for you, call soon. We would be real happy to talk. Also, we have an opening for a senior financial officer. Must be able to relate to engineers in blue jeans."
"I've been a CPA since the 1930s," confesses another, cordless mike in hand. "If any of you get to sufficient size [in sales], call me up. I'll guarantee your company millions of dollars a year in savings. Unconditionally."
The two men glance up from their respective tables and smile at a third, an unemployed operations manager from Vermont, who is offering his house for sale "to anyone who feels the need to balance his portfolio with unproductive assets."
Like most of the several dozen venture capital clubs scattered across the country, the 128 Venture Group is a civilized (and humanized) meat market designed to pair investors up with capital-hungry companies. Launched in 1983 by Michael P. Belanger, a consultant and venture capitalist himself (Belanger also runs similar groups in New York City and Baltimore/Washington), the network works on a combination low-fee ($20 a session), high-turnover basis.
"About one third of them are new every month," says Belanger of his constituency, "although we have a lot of people who cycle through here once a quarter or so. The success stories tend to go away and not come back."
Belanger started his network at a time when market conditions had produced a venture-capital surplus in Boston's high-tech backyard. Old-school investors were seeking young start-ups outside the normal channels of commerce, explains Belanger, and he sensed that the time was ripe to get the players together more formally -- as well as to seek good investments himself. His exposure to other venture-capital clubs convinced him that the more local these groups stayed -- "networking is not really interregional," he maintains -- the more effective they would be. As for the tone of the meetings, well, at least he knew some things he didn't want to do.
"I belonged to one club that charged $250 just to get in the door, and that's way too much," he reports. "Plus, they held luncheon meetings, and lunch tends to get a little boozy if you don't watch out. I didn't want a Rotary Club atmosphere, I wanted one where business gets done."
Belanger estimates that a minimum of one solid venture deal a month does get done now, not a bad yield under tightening market conditions. The rest of the action is mostly job-hunting and listening to selected outside speakers. "A lot of [executives] simply use this forum for reality testing," he observes. "You know, you stand up and tell the group who you are and what you're about, and that connects you to something. I'm not always sure why, but it works. It does work."
There may always be an element of mystery to why the networking process works, but groups like SoCalTEN are analyzing the variables with an attempt at scientific precision unknown in earlier times. Why them, why now? Are the times really that different?
"They are out here," declares Steve Panzer, SoCalTEN's co-founder and executive director. "The days of the rugged, individualistic entrepreneur are over. Welcome to the age of collaboration."
Panzer, with a PhD from UCLA and a background in strategic planning systems and management consulting, is no dreamy academic. His first instinct, when he helped start the network, was to poll his constituent companies for the issues that most concerned them. What he learned helped confirm his original thesis, which was that old-boy networks have become virtually useless, particularly for high-tech industries. "The five years CEOs used to take [getting their feet wet] has shrunk to three to six months," he maintains. He also maintains that SoCalTEN's "street smarts" are a crucial weapon in the war for market supremacy -- with Silicon Valley, Japan, or any other major source of competitors.
"When people pay $50,000 for a market survey and find the numbers are 50% off," adds Panzer, "they stop believing the bullshit and start listening to each other. Out of that you get fusions of technologies, strategic alliances, all sorts of good things. Given the challenges out there [in the marketplace], we know we can't sit back and wait for this kind of network to create itself. We have to make it happen."
So what happens when this kind of new-boy network really happens: when the learning curve for any one individual is dwarfed by the accelerated education of the group as a whole? According to Anne Dosher, an organizational psychologist who has advised the SoCalTEN group during its developmental stages, finite problem solving like Eric Lesin's then becomes almost a secondary consideration. While most CEOs join these groups out of pure self-interest, she says, the network's greatest potential value is much larger than the sum of its working parts.
"Any network must be looked at from two perspectives," says Dosher. "How individuals learn within it, and how the entire group functions as an agent of change. Right now, SoCalTEN is very focused on internal learning and resource sharing. The challenge for them -- and of greatest interest to me -- is how consciously they evolve into the kind of metafirm where learning happens across company lines. Many networks fail at this point. They get too rigid, too cliquish, either collapsing in on themselves or becoming just another old-boy network. To avoid this, it takes a lot of outside direction and some inside recognition of the genius of the network itself."
Panzer and his colleagues have already made one move toward developing the "metafirm" concept by establishing the Research Institute for the Management of Technology (RIMTech), a CEO-based, entrepreneurially driven research institute centered around, in Panzer's words, "the knowledge explosion that academia hasn't responded to -- because they haven't studied it." RIMTech's current primary goal: increasing domestic exports to other Pacific companies by facilitating exchanges on a CEO-to-CEO basis. To begin that process, says SoCalTEN director Robert P. Kelley Jr., RIMTech will first have to canvass members on basic issues affecting international trade: import duties, the costs of setting up export divisions, the risks of contracting overseas labor, and so on. Once that knowledge is collected and synthesized, believes Kelley "the interest [in collaboration] we've already seen in Japan will really mushroom." And the RIMTech network, one presumes, will be the vehicle by which interest gets translated into commerce.
In fact, networks are the elementary media for all sorts of such translations. Much of Anne Dosher's work has focused on human-service organizations; now she sees "a generic-model crossover" between those groups and for-profit enterprises like family-owned businesses and go-go high-tech firms.Family businesses, she notes, traditionally have trouble integrating non-family members into management positions; similarly, technology firms often suffer from having engineer-CEOs who are better at building machinery than they are at building management teams. By teaching one another to listen and think, these managers "break the frame" of their own narrow reference points. The more frames that are broken, the faster the process moves along.
Similarly, the more the network expands into the "metafirm" model, the more it becomes, in the words of SoCalTEN co-founder Jeffrey Weiss, "like the phone system. It's the difference between having a machine in your office that can send and receive information with a few [other users], and being able to plug into a worldwide network that accesses almost everybody." Having this kind of access, Weiss adds, creates a context for exploring ventures that might seem much riskier if they were undertaken in relative isolation; and that context, in turn, gives member companies a distinct competitive advantage in a world marketplace. RIMTech, with its central clearinghouse of information, could be the next significant step in that process.
"What we've learned from the human-services side is directly transferrable to today's corporate culture," Dosher avers. High-tech CEOs, she says, tend to learn "cognitively" -- analyzing ideas and then implementing them with all due speed. Running companies, on the other hand, often requires more of what she calls "reflective learning" -- chewing over the implications of each step before it is taken; the kind of learning that integrates softer, more "feeling" aspects of human experience. This in turn, Dosher says, "argues for either a different kind of CEO altogether, or one who learns how to adapt to a changing environment. For now, the roundtables certainly help them do that."
"Cognitive and reflective learning?" "Breaking the frame?" The concepts may seem a bit esoteric -- not to say eggheaded -- to an overworked CEO sitting in the middle of the organizational ball, looking out at all his anxious constituents. But whatever his appetite for metafirms (or metaphysics), Eric Lesin would agree on one point, anyway. For a loner, he found himself in pretty useful company when the chips were down.
"Believe me, I'm no joiner," he says firmly, "but I schedule all my travel around those meetings now."
Spoken like a man who, having mastered geometry, sees geography from a whole new angle.