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An Interview with J.C. Faulkner,
Cofounder and President of Decision One Mortgage:
In early 2001, I conducted the first of many interviews with J.C. Faulkner, a favorite client and fellow entrepreneur, who in the late 1990s had grown Decision One Mortgage (D1) from a blank sheet of paper into a business valued at $100 million several years later.
D1’s early economic success paled in comparison to J.C.’s ability to “get the personal and professional to match up,” as he puts it, leading to a magnetic, highly-engaged culture and work climate. D1’s employees acted with passion, focus, and speed (as if they had “been shot out of a cannon,” in the words of one observer). Undesired turnover was virtually nonexistent, and employee opinion surveys consistently showed industry-leading scores on issues of job satisfaction, quality of communication, pride in the company, and trust in management.
As a consultant and friend to J.C. Faulkner during those first few years, I had a ring-side view to the startup process and into the mindset and personality of the founder. After the business was sold and eventually absorbed into one of the world’s largest banks, I conducted a learning history to study D1’s startup process and capture lessons learned. My extensive learning on this project played a key role in my decision, in 2006, to let go of my large corporate clients and re-focused my consulting work exclusively on seed- and early-stage businesses.
After several years of immersion in all things entrepreneurial, I continue to find that J.C. Faulkner’s startup story perfectly illustrates some fundamental startup truths, useful for all founders, whether they aspire to lead a solo consulting practice or a thousand person company.
JOHN BRADBERRY: Talk about your reasons for starting Decision One Mortgage and some of the initial challenges you faced.
J.C. FAULKNER: The reason that I wanted to start this company was really a personal reason. Prior to starting Decision One, I was a 12-year employee of a large bank and I was on a management team of a smaller division of this large bank. It had what I would consider an inefficient management team. The decision-making wasn’t to my liking with the processes that we went through. It had a political sense about it that was hurting its ability to compete. It was too focused on the inside and not enough focused on the competition. So, there were some negative things percolating inside of me. The positive thing that was percolating inside of me was that I had built the first loan-trading desk for this division. Looking back, I guess it was one of the first of its kind and what I had learned was that I was in an industry that had a lot of opportunities. I was buying loans from about 50 different specialty lenders. They were all small shops and the “management team” to these small shops had only one or two people. Usually they had one person doing all the work, and I was curious to know why they all got choked off at such a small size. I realized that I possessed enough information that if I could execute on a business plan, I was staring at what was a wonderful opportunity. It’s always risky to start a business, but I was relatively certain that with the homework that I had done, there was a high probability of having a successful business.
I wanted to start a company that was more focused on the competition, and had policies and procedures in place that didn’t police mediocre employees. Instead it would simply attract the talented employee and unleash their ability to take advantage of authority and decision-making processes. The premise was real simple. I wanted to build a place where I could treat people better and I felt better about working there as well as a work place with a higher probability of being more competitive. I would have taken a cut in pay to do this. In fact, I thought I was taking a cut in pay to do this. It was really a personal journey and looking back I think that is pretty important. It was really more personal than professional.
What was going on inside of you as you approached the true decision point (the point of no return)?
It took me a year and a half from waking up one day and thinking I could be doing this to getting up one morning and saying I should be doing this. It took me about two months to prepare a proforma that I thought was conservative but “do-able” if I could execute on the human side. I started with a good math story and believed that I could execute on the people side. At a certain point, I had to come to grips with the fact that all the money that I had saved for 12 years was going to be gone in 6 months.
To launch this thing I had to decide how big I wanted to make it. The smaller I made it, in some sense the safer it was because the less money I risked. However, the smaller I made it the riskier it was because I would be doing more of the work and be more of a slave to it. The larger I made it the more money I would spend, but there would be a higher probability that I would create a management team and a standard of living at the company that 1) was more suitable for me, and 2) was more suitable to attract the really talented people.
So what some people might see as a higher risk of capital, you saw as safer?
