CXO Conversation Podcast

The Hallmark of a Great Leader

An accomplished investor, Rand Lewis is  the Managing partner and co-founder of Delta-v Capital. Rand has invested in many well-known companies such as Zayo, Cloud Sherpa, LogRhythm, Iterable, Chegg and others.

For over 24 years, Rand has been investing and hiring executives for portfolio companies and he’s learned and observed a lot about what makes an executive a great leader and successful.

In this episode, Rand discusses:

  • He invests not only dollars, but real relationships with people
  • Advice to current and emerging CEOs
  • What makes a leader successful and how he finds it in candidates

After earning an MBA from Northwestern, Rand was a consultant at McKinsey before joining Centennial Ventures.  After a successful 10 year run with Centennial, he co-founded Delta-v that focuses on technology companies.

Transcription

Rand Lewis:

One of our favorite sayings is nothing’s impossible if you don’t have to do it yourself.

Michael Mitchel:

CXO Conversations talks with C-level executives on how they reached the C-suite and what advice would they give to those who want to be one. Today, Rand Lewis, managing partner of Delta-v Capital, joins us. Rand has over 24 years experience in investing in companies, both in venture capital and private equity arenas. He co-founded Delta-v in 2009 and has invested in some of the well-known brands within technology. Please see the show notes for more on Rand’s bio. Welcome to the conversation, Rand.

Rand Lewis:

Thank you so much for having me.

Michael Mitchel:

I got tell you, I’ve been looking for this for a while. We have a mutual friend who speaks very highly of you, and I felt like between talking to Todd, who’s one of my first guests on the podcast when I launched in 2019, and our pre-call and getting to know you, I feel like this is going to be a really fun conversation. Do me a favor, where does your passion for growth investing come from and why the technology focus?

Rand Lewis:

Well, I love working with you entrepreneurs and management teams who are willing to take a risk, willing to try something innovative, see the positive in a market or an opportunity, and it’s infectious to be around them. I started my career in a very big, sort of almost monopolistic player in the telecom space, and the people I worked with there didn’t have passion. I contrast that and love the passion of entrepreneurs, and technologists just see things that the rest of us don’t see. They have the ability to see over a horizon, and it’s infectious and exciting to be around.

Michael Mitchel:

Prior to founding Delta-v, you were with Centennial Ventures. Any key takeaways that you applied when co-founding Delta-v?

Rand Lewis:

Yeah, the partners who I worked for and eventually worked with at Centennial Ventures were all almost a generation older than me. They were very experienced individuals, and so I had the opportunity to learn from them. A couple things that I learned that I apply every day is that nothing’s impossible if you don’t have to do it yourself. If you find great people and you align them around a vision, it’s amazing what you can accomplish.

And that exists within Delta-v and it certainly exists within the companies that we invest in. The second piece of it is, is that those relationships are just super rewarding and they become your friends and people that you respect and you learn from not just in business, but in other parts of your life.

Michael Mitchel:

When considering investing in a company, what do you look for in its leadership?

Rand Lewis:

One of our portfolio companies, you mean? We look for people who have a track record of success. We start looking very far back in their backgrounds. One of the guys that I’m working with today is someone who grew up in rural Romania, reared by his grandparents, came from nothing. But if you look at his track record of success, it started early in school and he exceeded all along the way. We look for a repeated track record of success all the way through their career. Even if they’re relatively early in their career, have they outperformed? Have they made a situation better? Second thing we look for is specific expertise in the sector, in the industry that they’re going to pursue.

It’s hard to unlearn the lessons or to learn the lessons that you didn’t know about an industry. We like to back people to do something in an industry that they know as opposed to someone who doesn’t know anything about the industry. Those are probably the two most critical factors. The third piece is can they bring a team with them? It’s a wonderful factor for us to look at what I call followership. Are there team members who are specifically willing to take a risk and follow this individual, and can you see them follow them across different past experiences?

Michael Mitchel:

For you personally, where’d that come from? Did you apply that approach when you were at Centennial, or was that something new when you started diving?

Rand Lewis:

The most successful companies we saw at Centennial were companies led by teams who had worked together in a previous company and then came forward as a group, usually within the same industry, to maybe make the next iteration of success in that industry and having that core team different and complimentary skillsets. They know one another. It just helps grease the skids in terms of getting something off the ground and getting it moving.

Michael Mitchel:

I couldn’t agree more. Over the 20 years I’ve been doing search, I’ve seen that as well. When I talked to someone, I’m like, well, you got a short stint here? Well, Chris, who brought me over, then went on to this other role, and I really wanted to work with him. You see that. And then next thing you know, they’re a C level, and then they’ve got folks that have followed them. This says a lot about them, I think.

