Some CEOs are greedy, for their wallets, for market share, for fame.
Silicon Valley’s longest serving CEO has seen them come and go, and now tells you how to watch out for them
Guy Smith: Hello, faithful listeners in the Tough Things First podcast arena. This is Guy Smith. I’m your host today. And as always, we’re having a chat with the longest serving CEO in Silicon Valley, Mr. Ray Zinn. And we’re going to talk about something which I find intriguing, we’re going talk about greedy CEOs and the damage they do to their companies.
We see quite a bit of this in Silicon Valley, CEOs who have jettison ethics and a few other things in order to get those top line revenues up, and to make themselves or their companies look very good in the public eye, only to have them eventually look very bad in the public eye. So we’ll jump into that right away. And hello, Mr. Ray Zinn. How are you today?
Ray Zinn: Doing fine, Guy. Thanks again for being with me on this program.
Guy Smith: Well, these chats I have with you are the best business education I have ever gotten in my life. And that’s saying a bit, because I have a degree in management sciences. And so, drinking from your fire hose is quite a satisfying thing for me.
So, let’s talk about these greedy CEOs. I’m not going to drop names, but anyone who’s been working in Silicon Valley can probably think about half a dozen of these gritty CEO types right off the top of their head. They have this maniacal pursuit for top line growth at all cost. And I think it’s that all costs, which is defining this. So why do CEOs do this? I mean, you ran a company for 37 years. You were profitable all but one year, and that one year was the outlier year at the dot-com implosion.
You never had to chase that top line growth. You were always more worried about the bottom line growth. So why do other CEOs go running mashugana off into the field chasing this top line growth?
Ray Zinn: Well, because it’s really the thing that Wall Street tends to reward more than anything else, is growth. More so, top line than bottom line. And so they go where the squeaky wheel is. And so, activists and other types of investors tend to come in and bash a company who has, albeit profitable, they just don’t have the top line growth. And so this forces CEOs to focus on top line growth for survival, even though they maybe are not profitable because they’re pushing top line numbers.
And that’s probably the usual outcome is when you focus mainly on top line, then the bottom line suffers because you’ll cut prices, or you’re just going to just grow as dramatically as you can to make yourself look good on the surface. But underneath, which is the bottom line, you’re going to go out of business because without profitability, your company will ultimately fail.
Guy Smith: Now in your industry, again, without dropping names, I can think of a couple of examples where a CEO’s went on massive M&A acquisitions in order to build the top line growth, and then completely ignored integrating all the acquired companies and products into some sort of meaningful total product offering. And they ended up stumbling incredibly badly.
Ray Zinn: That’s one of the difficulties you run into when you grow your company through M&A as opposed to organically, as they say. So there’s a combination, you can do both organic and M&A. M&A primarily, if you are looking at bolstering your technology, your markets, as opposed just to revenue. So if you’re just doing M&A for revenue, then that’s what you got to be worried about. That’s the conundrum that you face doing M&A.
M&A should be primarily for growing your market, for growing your technology, your core strength of your business. That’s how you should look at M&A as opposed to, “Oh man, I got to grow my top line, so I’ll just acquire more revenue and show growth that ways.” And unfortunately, Wall Street does reward them for that, and so therefore they keep doing it.
Guy Smith: Well, and I imagine that when CEOs are trying to amp up that top line revenue, that that also has a positive effect on the share price, the shareholders are happy, that gets more headlines. How much does ego fill in to this conundrum? I mean, is ego part of what’s really driving some of this CEO activity?
Ray Zinn: Well, yeah. Well, obviously, if your top line growth, you show the turnover you’re getting for dollars revenue and that’s, “Oh, I’m a running a billion dollar company. I’m doing this, I’m doing that,” as opposed to a profitable. So for whatever reason, profitability that does not have the same ego relationship that top line revenue does.
Guy Smith: Which is really odd, because if you’re not making profits, you’re going to go out of business eventually.