I had to work through that but yes, I realized that the highest probability of me being happy was to raise more money. My philosophy is that you should raise two and a half more times more money than you think you’ll ever need in the worse case scenario. Some would say that seems expensive if you’re raising money you don’t think you’ll need, and that you’re paying a cost unnecessarily. On one hand, I would say that they’re right, but on the other hand I would say if you don’t spend any time worrying about money in the start-up phase, you can stay focused on what you have to do. For example, when your company is at its inception, if you don’t look like somebody who is worrying about money, you can do the first class things to attract the first class people. Looking back I can say that it was well worth the extra money that I raised. My proforma stated that I would spend $800,000 in a 7-month period before I would turn a profit. We raised 2 ½ million dollars and it turned out we actually spent about $600,000 in six months. So I was very pleased to pay that money back after 12 months. For a time period I really did not think about money.
What were you thinking about?
I was thinking about exactly what had to be done to build the company. Money was one less thing I had to worry about. A lot of potentially good companies have died because they ran out of money. I looked at the things that could kill us and I could control this one. If someone was willing to give me the money (the extra 2 million dollars) then I would take it.
You obviously weren’t burning through the cash like a dotcom, but your approach was to have enough “padding” to do things right.
I didn’t know it was padding at the time but I was hoping that it was padding. What is interesting about this is even when you are not making money you always have to be focused on the money. I mean, if you look at the things that would kill you, the lack of money is sure death.
Looking back at your start up strategy, what were some other critical factors that made a difference?
Here are some of the things that we did which seemed “contrarian” at the time. I could tell you the things that were similar to other startups, but those really didn’t prove to be very significant. The things that we did differently are where the real kernels are.
What we did differently out of the gate is that we had a proforma that would put us in the top 50 Nationwide in a matter of 12 months.
We had this math story. The average peer group at that time was doing about 10 million dollars a month. There were very few people doing over 20 million dollars a month in the type of business that we did five years ago. It is important to note that it was an emerging market: unsophisticated, sloppy and inefficient. These are all the things that make the barriers to entry relatively easy. Of course wherever there are larger profit margins, larger companies will come in and smell that. That is when an industry becomes efficient. So we knew we had about a 24-month window. Our thought process was: Let’s build a company that would in 24 to 36 months have gotten to a certain size so that when the big boys come in, meaning the banks or the bigger finance companies, we have a platform that is worth acquiring. We then get a ticket to the end game.
All the specialty lenders that I used to buy loans from were now my peers – I was now competing with them! They had a management team of 1 to 3 people. A lot of them were “mom and pop shops”. If they had 3 people on their management team they were considered a bigger player. My first 4 hires were for my management team. My peers didn’t understand it. What is the phrase? “You have a lot of chiefs but no Indians.”
Six months down the road, with the people I brought in, it actually took us 8 million dollars a month just to break even. The average company was only doing 10, so you can imagine the looks I got. A lot of folks didn’t understand. What they didn’t understand was that 8 million per month gave me the capacity to do another 92 million per month. Many people couldn’t conceive of that because nobody had started so widely this quickly.
What gave you the confidence that you could bring in the right team members?
The only confidence that I really had was that I could bring in a handful of key people. I wound up getting four people, and some of them came to me. When they found out what I was doing some surprising people came to me. They were heavyweights. So, I sat back and said if I have these people this thing goes up a notch. I started with the idea of having three people on the management team. Three weeks out of the gate I was surprised by the interest level so I hired two more people. I capped it at five because I had all the makings of a large company. At the time I believed that this seemed a little premature in relation to the plan. This was my first crossroad (going from a 3-person management team to a 5-person management team). When I looked at the quality of people and I looked at the possibility and opportunity, I thought hard about it but I didn’t think long about it.
