Early in his career, Union Square Ventures managing partner Fred Wilson asked a very experienced VC, “What exactly does a CEO do?” The reply came without thought or hesitation:
“A CEO does only three things. Sets the overall vision and strategy of the company and communicates it to all stakeholders. Recruits, hires, and retains the very best talent for the company. Makes sure there is always enough cash in the bank.”
The VC added that CEOs should delegate everything else to their teams. Wilson says he has used that advice time and again to evaluate CEOs, and while it’s OK to do more, if you want to be a great CEO you must do all three things well. He should know. His company invested in Twitter, Zynga, Foursquare and Kickstarter, among many others.
I couldn’t agree more. And for some reason I will never quite understand, when it comes to successfully running a company, 3 is a powerful number. Yes, I know that sounds a bit mystical, if not downright superstitious, but there is anecdotal evidence and perhaps even some logic to support the theory.
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Back in the 70s and 80s it was common for large corporations to have dozens of businesses in far-flung industries. Markets are now too competitive for that strategy to be effective. Today, companies big and small understand the importance of focus. They do what they are best suited to do and outsource or divest the rest.
It turns out to be extremely difficult to focus on devising, communicating, and executing more than three of anything strategic – goals, objectives, initiatives or priorities – over a reasonable timeframe. In my experience the odds of failure increase exponentially as you add to the list.
On the flipside, there are plenty of situations where a CEO or a leadership team comes up with a single vision or mission on which to focus. But in practice, they almost always end up having to break it down to several critical things that must be accomplished to achieve that one outrageous goal.
When it comes to the people side of running a company, a trio also makes sense for a number of reasons.
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In terms of capabilities, it helps to have a market-focused or customer-centric businessperson, an operations or finance guy, and a propeller-head technogeek. It’s also a good idea for one of those three to be more of a big-picture strategist, another to be a problem solver, and the third a project-oriented taskmaster that gets things done.
The mechanics of how those leaders address critical challenges, tradeoffs and decisions is just as important. When two partners go head-to-head and push comes to shove, as it so often does, it helps to have a third person as a tiebreaker to add weight to one side of the argument and help convince the other of the right course of action.
The flipside – when two people start to think alike or breathe each other’s fumes – can also be a problem. When groupthink rears its ugly head, it’s good to have a third person to provide something of an outside perspective. And when it comes to core leadership, more than three starts to become unruly.
Speaking of “unruly,” we live in an era of crowdsourcing, crowdfunding, the wisdom of crowds, and enormous teams working collaboratively on open source projects such as Mozilla’s Firefox. While those idealistic concepts can work under certain conditions, in general, entrepreneurs and business leaders would be wise to keep it simple.
When it comes to running a company, 3 is indeed a powerful number.