Ray Zinn: True, but they don’t look at it that way, because they’re so focused on the top line that they’re not worrying about the bottom line. So, you can think of that in a lot of instances. When we look at short-term objectives versus longterm, either whether it’s regarding our friendships with others, whether it’s the particular core culture that you want to put in, if it doesn’t match your ego and your short term goals, it tends to get pushed aside.
Because as I mentioned before, tough things, aren’t free. In other words, to do the tough things first, it’s not easy. And so, pushing revenue is easy. If you don’t worry about profitability then all you got to do is focus on revenue. That’s easier than if you have to do a top line revenue with profitability.
Guy Smith: Short-term goals, that triggered something that I remember you and I had a conversation a long time ago. And you had mentioned that the average tenure of a CEO is actually pretty short. So one of the questions I have is, do CEOs realize that their head is on the chopping block and that they probably are only going to have a five-year term as a head of a company? And does that in some way, incentivize them to really run those top line numbers more than anything else?
Ray Zinn: Yeah, well, I think so. I mean, I know of an instance where the CEO was traveling and his expense budget was greater than the company’s profitability, and probably that’s why the profits suffered. So, that goes to ego. You’re taking these expensive airplanes and touring the country or the world. And you’re doing that all in the guise of trying to help the company grow. But it’s a false dream and one that we’ll come back to hurt you.
Guy Smith: Yeah, no doubt. And we have seen a lot of people stumble hard and lose it all, not only their careers, but the occasionally entire company that they were leading.
I’ve got two other questions. But before I get to that, let’s remind your audience to get a copy and read a copy and highlight every passage of Ray’s book, Tough Things First. It is the management manifesto of the new millennia, it’s required reading at several universities. It is arguably I think one of the better business books out there, not only because of the depth and the quality of the topics of entrepreneurship and executive management and leadership, but also because it’s an entertaining read.
I won’t tell the stories that are in the book, but if you can imagine Ray as a young college student slash Cal [inaudible 00:09:46] being forced to be naked in the bathroom of a ranch house, and how this was formative to him learning how to do the tough things first, then you will begin to understand why this is a can’t-quite-put-it-down book and should be on your reading list right away.
Now, back to these greedy CEOs, let’s assume that somebody is in this situation. How do they recognize it in themselves that this is a destructive behavior that they are beginning to acquire? And how do they keep from being seduced by this particular destructive path?
Ray Zinn: Well, it’s though, because as they say, no dog smells his own bottom. He’s out there smelling everybody else’s bottom, but not his. They don’t know when they’re getting off base, unless they have a good team around them, some good mentors that will help them decipher their bad habits and the poor culture that they’re implementing.
So you need a good board, maybe some good mentors that will work with you. Some good partners that are surrounding you. It takes a good team. And hopefully that team is one that aren’t necessarily your friends, but are friendly as they say. And will be kind enough to steer you in the right direction.
Guy Smith: That’s good advice, because our friends, at least the ones who are honest with us, will tell us the things that we don’t want to see. And quite often do it in the gentlest and most polite way possible.
Well, that wraps it up for the questions I had for you on greedy CEOs. Before we leave the audience, we mentioned Tough Things First. I also want to mention the Zen of Ziin, that’s Z-E-N of Z-I-N-N. This is Ray’s other book, which ties together many of the thoughts about the interrelationship between business and people and society and community and government. And gives business leaders a holistic perspective on how all these cogs work together. And it’s written in an amazing style, it’s written in very short little one or two paragraph soundbites that allow you to see inside of these single topics, and yet understand how they all interrelate. So when you go to Amazon and you buy your copy of Tough Things First, add Zen of Zinn onto the shopping list as well.
So thanks, Ray. It is always a delight to talk to you. I learned more in 10 minutes, chatting with you than I think I learned in a year chatting with anyone else.
Ray Zinn: Well, thanks, Guy. I appreciate that. That’s good to hear. Anyway, like you mentioned, get our two books, Tough Things First and the Zen of Zinn. I think they will benefit you tremendously.