The other thing that we did out of the gate was we wanted to go deeper with the brokers (who sell us loans), in terms of our relationships with them. We also wanted to go deeper with the investors (who buy our loans). At that time, very few people really knew how to sell loans. They thought selling loans meant inviting people in to look at them, and then they take what they want. What we did is we spent a lot of time with investors initially to find out exactly what they wanted. Then we implemented their underwriting guidelines in our distribution system. It sounds simple but it was very difficult to do and no one else was doing it. This gave us a huge advantage because investors went deeper with us and did more for us. We were a lot more efficient (than other shops) and we didn’t leave many loans on the table. This was a different philosophy back then. It’s all been adopted and its standard now but it wasn’t standard then.
So you created an innovative business model where you were able to extend the investor’s underwriting guidelines out into the marketplace more efficiently. What was required from the human system and a management philosophy in order to do that?
There are a couple of pieces to that, one is first you’ve got to have something to sell to the investors. So when we went up to set up our sales culture, we were very clear. We told them we are not a technology company, we are a loan company. Our niche is we do loans. So the more loans we do profitably and the more loans we do effectively, the more money we make. Fundamentally we were on a ruthless pursuit of the best people. The market was hot, so getting the best people was a real chore back then. What we did was we leveraged the relationships that we had. We got the best sales people with the simple premise that we wanted them to spend as much time possible selling to the brokers.
We were going to set up 10 shops initially. We told the sales people that we wanted to take most of the administrative stuff from them because it’s not a part of the selling process. We said we would do that in Charlotte in our support office. We told them we wanted them to spend all their time doing what they like to do and what is preferable for them to do, and that’s selling. So while they are doing those things, we will handle the administrative issues back here. In addition, we worked deeply with our investors to make sure we understood them more than they actually understood themselves. People in our secondary group, which sells our loans, were each assigned to a specific investor as if they were the president of that investor. Every day they would be massaging the guidelines to make sure they understood them and then we would get that feedback in our distribution center. So the goal was real simple. We would have the deepest relationships with our investors, who are the people who buy our loans, as well as the best sales culture who do less administrative work and so are geared towards generating loans. The salesmen will be backed up by the best support office. The key word there is support, we don’t call it corporate, we don’t call it headquarters, we call it our support office (supporting the sales). If you are not directly in sales you are then supporting sales. We only have two types of jobs in our company.
Let me test my understanding. Rather than saying we want to be in “these 10 states”, you said let’s go find the best people in the nation that we can attract to run our branches (that we trust and know), and wherever these people live is essentially where our branches will be?
You’re exactly right.
That’s fascinating.
We could look at markets and tell you the 10 cities with the most borrowers. Well one of the things that I have learned is: if you have somebody who is great, it doesn’t matter where they are. They will get the business. They will find a way. In starting a company you want to get the best people that you trust. That is what we did. We chose people first and they just happened to be where they happened to be. In setting up these people we also set them up to be entrepreneurs. The folks that ran our branches did not have a salary. We had them on a profit sharing plan. Our goal was to have the proper alignment between those folks. What was good for them was good for us. When they made a loan and there was a certain profit on it we shared the profit. When there was a loss on it, we shared the loss. So their P & L’s were a reflection of exactly the percentage of the overall profit and that was innovative at the time.
Versus, what were the other models; more volume generated?
The other model was that you give them a salary and you give them a bonus, which represents a piece, or a fraction, of their profit. What I was competing against was these guys going out on their own. So one of the things that I had to say to myself (and I was real honest) was that I’m competing myself. I told them “This is what keeps you here: I want you to make as much or more money here as anywhere else. And…you have to like being here. If I fail on either one of those, I’m inviting you to leave. If I do not fail, then in my mind there is not a reason to leave. Am I wrong?” The answer from these folks was “No, you’re not wrong”.