Rand Lewis:

Absolutely.

Michael Mitchel:

How about when you’re looking at leadership… And we’re going to come back. I want to talk more about that, the followership thing. But when you’re looking at a company to invest in for the portfolio, when you look at the executive leadership, I mean, is there anything else? I mean, you’re looking at their personality, their character. The reason why I ask is Chris Younger, I don’t know if you know Chris, over at Class VI Partners, he has what’s called the dinner test. They have dinner with him. Do you want to have dinner with them? Because it’s not so much the qualifications and the actual company, it’s more about what that person is, what’s their values and their ethics.

Rand Lewis:

Well, so absolutely values and ethics are table stakes for us. We seek that as we’re doing reference checks, as we’re evaluating their background. But the plane flight or the delayed flight test maybe is our example. If you’re stuck in a gate in Chicago waiting for thunderstorms to clear to be able to fly back to Denver, how would you feel? Would you be looking for an excuse to go take a call, or would you enjoy spending time with that individual?

Absolutely. I mean, life is way too short. We work with these companies sometimes for 10 plus years. You want to find them interesting, find them engaging, have things that you share in common. And yet, diversity’s super important too. If we invest in only people who look like me, well, we’re going to miss so many wonderful opportunities. Absolutely. The delayed plane test is one that we care about. Yes.

Michael Mitchel:

The followship, I don’t know if you track it statistically or if it’s a gut feel, but when you look at folks you’ve hired who didn’t have the followship versus those who did, do you see a difference in their performance as an executive?

Rand Lewis:

Yes. I don’t have the statistics. What I can tell you is that we feel it’s a much higher likelihood when it’s a known relationship and a known hire. Invariably, when we work with someone… And we’ve done this. We make mistakes. When you work with someone and you have that question in your mind, why did nobody follow this person, we usually know pretty quick, unfortunately.

You’re in and you’re like, oh, now I see. Their first impression is their best impression maybe is one way to describe it. They don’t work so well over time. In the cases where we’ve blown through the yield sign, it usually comes back and hits us in the face pretty quick.

Michael Mitchel:

When we’re talking about followship, I think we’re talking about two kinds of followship. We’re talking executives you’ve used at one company and you brought them over to another company, but then also we’re talking about a followship of you bring in a CEO and they have a team that follows them. Correct?

Rand Lewis:

Correct.

Michael Mitchel:

What is it about that person when they bring teams with them from your perspective that makes them good? Why do people want to follow them? Do you have thoughts on that?

Rand Lewis:

Well, it’s very personal. It depends very much on the individual. But if you take Dan Caruso, who was one of the most successful entrepreneurs here in Colorado, he had a team that he took with him from Level 3 to ICG, and then the vast majority of that team followed him to Zayo. Those were huge successes. Dan, I mean, you probably need to ask the team, but one of the reasons that they loved working for Dan is that he was a moneymaker.

They knew he was going to be successful, but at the same time, they knew he held them accountable, he challenged them, he pushed them intellectually. Each one of them, I think, probably had something a little different they liked about working for Dan, but they absolutely spoke with their feet. Hugely successful in all those cases.

Michael Mitchel:

You’ve seen the full gamut of CEOs. Besides the followship, are there any other traits that to you stand out in successful executives?

Rand Lewis:

There’s an underlying optimism and stick-to-itiveness resolve that I think is super important. Starting a business has successes, but there are many failures along the way on your way to each success. Just willingness to see something through and to not be daunted I think is a super important trait that all of them share. Decisiveness is the most important factor for a CEO. Those that we’ve backed that haven’t worked out, often there’s a time where you start to feel like they’re soliciting input from the board in a way that isn’t just looking for data.

It’s like they’re either scared to make the decision. They don’t know what the right answer is. They’re worried about politics. I don’t know what the factors are always, and it depends, but no CEO’s going to be right 100% of the time. Good CEOs are right 80% of the time, but they all make the decision quickly because a lack of direction is sometimes worse and maybe worse always than no direction.

Michael Mitchel:

Analysis paralysis.

Rand Lewis:

Exactly. Wrong direction is better than no direction. It’s a process where you’re going to hit a dead end, you’re going to have to reverse, and you’re going to have to move, but you got to really quickly figure out that you’ve hit a dead end and be decisive and cut that off and move.

Michael Mitchel:

And then be able to look back at it and say, okay, what do we learn from that?

Rand Lewis:

Yeah, for sure.

Michael Mitchel:

And what we’ve done differently.

Rand Lewis:

Yes.

Michael Mitchel:

What was a good part of that? What was not a good part of that?

