Great From the Start

Anita Brick: Hi, this is Anita Brick. And welcome to CareerCast at Chicago Booth. To help you advance in your career. Today we're delighted to be speaking with John Montgomery. John is a corporate attorney, entrepreneur, executive coach, and writer. He is the founder of Montgomery & Hansen LLP, a Silicon Valley–based corporate law firm. He's also the founder of Startworks, a technology incubator.

He works primarily with high-potential entrepreneurial teams to help them translate their visions into successful companies. And today, John, I know we're going to talk about a lot of things. I loved your book Great from the Start. I love the fact that you talk about all the things that everyone in business school knows—you need to have a business plan and structure, and from marketing to operations—but that you also talk about the other side, which you call conscious capitalism. Tell me what conscious capitalism means and how does that apply to someone who is an entrepreneur?

John Montgomery: Briefly, for people that don't know what conscious capitalism is, there are three tenets, three principle tenets, which are that the corporation has a larger purpose than just making money. It both makes money, and it has a larger purpose that gives people in it meaning. The corporation is an ecosystem of multiple stakeholders that begins to transcend the traditional mind view of the corporation as a duopoly of shareholders and management.

And finally, the CEO is the steward of the corporation's ecosystem, rather than somebody who, in his self-interest, is out to maximize compensation and benefit. That's an overview of conscious capitalism for those that are interested. There's the Conscious Capitalism Institute at Bentley University in Boston. Conscious Capitalism Inc. These are largely the progeny of John Mackey of Whole Foods, who has really put a lot of his life force, energy behind the movement.

One final point is that I look upon conscious capitalism and that particular movement as a subset of a larger paradigm shift that's underway in the global economic system, which is that corporations right now exist to maximize profit for shareholders and, generally speaking, foist as many of the negative consequences of their behavior as they can possibly get away with, off on society and the environment.

And that paradigm is in the process of shifting to a more sustainable model, where corporations exist not only to optimize profit for shareholders, but also to provide a material positive impact on society and environment.

Anita Brick: Well, and that is such an enormous shift. I do think, though, that there are a lot of—at least that I talk to—a lot of social entrepreneurs who embrace what you're talking about.

John Montgomery: There are. It's very exciting. Anita. There is an increasing number of social entrepreneurs, especially the younger entrepreneurs. I'm 55. What I've found is that my generation is pretty embedded in the status quo, and we have pretty much concretized in our brains the premise that corporations exist to maximize profit for shareholders. Period. End of story. What I'm finding, and it's very, very exciting to see in the business schools, is that the new crop of entrepreneurs, the younger people, are already living in this new paradigm.

And we've got nine states in the United States that have adopted benefit corporation legislation that actually creates a new legal form that requires, for those that elect to be a benefit corporation, the corporation to optimize profit and provide a material positive impact on society and the environment.

Anita Brick: Is that the LC3?

John Montgomery: It's not the LC3. The LC3 is a tax-advantaged model. This is actually a regular C corporation. It's a form that allows socially oriented entrepreneurs to create businesses that not only optimize profit for shareholders, but are legally authorized and required to provide a material positive impact on society in the environment, as measured against a third-party standard.

Anita Brick: Wow, I love that. We know this was a very exciting topic. Lots of questions. Someone asked the question, actually it was an evening MBA student said, how do successful entrepreneurs that you've worked with know that it's time to become an entrepreneur?

John Montgomery: I'll start with the personal and specific and do a little self-referencing. You know, in my own case, I've started a couple of businesses, and in both cases, I had the felt sense that I really had no choice in the matter. For example, when we started our law firm in 2003, I had been a partner at Brobeck. Brobeck went bankrupt when the technology bubble burst.

Could have gone to another mega law firm, but I really felt like I had become unemployable by those large law firms because of the thinking that I engaged in. I really felt like I had absolutely no choice but to start a new law firm. I had a similar experience when I co-founded a company called Chrysalis in 2010, when the founders of that company came along, and they're interested in a lot of the stuff that floats my boat.

My experiences are pretty typical of entrepreneurs. Most entrepreneurs start their company because they get a very deep felt sense that this is what they are supposed to do, and the successful ones have an almost unshakable belief in the mission and the purpose of their company. And I'm not really sure where it comes from.

It usually comes from deep within. It's almost at a cellular level, and a common theme is that entrepreneurs will typically say they felt like they had absolutely no choice. This was the clear choice in their path. There's often a clarity and certainty that comes when you talk to the successful ones.