As a result we have not lost one branch president in five years that we did not want to part ways with. In a five-year period, out of 18 different positions of responsibility who head up our branches, we’ve only severed partnerships with two. The ones that are here are very successful. The ones that we terminated weren’t working to either party's satisfaction. Getting the right people is step one. But there is a difference between getting the right people and retaining the right people. A lot of times you get good people because of reasons that you don’t have a lot of control over. They don’t like where they are, so they come to you hoping to replace where they came from. To retain them you’ve got to create an environment that takes them out of the “mental want ads”. Meaning that when they’re with you they are not thinking about going anywhere else. So how do you do that? You get real honest with people about what it takes to keep them happy. Dealing with and talking about these issues are not taboo or sacred. Get the facts are out on the table.
What are some of the answers you got from people and how did you address them?
Talented people expect to be fairly compensated. The people we were looking at realized if they did well they would be paid well. Another thing that was compelling was that people wanted to have more of a sense of control. So, we had to determine what people’s capabilities were, and then match up people’s capability with their willingness. If you can do that, if you get those two matched, then the weaker of those two will become the “ceiling”. If you put those two together effectively, then you are stretching somebody’s ability to produce. That’s where you want to be; at least that is a great starting point. Hopefully you can expand that. So we put people in a position that they were given the authority based on their ability and willingness to manage it.
The policies we have in place were designed with the intent to unleash people’s decision-making authority. Stated differently, a lot of businesses have policies designed to police the mediocre employees, so the people who have decision-making abilities feel held back by bureaucratic rules. They then in turn will leave.
One of the things we keep in mind from a management standpoint is that when we lose people we like to know why. We don’t mind losing somebody that we ask to leave. It kills me to lose somebody that we didn’t provide the right opportunity. You know a company is in a bad spell when they can't keep their best people and the people who are staying are people who can’t go anywhere. Now that sounds good, but I found how tough it is to live out, because when you find somebody who is mediocre you cannot hesitate to ask them to leave. This is true for two reasons: they’re hurting you from the fact that we don’t want to police mediocre performance, and the longer they stay people start to question your culture, creating a gap in understanding. We actually track when people leave, those we ask versus those we don’t, and so far we’re far ahead in that people tend not to want to leave. That’s an example of a key human system statistic.
How involved do you get in helping the branch presidents run those aspects of their operations? Do you prescribe to them how to manage?
We have a flat organization. I am two layers away from the branch presidents so I'm not involved in their day to day operation, but I do attempt to set the tone.
“Set the tone,” means know when to be aggressive, know what the rules are. If you’re stepping outside the box make sure it is done with a high probability of success, and know that if you’re using good judgment and you make a mistake we’ll learn from it. If you’re making mistakes by being reckless and using poor judgment then you can’t stay here. Bum Phillips (the former NFL coach) made a great statement about this! He said there are two types of players that can’t play for me: it’s the people who do everything I say, and it’s the people who do nothing I say. He says it is the people who can understand what my rules are and understand how to interpret them, who play within the rules, taking my rules and individualizing them, but doing it with the right spirit and with the same intent of what we are attempting to do. So that is something that we talk about.
As you look at how your company evolved, whether it’s managing the numbers, or the leading on the human side, or just building your own team; what do you see as the 3 or 4 keys to success? What would you do exactly the same way? On the flip side of that, what would you do differently?
I planned a team of 5 managers, which seemed perfect to me because there were five different divisions of the mortgage business needing a 100% owner to run them. My philosophy was that the people that reported to me were all presidents of the piece of the company that they had. There was the president of operations, finance, technology, origination and the selling of loans. I have to manage people at a high level so that they have the power to make critical decisions. They are the presidents to their divisions and their role is real simple. To run your division like you own it and when you needed to collaborate with one of the other presidents make sure that you’re getting the right data so you can then make the right decisions.
My role, then is one of support. My job is not to tell these guys what to do. My job is to facilitate to make sure that they are sharing enough data and they are making the appropriate decisions.
What did you learn about it in the last five years?