Rand Lewis:

But the confidence to make the call is really, really important. We interact with CEOs primarily through the board, and the CEO who comes to the board with a strong, well-thought-out reaction, listens… I’m sorry, recommendation, listens to reactions, inputs and all of that, but then can decide and set a direction, that is super important.

Michael Mitchel:

For you, how do you measure effective leadership besides the followship? Are there other aspects of the person, their leadership traits or their experience? Again, this is really aimed to someone who wants to be a CXO one day, this podcast. I’m trying to convey to them things that they should be thinking of or preparing for.

Rand Lewis:

When we interview a candidate, we usually interview certainly the CEO and the CXOs. We often interview VPs. We look for straight-up performance. If you’re being interviewed for a VP of sales and a business that needs to go from 10 million to 50 million in revenue and needs to grow their sales force from five people to 25 people, when I’m interviewing that individual, I’m looking for examples of when they have done that thing before.

I don’t want to hear about their ideas of how they might do it. I want to hear about what they have done in the past that shows that they can do it, and that’s the best predictor of future success, I think, is past performance. I don’t know if that’s what you’re looking for.

Michael Mitchel:

No, no, it is. That’s fine.

Rand Lewis:

But it’s the very specific. If it’s a marketing person and they have to launch new products, have they launched new products before and have those products been successful? The +easiest way I always think about it is, if you were in a role for three years, well, what were you hired to do? What were your biggest accomplishments? What were the low points, and why did you leave? If you can’t give me numbers, facts, data that answer those questions, I become pretty skeptical pretty quick.

Michael Mitchel:

Rand, what’s the role of the board in making management decisions and changes?

Rand Lewis:

Well, one of our favorite sayings is nothing’s impossible if you don’t have to do it yourself. When you’re the CEO and you’ve got someone you’ve hired as your CFO and you’re wondering if it’s the right person, one of the things that often clouds your judgment is the practicality of having to tell that person they’re not the right person, let them go, and find their replacement, train their replacement, and all the friction that goes with a management team change.

It’s way easier for the board to say, “No, no, no, Jenny’s not the right person. You need to let her go. You’ll figure it out.” And that gets back to, hey, why is that easy for me to say? Because I don’t have to do it. Whereas the CEO, the personal relationship, and then the challenges of practically making a change causes them to hang on to the hope a little too long often.

Michael Mitchel:

And not wanting to have that awkward conversation.

Rand Lewis:

Yeah, yeah. I mean, it’s uncomfortable. It’s all of our least favorite thing. We’ve all had to let somebody go. It’s our least favorite thing to do.

Michael Mitchel:

You probably don’t want someone who enjoys it too much.

Rand Lewis:

It depends on the role, right? If the play is to do a consolidation and to drive expense reduction in the businesses that you’re going to buy.

Michael Mitchel:

That’s true.

Rand Lewis:

I still don’t believe anybody likes it, but you want someone who’s not uncomfortable with it for sure, because they have to make those decisions quickly. They have to implement the cost changes very rapidly. We always would say, measure twice, cut once. If you’re going to be wrong, let too many people go and hire a few back, not the other way around.

Michael Mitchel:

Well, also, it’s how you do that, how you execute that evolution is being observed by everybody around you. I mean, even of the circumstance, it’s going to have ripple effects down the line down to the software developer because there’s a lot looking.

Rand Lewis:

I mean, look, go back to our CFO example, if the CFO isn’t that strong, I can almost guarantee that there’s someone in her or his organization that isn’t that strong. You have to get them out. We like to say A’s hire A’s and B’s hire C’s. If you have a B, you almost certainly have C’s down below. You’ve got to get that B out, get an A in, and then that A will top grade the team.

Michael Mitchel:

Yes, absolutely. We’re going to step aside from the conversation for a brief moment. I’d like to thank CXO Conversation sponsor ACG Denver for their support of this podcast. As a local program chair, I’m proud of Association for Corporate Growth and its role as the hub of the middle market business community for quality networking education and events.

Connections are made, deals are formed, and thought leadership is exchanged. We like to have fun. In fact, today’s Thursday here in Denver. Tomorrow we’re doing a river raft trip up in Idaho Springs in the Rockies. We like to have fun. I encourage you to check out acg.org/denver or your local chapter. Back to Rand.

Rand Lewis:

Cool.

Michael Mitchel:

You said that with CEOs and I quote “have become friends with whom I’ve shared life shaping experiences. We’ve shared in successes and disappointments, both personally and professionally.” I find that statement really meaningful, the disappointments. I mean, it seems like PE firms have this reputation, but you’re very warm and personable. I’ve heard really good things that you really do care about the companies. There’s a reason why you’re doing this. Where does that come from?