Anita Brick: So one of the alums who had done internal ventures in a company asked the question, OK, so how do you do it? Realistically, how do you make the transition without cashing out your 401(k)? And how do you balance life responsibilities as you launch a business? That's a big question.

John Montgomery: That is a big question. I talk about that a little bit in the book in the context of your personal runway. Each one of us has a financial risk profile. If you're 27 years old and you're single and you've got $50,000 saved up, you can probably afford to take more risk than somebody who's 47 and has three teenagers approaching college, a large mortgage, two leased cars, and no savings.

Every person has to do their own cost benefit analysis and really find what their comfort point is with respect to the amount of financial risk that they're willing to take. It's very, very real.

Anita Brick: Well, and also, your responsibilities beyond the financial ones, it sounds like there are things maybe there is a family here and there are other responsibilities. There are lots of things to consider. The other question that goes along with this, another alum said, I'm interested in what advice you would give someone like myself, who's mid-career in the tech industry, in the Bay Area, and looking to get into entrepreneurship or an early-stage startup.

Is it advisable, when making the jump, to do so outside of one's domain of expertise? If so, what are the demands, and do you have to quit your job? It is kind of an either/or thing at some point, don't you think?

John Montgomery: Well, I think so. And I think generally speaking, if you're going from mainstream corporate America and a job at, you know, an Oracle or a Google or, you know, a Yahoo or an HP, and going into a startup, it's going to create a massive amount of cognitive dissonance, because the culture and the pace in a startup is very, very different from a traditional hierarchical, established company.

So anybody that makes that shift is going to have a huge psychological adjustment, which typically takes a year or two. You know, you can modulate that. If somebody like the questioner wants to go to a startup, there are degrees of startups. He might find that his first move would be to a later-stage startup that has achieved success in the market, has sales, is cash flow positive, has received plenty of venture capital and is, you know, at the later stages of growth. So he can join a company like that and it's going to be much more similar to an established company.

As far as departing from domain expertise, I would generally advise against that because you're now compounding the life stress of moving from a big company to an entrepreneurial one by shifting into a new domain. So you're going to have double the learning curve. And probably at squared or cubed complexity. It’s generally a good idea to stick with what you know, as long as you know what you know is something that connects to your life purpose and passion.

Anita Brick: Good point. There are two questions around skills, like what skills you need to have, what strengths do you need to have? One person said, I'm evaluating whether to stay in a large corporation or join a startup in the early or middle stage of my career. Based on your experience with successful management teams, what are key skills that you really need to have to start a company? And then I would add, because this came in from a weekend student, and how do you evaluate them?

John Montgomery: Generally taking a snapshot of where a person is realistically is a good indication of what they're going to be doing in the future. So, for example, if you've been a natural leader all of your life—let's say you were captain of your high school field hockey team, were president of the debate society in college; you are a person that naturally gravitate towards leadership and you find that wherever you go, you tend to be chosen by those that you have associated with as a leader.

Those are the fact shares that generally give a person a clue as to what their innate leadership capabilities are. Now we can all cultivate skills that give us capacity, but if you are going to be the prime mover or founder in a startup, you had better understand leadership and have some faculty and leadership. We see it in Silicon Valley.

A lot of entrepreneurs are engineers. They are left-brained and maybe challenged in their emotional intelligence, and they may be very good at coming up with a product or a concept, but they are horrible leaders, you know? And there are two types of those entrepreneurs. They're the types that are self-aware, who recognize that they're great engineers and can see around corners and come up with products that the world needs, but they're lousy leaders, and they will often have the humility to invite somebody in who can be the leader to guide the company forward and play a CTO type role.

And then there's the second type of entrepreneur, which, you know, I jokingly talk about in the book, is those that have founder's disease, that are not self-aware and are not able to see their own limitations. And that type of entrepreneur, you know, tends to create a train wreck because they will try to lead a startup without the requisite leadership capacity or skills. It's usually not a very pretty picture.

Anita Brick: It certainly wouldn't be sustainable beyond a certain point, because they're going to implode.

John Montgomery: That's generally what happens. One of the really exciting things, Anita, that's happening right now is, and I talk about this a little bit in the book, the very subtle neuroscientific dynamics of leadership are becoming visible to people. It’s actually quite exciting. There's a fellow named Paul Zak at the Neuroeconomics Institute at Claremont McKenna College in Southern California, who's done a lot of research on neuro leadership.