I learned that smart people who have the same data typically come up with the same conclusions. I learned that six people have to learn to trust each other and that they don’t have to be in on all the decisions. If somebody clearly understands their own role and the roles of others and if they choose to have you in a meeting then you need to be there. If they choose not to have you in the meeting then you don’t need to be there and be OK with that. If you feel like you’ve got to be in every meeting then it bogs down how much you can do. If you are comfortable and trust your teammates then it is amazing how quickly critical decisions can be made. To do this you must accept up front that you, as the leader, are not going to be agreement on 100% of the decisions.
You told me once that I seem to make a lot of right decisions. Here is what I’ve learned about decision-making. If you have a decision narrowed down to two options, (option a & b), and they are close enough in nature that you actually have to decide between the two of them; then what it typically means is that one may be more right than the other, but neither one of them are wrong. A lot of times people get bogged down in looking at two right answers, thinking that one of them is very right and one of them is very wrong, and they spend too much time on the decision instead of going with one of them and committing to it.
How did you use trust as a business tool? Did it just come with the people that you brought in or did you work on it? If so, how did you build it?
First of all, trust is not something that you can buy or something that happens quickly. It is an intense thing that has to be developed. It is no different than the trust somebody has with his or her spouse or closest friend. It just takes time. Trust has its own accountability. When someone over time performs or does things that you expect or hits those expectations, then the trust has a chance to grow. What may be unfair about trust is that when somebody does something that violates trust, that one act seems to eat up a lot more than a single positive act will build. This is just the nature of it. We decided we were going to invest a lot of time in each other. I brought together five people I had never worked with because I wanted to work with people who were the best at what they do.
Everyone that came to the table was at the top of their game, so they were risking something. Collectively the five of us had spent 85 years at the same company. For all of us it was the only job we’d ever really had. We were trading in the only job we’d ever had for something that we thought would work.
Talk about your tactics for building trust.
Real simple: it took time. We got together once a week. In the beginning (and this was a valuable lesson we learned), once a week on Mondays we would sit down for a 5-hour meeting, and all of us would talk about the things we were in charge of executing. We would end the meeting talking about what was supposed to be executed the coming week.
A 5-hour meeting?
Five-to-seven hour meeting actually, but the intention was five hours. You know how everyone says they don’t like meetings? What I’ve learned is nobody likes bad meetings. I don’t like bad meetings either, but I really like good meetings. I realized that a good meeting is a great way to collaborate. I know a 5-hour meeting sounds horrible but it was actually great.
What was good about those meetings?
That it was a chance for us to come together first of all. We were forced to come together on a regular basis so everything that was supposed to be done was checked off. During those meetings new things would come up so we invested the right amount of time. We guarded that meeting to make sure that all the things that needed to be talked about for the previous five days were discussed. At those meetings we learned to talk with each other about what we were successful at executing, and in some cases not successful, and we learned how to challenge each other. We got a sense for people’s capabilities, what people were good at and what they weren’t, and where we as a team were strong and not strong. One of the philosophies that came out of there was: let’s exploit each other’s strengths and let’s forgive and shore up on each other’s weaknesses. We came to the conclusion that we don’t have to be well rounded. The team has to be well rounded, but as individuals we don’t have to be perfect. Typically people like doing what they are good at. The stuff that people aren’t good at can be done more cheaply/easily and with a lot less aggravation outside of the group. So that was interesting.
In challenging each other, we learned in those meetings how to laugh, we learned how to argue, we learned how to disagree; all with trust. The biggest thing I learned about trust was that it made it easier to take risks, because if you trust the group you are with, you think less about the down side or about the rejection that you might feel if you are wrong. Instead, you will get more excited about the applause you might get if you are right. So if I could look at trust and pull one thing out of it, it is that it gives you confidence to try things, and if you are wrong that people will appropriately understand that you are wrong and be glad that you tried. Of course there are boundaries to that but so many times people don’t try enough, they don’t risk enough.
It is amazing, those meetings were good for us because when we walked out of that room every Monday after micromanaging each other for five hours, we then did not have to have any more meetings that week about those issues. The meetings for the rest of the week were simply subsets of those subjects, and people would pull in whom they needed. Also, because of the fact that we trusted each other, if I were then invited to a meeting I would not spend anytime distrusting their intentions. I actually appreciated the fact that I was not invited to some meetings.