Rand Lewis:

I guess I don’t have a great answer to where it comes from other than these people we’ve built. We’re on the phone late at night. We’re on the phone early in the morning. I remember so many calls made from vacations, from parks when I’m watching my kids, and they’re doing the same thing. I’m at a soccer game watching my son and they’re at the soccer game watching their daughter at the same time. You get to know them. When you’re teamed and you’re jointly at pursuing a goal, you become friends, I guess.

It’s a hard question for me to answer, because I guess back to the delayed airplane question, I don’t get into business with people that I don’t like. And then as we work together, we become good friends. If you’re in business together for 10 years, things are going to happen. Someone in their family’s going to die and someone in your family’s going to die. This stuff happens. It’s real. You send them flowers. You show up, whatever it is. You’re there for one another because their personal life and my personal life are very intertwined with our business pursuits.

Michael Mitchel:

You’re not investing only in dollars, but also in relationships.

Rand Lewis:

Absolutely. Yes.

Michael Mitchel:

I think fundamentally, people do business with people they like and trust and that’s who you want to do business with.

Rand Lewis:

For sure.

Michael Mitchel:

You said disappointment. You didn’t say failure. I think that speaks to your fundamental approach to relationships and business. Does a disappointment come to mind? Is there an experience you can reflect upon?

Rand Lewis:

Yeah. I mean, we had a business that we found. The management team, we worked with them for three months. We invested. One of the key roles that they needed to fill was the chief information officer. We had a chief information officer from one of our previous companies who knew this sector and it seemed like was the perfect fit. We referred them. They met with one another. They liked one another. They hired the CEO, hired this person that we’d referred.

And two months in, he kind of called and said, “It’s not going so well with so and so. What worked for you in the past? We were probably four months in and we had this…” He was scared to bring it up with me, and he said, “I don’t think it’s working. I think we need to make a change.” Of course, I backed him fully. That’s his decision. He needs to be accountable for who’s on his team. The worst thing I could ever do is say, “No, no, no, you got to hang there.”

But I felt so bad that someone we had recommended and that we thought would be a good fit and on paper would’ve appeared to have been a great fit, had come in, stumbled, and we’d had all the time lost and productivity challenges of having to go through that replacement because we want these companies to be successful. We want to be helpful. You feel terrible when you make a recommendation or a referral and it doesn’t work out.

Michael Mitchel:

Looking back on that, what was the takeaway?

Rand Lewis:

The takeaway is that, and I give real kudos to our CEO, you don’t always make the right hiring decision. You have to quickly make the decision to let someone go, and he did that. He was not scared to bring it up with me. He was not fearful of having the departure conversation. He saw it as a challenge, and he was decisive. It’s a mistake. He relied on me. I made a mistake. Whatever. Things don’t work, but quickly identifying a mistake and moving on from it is absolutely crucial.

Michael Mitchel:

Do you feel that he was like, “Okay, I need to call Rand. We need to talk this out,” or was he a little, “Rand recommended this person. I’m really not looking forward to this phone call?”

Rand Lewis:

He was definitely tiptoeing around it. Yeah, for sure.

Michael Mitchel:

But he made the call.

Rand Lewis:

He did, absolutely. It always comes up at the end of the conversation.

Michael Mitchel:

Oh, does it?

Rand Lewis:

Yeah, yeah. Anything else?

Michael Mitchel:

Oh, really?

Rand Lewis:

I just said one other thing I had to bring up.

Michael Mitchel:

That’s interesting because you think that… When you have a conversation, you have good news and bad news, you always lead with the bad news, so you end the conversation on an up note with the good news.

Rand Lewis:

Well, in this particular case, I’m thinking of it’s that first conversation where he hadn’t yet decided, but he needed to bring this up, right? Anyway, I don’t remember.

Michael Mitchel:

We’ve all been there. I totally know that moment. I think we all do.

Rand Lewis:

Oh no, this is the reason we’re having the call. That other stuff we didn’t have to have a call for.

Michael Mitchel:

With me, when I’m on the phone with someone, you can always tell that Michael is forgetting something because he starts to stall at the end. I’m trying to remember what I… It’s not quite that bad.

Rand Lewis:

One of the things that happens when you’re the board member and you’re a lead investor with the CEO is almost every call has bad news. What do you say? Bad news you got to get out fast. Good news takes care of itself. It’s not very often that they call you and just say, “Hey, I just want to give you some good news.” Usually that comes out in an email to a very broad set of people. It’s usually the bad news that comes. It’s uncommon to get off the phone if there isn’t some difficult conversation that that we need to have.