What he has found is that there's a style of inspired leadership where a leader can literally create the environment that is a positive, loving, supportive place to work. When that kind of environment is created, the brains of those people in that environment produce happy neurotransmitters like oxytocin and dopamine, and minimize the amount of cortisol and adrenaline, which are the stress-producing chemicals that get produced.

And people are happier, more productive, and so on and so forth. So we're at the dawn of a very, very exciting age in our understanding of the biological and neurological dynamics of leadership. And this is going to revolutionize the way we approach leadership and actually design and build our companies.

Anita Brick: People who produce this happy environment just don't create lazy people. They actually create more productive people.

John Montgomery: Exactly. And you see examples of this kind of leadership in the workplace and often in the sporting world. I like to use the example of Coach Harbaugh, of the 49ers, San Francisco's football team. He came in as coach, you know, two years ago, and the team was three and 13 and one of the worst teams in the league. They had a demoralized quarterback.

Within a year, the 49ers were a legitimate Super Bowl contender that almost made it all the way. I look at what Harbaugh did: he created a safe, supportive environment in which the exact same roster of players felt completely safe and supported showing up with their A game. I see similar patterns of leadership in some of my best startups.

You get a relatively self-actualized leader. They have the ability to transcend the fight or flight response and return to center. And if the leader is confident and upbeat and positive, guess what? Everybody in the company can feel it.

Anita Brick: So obviously have to bring the good.

John Montgomery: They have to bring the good. You can't fake it.

Anita Brick: I found this really fascinating because people feel like they don't have a lot of control, but there is a lot more control. There are a couple of questions. One, that slides right in here. I'm going to modify it a little bit in light of what you just said. This evening student said my role is the idea or founding person who puts together an experienced team and receives funding. My question is, do I, as the founder, step aside and find someone to run the company and then take on a different role?

And I think that's an interesting question. But then if you believe in what you just said, in the kind of leadership that really drives people to perform and be happy at the same time, because you have this company, it's kind of your baby. How do you identify a leader who can step up and actually do that, too?

John Montgomery: It's tricky. You know, a lot of entrepreneurs are naturally leaders, but they've never started and built and run a business. I was in this position when I started the law firm in 2003. I’d had lots of management positions, but I'd never been the founder before. It's a very humbling position to be in. When you're the one that's responsible for meeting payroll and everything else, it's pretty overwhelmingly terrifying. It can be.

One trick: In the original venture capital model, a lot of the general partners in the venture capital firms in Silicon Valley were people that had started and run successful businesses. They, too, had once been a first-time CEO. What would happen in the venture capital context is a lot of the startup companies would receive venture capital from a venture capital firm, and the general partner of the firm, because they had been in the CEO's hot seat, they could mentor the first-time CEO founder of a young company, through the incredibly exciting and stressful process of becoming a CEO, president, leader.

That mentor capital was a crucial part of the Silicon Valley ecosystem. What I recommend for first-time CEO founders is to find one or more mentors, men or women, who have started and run successful businesses in a domain or industry that is close to the industry the founder’s company is in, and get somebody like that either on your kitchen cabinet or on your advisory board, or if they're really aligned, you know, have them come in as a mentor and chairman of the board to give you guidance.

You know, you're on a hidden hero's journey as the CEO leader. The company will go through different stages of development, and you have to adapt your leadership style to each particular stage of development. And if you don't have a guide or a coach to help you through those subtle transitions and really help you make the moves that you need to make and even see the moves that need to be made, you will likely get replaced. You will reach your principal capacity and upper limit and will get stuck. And your business won't be able to evolve past your limitations.

Anita Brick: That's all great. But how do you find someone like that? Because usually the people who can do the best job probably have the least amount of time.

John Montgomery: That's a great question. And unfortunately, it's a little bit like the chicken and the egg. Or it's like finding a needle in a haystack. It's very, very, very difficult to find the right mentor. Often what I've found is that you can take six months or a year to find the right person. It's often the first significant sale that an entrepreneur makes about his or her business.

If you sell your concept and can get a world-class mentor excited enough to want to get involved with you, that's a pretty good sign. An indication that you're really on to something in your business. I've had a number of companies where the CEO brought in a, you know, an experienced mentor-type chairman of the board who was a generation older than the founder, and that chairman of the board had a much more mature and extensive Rolodex. Because the mentor had those connections and was won over to the mission of the company, he would bring all of those connections to bear on the startup, and the startup was able to get traction and get aloft much more quickly.