It sounds to me like you didn’t wake up every day thinking about how are we going to build trust. It was something that happened at a certain level as you were managing the business and as you were working with each other.
It was a behavior pattern. It was an attitude.
And you had an accountability mechanism; a practice every week of holding each other accountable. That 5 hour conversation was a kind of glue that solidified your confidence that things were going to get done.
It was a week-to-week march of accountability.
There are two pieces of trust. There is trusting one’s intentions and there is trusting one’s ability to execute. Many times the two don’t go together. I trust someone’s intention to get something done, but I may not trust their ability to execute as much. So we had a chance to test that out early.
The other thing about that meeting was because we were willing to stick together for 5 to hours, it saved us so much time during the week. If we were willing to hang in there the first day of the week, it really saved us a lot of time. It turned out to be quite an investment.
That’s amazing.
Originally we did it because we were building a company brick by brick. Even 8 months out, when we turned our first profit, we didn’t abandon that policy because we realized that works under any circumstances if you are going to be accelerating growth. And to this day, we get together once every two weeks for a five-hour meeting.
Wow.
What else do you do to solidify the group?
Well if you look at our key strategies, which are in writing, one of the four is to have fun. When we have a reason to celebrate we spend a lot of time celebrating together with our group and with the folks in the company. Specifically with this group we celebrate about once every 6 months and we will go off for a 3-day trip. That trip has no working agenda. We go have fun together. There still is a lot of work discussed while we are having fun together. Typically it will be a golf trip. Some would say, how could a management team afford to go away once every six months? The way we look at it we can’t afford not to do it because it is very good for our team. Good things come out of it. So, what does it take to get trust? For starters, you’ve got to have decent people. Secondly, you’ve got to invest a lot of time with those people. If you’re willing to do that, the return we found was enormous.
And the team has remained intact?
We added one person two years out, and one person retired after the company was sold. Even though I had contracts with all six people I haven’t seen the contracts since we signed them five years ago. We have not had one single issue.
How did your leadership change, how did your experience of it change through this experience, and what surprises have been in this for you?
I was surprised how quickly things can get done with no red tape and without bureaucracy. I had previously managed a sales ship that was connected to a lot of stuffy boundaries, and I now realize that I had become so accustomed to it that I was numb. There was so much that I had just gotten used to. When you start a company with a blank sheet of paper, which I recommend to all companies no matter how old they are, there is nothing to deter the swiftness of decision-making. How quickly you could build something was amazing to me.
We had a goal to produce 40 million dollars of business in a 36-month period and we did it in 12 months. In my wildest dreams I wouldn’t have thought it would happen, but what I didn’t realize was that a highly efficient management team that trusts each other can make so many decisions. If you really look at the path of a company, it is a series of conversations. It is a question of how quickly, how effectively can you have conversations to make the best decisions? So the faster you can make the best decisions is the goal. Some companies are slow to make their decisions, and some are slow to make bad decisions. But if you are fast and you make the right decisions it’s explosive. Fortunately, we were able to do that out of the blocks. That was a surprise. The other surprise was I didn’t realize how many highly talented folks there were out there who were willing to take a risk and come to an environment where they could really have the kind of authority they wanted.
You were like the pied piper.
That was surprising to me and is still to this day. People familiar with our company, the attorneys for example, tell me that this was the fastest growing company that they had ever been a part of. Which from a stress point of view was really nice because I really never worried about the money like others have had to. We raised enough of it and accelerated so quickly that I really did not have to experience that (kind of worry).
What did you worry about? What kept you up at night two to three years into this?