Michael Mitchel:

My favorite quote is, failures are orphans, successes have many fathers.

Rand Lewis:

For sure. Yes, absolutely.

Michael Mitchel:

What advice would you offer to current CEOs?

Rand Lewis:

We’re in a market in the technology world that has gone from rewarding growth at all costs to now rewarding profitability. Capital was wildly available when interest rates were low. And now that interest rates have gone up, it’s much harder to get. My first and foremost recommendation is you’ve got to make sure you’re self-sustaining with capital that you have on your balance sheet. Do not assume you can raise more capital. Cut your expenses quickly and aggressively if you’re not profitable to make sure you can become profitable.

The second thing is, is that almost all of these sectors, if they could have supported three to five companies, they funded 10 to 15. There are too many businesses that have been funded. I think you’ve got to be really wide-eyed and not optimistic about where you sit from a market position perspective. If you’re not one of the couple of leaders in a sector, you’re almost certainly a follower, maybe a laggard. You’ve got to be very quick if you’re a leader to go and start to consolidate and use the downturn to build your market position.

By someone who gives you some new product, a new geography, a new set of capabilities around team. Use this as an opportunity to press your lead if you’re a leader. Harder decision is if you’re a follower or a laggard, it’s probably the right decision to merge in with one of the leaders. To be the first one who merges into the leader, you almost always get a better deal than the last one who merges in with the leader.

I think it’s really important today to make sure you have enough capital to stay alive on your own, and then to quickly figure out, do you have the resources and market position to be a leader, or do you need to become a part of a leader? And to quickly go pursue joining with the leader if you’re not the leader.

Michael Mitchel:

That’s really good. I got nothing after that.

Rand Lewis:

All right.

Michael Mitchel:

Let’s take it a little down the ladder. To an emerging VP, what should they be doing today in preparation for tomorrow?

Rand Lewis:

They need to work for somebody who’s great. And if their current boss is not great, they should go work for a current boss who is. Everyone has that watershed person in their career from whom they learned the craft, and often they follow that person, back to our earlier discussion. But if you are a up and coming VP and you’re working for the CFO and that CFO isn’t great, don’t view that as an opportunity, view that as a problem, and go work for a great CFO.

Because if you think the CFO isn’t so good, everyone else is going to figure it out and they won’t be successful. A, you won’t be successful because you can’t be successful if they’re not successful, and you’ll have wasted probably the most valuable resource you have, which is your time.

Michael Mitchel:

Plus, if you’re looking at and say, “This CFO is a B player. Holy crap, does that make me a C player?” Maybe you need to say, “Well, I’m not a C player. Why am I working for a B player?” I ask everybody this question, what’s the worst job you’ve ever had ever? I mean, it can be high school, whatever. What takeaway do you still use today?

Rand Lewis:

Well, the worst job I had is I was a busboy at a Perkins Cake and Steak in Boulder. I grew up in Boulder, and this Perkins was right next to the university. I used to have to work the graveyard shift. We were in this restaurant from 9:00 to 3:00, or sometimes from 10:00 to 6:00. This was the place that people came at the end of their night. They weren’t always at their best when they came at the end of the night, shall we say. And then many of them came and stayed because they didn’t have anywhere to go. They would drink the bottomless coffee. These were in the days when you could smoke cigarettes in restaurants. Anyway, it was an environment that sometimes assaulted the senses.

What I learned though is irrespective of who those people were, they were always looking for a smile, they were looking for someone to take an interest in them, and they valued being treated well. Even if that individual had sat there for a few hours and hadn’t ordered anything and they really needed to move along so that we could get a paying customer in so to speak, if you just explained that to them, they understood it and they moved along. People always value being direct, approaching them with the truth, even if it’s a tough message. It’s received best as opposed to making up an excuse or hiding behind someone else.

Michael Mitchel:

That’s really good. Rand, thank you. Thank you for being on CXO Conversations. I really enjoyed our conversation. Thanks for being a guest. I really appreciate it.

Rand Lewis:

You’re welcome. Thank you for having me. It was a great time.

Michael Mitchel:

I’ve learned a lot. I hope everybody else has too. I like to thank the listeners, and I’m going to encourage you to leave five stars on iTunes. It helps other people find it. If you want to reach out to me on LinkedIn, it’s Michael Mitchel with one L. I’m in Denver. I also like to thank Jalan Crossland for allowing me to use your amazing music on the show. You are the best banjo player I’ve ever heard or seen. Thanks, everybody.

Enjoy the show? Review us on iTunes– thanks!

Thank you Jalan Crossland for lending your award-winning banjo skills to CXO Conversations.

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