As a founder and an owner you sell people on the idea of what your intentions are, and the fear of not being able to deliver and misrepresenting something never goes away. There is that part of your conscience, that agreement that you have with the most talented people in the industry, that you are not going to mislead them. The thing that you can never get away from is that you can have data that tells you one thing and the interpretation is correct at that point, but things can change in the market, which would totally change everything. While you may understand the changes in the market, your folks may not. So the ability to communicate with people so that they are with you during these changes can be very critical. One of the parts of our culture is we would rather run the risk of over-communicating. I have never dealt with a company that communicates as much as they should, so our goal is to over-communicate.
So that is one thing I worry about. The other thing I worried about was the industry. We knew it was going to be volatile. We started with the premise of a certain culture, but the only way it would remain the same is if all the elements stayed the same, which was not realistic. We were going to be a growing company and we were in a volatile, maturing industry. If you hold your culture dear, and everything is changing, then you have to overcompensate and be willing to spend more time on that. For example, anyway you look at it the larger a company gets, the more time you have to spend communicating; there is a direct relationship there. The example I would use is, if you are a parent of two and you’re a great parent then suddenly you have 10 children. You can still be the great parent, but 10 children don’t feel like those first two felt, because there is not as much attention to go around. So you have to work harder at it. You have to spend more time as a company gets larger. That just comes with investing time and being able to deliver your message consistently.
Say more about your culture. What were you trying to do in creating an environment, and how did you do it?
Well, first we wanted to have a culture that was simple and easy to understand. We are a sales company. What is the definition of culture? My definition of culture is what are the expected norms or the unwritten rules. How do you live your life at work and how do you operate? We wanted to have a culture in which we weren’t afraid to share information. We wanted to be able to talk about problems as well as be able to give the appropriate amount of decisioning, and we were looking for highly motivated, very talented people.
I would say it is a high-achievement culture, the parts of the company I’ve worked with. It is also a “thick” culture, which means that if someone doesn’t fit, it’s painfully clear.
It’s obvious, yes.
When you find a violation to your culture you don’t sit idly by, it’s everybody’s responsibility.
It takes care of itself.
Yes, to maintain it. The other thing I learned is there are a lot of management teams scattered across America that have the best of intentions but they’re not connecting with the people that they’re supposed to be leading. So, those good intentions don’t play out. The culture has to start with the management team. Don’t only decide what the culture is going to be but what are the things you do to perpetuate your culture? How do you live your culture? How do you take an abstract idea like culture and operationalize it? How do you make it black and white? There is no substitute for exposure. The management team must be exposed and they have to be visible. When times are good they have to be on the front of the ship, when times are bad they have to be on the front of the ship. That comes with attempting to over communicate. It also comes down to when there is a need to communicate, you’re the first one to do it. When there is a need to celebrate there is no hesitation, when there is a need to talk about something difficult there is no hesitation. So, in a simple form we have 5 different operations or divisions, each with their own management teams and they are all taking the lead from us. How much we communicate with them is how much they are going to communicate with their folks.
Based on your experience and your observations of other leaders and managers, what are the biggest myths and misconceptions out there about leadership, about running a business?
Again, great question! As a leader there is a funny paradox. To leverage and move quickly, you can’t do it by yourself. You can only have so many people close to you that are your directs, that you can manage effectively. My capability is 5. There are two things about that. One is being aware that you have a certain amount of capability and two, being able to match up your capability. Part of leading this group that I’ve led (and it goes beyond this group) is being OK with being wrong. If the answer doesn’t have to come from me or if I don’t have to be right, it sets other people to be more right and it allows the best answer to come in. To me there is a paradox with that. I think it is more important for a leader to acknowledge what he doesn’t know and to be appropriately humble. There is a time to do that and there is a time to be assured. If you get the two wrong it is very damaging. If you can get the two right it is very appropriate. When something is done right it is important to make sure you understand what it is and make sure that the appropriate people get the credit for it. As a leader make sure that no credit stays on your desk and that it is billed out appropriately.
Is there a specific example where were “overly assured” at the wrong time or in the wrong place? The other side of that would be was there a time when you held back too much and you didn’t trust your gut, and instead let someone else be right?
I fell into an interesting trap. We were so successful so quickly that I had a time period where I thought I knew more than I did. During that time period I started a second company. Being in a hurry to launch it, I abandoned some of the basic fundamentals that I had when I started Decision One. On top of that mistake, I thought the market was perfect for it. It took me 12 months to set it up and two months into it I knew I was dead wrong. It took me 6 months to unwind it. As my banker said, “I dated the company longer than I married it.” What I learned was, it was the first time in about 18 months that I was obviously dead wrong. So I had to ask myself “am I going to put some nice spin to it?” But I realized the danger of hiring very smart people is you can’t spin things to them even if you wanted to. You are held accountable. There was one of those unforgettable moments when I had to acknowledge the mistake and laid off 95 people in one day, which was the hardest thing I ever had to do. Then, I had to go in front of the other 100 people in the other company and really explain how this thing went wrong. I was obviously concerned that I would lose credibility when I explained I was wrong, but what I learned was that people appreciated the honesty. They felt good that at least we understood the mistakes; that it kind of humanized us a little bit. So, there are times when humility under the right circumstances can be very powerful and the lack of it can be completely detrimental.
When you look back, at the past five years what particular moments will jump out at you no matter how long you live?
There is a funny one on our very first day. I left my old company one day and walked into Arthur Anderson with a blank sheet of paper. I remember there was a blank sheet of paper and we were going to start the process. I can remember looking at the blank sheet of paper and thinking “it looks a lot blanker than I thought it would look”. I couldn’t wait to just put something on the page and it took us like an hour and that blank page was just…
It was truly and literally a blank page.
…scaring me. A blank page!
I had a proforma that had nice numbers on it,
..You had a blank page.
We had to go to the supply store and get pencils. I mean it really was starting everything from scratch. And at the time there were just three of us.
The other thing that is funny is how we went into rental space: where do you rent office space for two knuckleheads that are starting a company? We got the cheapest rental space we could find. It had broken desks, exposed lights and rotary phones. When we got in there and had signed a 90-day lease, we realized we had made our first mistake, because we can’t sit in here and expect people to come by and interview with us and join a company that basically looks like this. We were in there for one day and then we blew our $300 deposit. For one day it cost us $300 to be in this space. Another moment was when we filled out our first (real) space. It was 6,000 square feet and it looked like the super dome. There was no one in it, and there were 6,000 square feet – it looked huge. Within 5 months every cube was filled and a year later we opened up 40,000 square feet.
A year later?
A year later. And it’s funny the 40,000 didn’t look as big as the original 6,000. A statistic that jumped out at me then was our rent costs us $300 per hour, and just 18 months before it was $300 per month. I can remember thinking that’s a compelling, frightening statistic: signing a 5-month lease of 40,000 square feet and looking at what that costs over time, and that you are personally guaranteeing this. Those are moments when you still remember the taste in your mouth.
Another is when you make your first loan; what that looks like and what that feels like. We made $300 on our first loan and we spent $500 celebrating that night. In this celebration we thought that hopefully our business acumen will be better than this night!
Anything else you want to say? I am still fascinated with the question of how you’ve changed. What has changed about JC Faulkner in the past five years?
From a leadership standpoint, what’s changed is I am more of a listener today than I was five years ago. I used to rush to come up with the answer, jump to conclusions. Too, I’ve learned to appreciate data, to be aware of data. And I’ve learned to appreciate patience. What I’ve learned is until you have to make a decision, you don’t have to make a decision and you can always be gathering data up until the last minute. The best thing I’ve learned is that sometimes my best decisions have come on the heels of my worst decisions. Or my best decisions have come on the heels of what I thought were my best decisions and they are exactly the opposite. One piece of data can take you from a bad decision to a good decision; so respect data. The other thing I’ve learned is I have a higher value for employees and people’s ability. Every time somebody joined our company I realized that our bottom line potential just got better.
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