Anita Brick: Well, that makes perfect sense because people, especially if they've been entrepreneurs before, will get excited if they hear something that is new and bold and scalable. I hadn't thought about that before, but if—as you have conversations with people, whatever, you have them assigned to protect your intellectual property. But once you have those conversations, if you're really connecting with that person and they see something of great value, you'll have a mentor.

So you're right, it is a chicken and egg. But maybe it all goes back to making sure that the concept, the product, the service is really super solid and thought through and that you are passionate about it and can deliver. And if you can't deliver, maybe someone else needs to be working with you in tandem to actually communicate this.

That's a really great idea, John, because you get to test the water and see what works and doesn't. And someone who is inspired at those early stages could be a great mentor.

John Montgomery: Yeah, absolutely. And it's a hidden sale, right? If it's your first sale, if you can sell a world-class mentor on what you're doing, you've got a pretty high likelihood that what you're proposing to build is also going to get traction in the marketplace.

Anita Brick: As you go, and you sell along the way. I know it's very difficult at times to not take constructive or otherwise feedback personally, but the people that I personally have seen who've created companies that have grown and continue to grow, they ask for that feedback. They were like, bring it on. They were able to then incorporate it to either ditch the product that they were working on, because it just wasn't going to fly, and or make something better so that they could see the value in that. John, do you have time for about two more questions?

John Montgomery: Absolutely.

Anita Brick: OK. So another question about—you're in the company, and this was an Executive MBA student. The student said, as a leader of an entrepreneurial firm, how do you make sure you're measuring what matters and communicating with your team in ways that help the company grow and advance, and that the team stays on board and motivated?

John Montgomery: I'm going to bring in a little bit of developmental theory, which I think, you know, whether it's Ken Wilber's integral theory model or Don Beck’s spiral dynamics or Robert Keegan's, you know, model from Harvard or Maslow's hierarchy of needs. We human beings seek meaning in our lives. One of the things that get startups fired up is that, yes, everybody in the startup wants to make money.

But generally speaking, the motivation for the startup is because somebody has found a better way to do something, and they are really excited about it. And they believe deeply in the core of their being that what they're doing is worth doing, and it's going to change the world in a positive way. Right. And that higher meaning is what animates startups.

It's why people gravitate towards startups because there's something very exciting. There's a higher purpose, there's a bigger mission, and yes, there's a money making element to it, but it's not like a, you know, traditional company where you know, you've got your benefits and your salary and everything's kind of, you know, lockstep. And there's a hierarchy and so on and so forth.

There's a very real sense of purpose. And I think part of the leader's job is to always make sure that the company's purpose and also values are enumerated and stressed, because that's what's going to animate the company and inspire people to show up for work every day. That belief that you know, they're doing something worthwhile that's going to change the world in a positive way.

Anita Brick: Well, I think you're right, because often people don't make a lot of money at the beginning of a startup.

John Montgomery: The stark reality is everybody wants to be the next Google. Look at the venture capital business. For the last 11 years, it's provided a negative IRR. Something like 30 exits have provided 90% of the returns in the business for the last 11 years. So the harsh reality is that most people in startups make less money than they would make working for Oracle or Apple or Yahoo or Google, and they have generally worse benefits.

What they have is a team spirit, camaraderie, and the joy of discovery and the adventure of creating something brand new. And that's really the currency that I think animates most startups.

Anita Brick: You're right. What would you advise someone contemplating entrepreneurship, where they want to make sure that they're creating value beyond shareholder value?

John Montgomery: I would recommend that a person today really understand which economic paradigm they want to be a part of. It's an incredibly exciting time to be getting an MBA because you really have a choice. And this choice is going to become increasingly apparent over the next decade. MBA graduates now have a choice of joining the current economic paradigm—which is, you know, corporations exist to maximize profit for shareholders—or being part of the shift to a sustainable global economic system, where in the new system, corporations will exist to optimize profit for shareholders and provide a material positive impact on society in the environment.

So if you're inspired to be in the new paradigm, I would recommend getting versed in some of the basic literature about what this new paradigm means. There's a book, Firms of Endearment, that came out in 2007 that profiles a bunch of public-conscious, capitalism-based companies, and shows that these companies provided a significantly better return on investment than their conventional peers.

You know, books like that are a good place to start. The Conscious Capitalism Institute at Bentley University has a good—if you go on their website, there's a good bibliography of resources that can bring you up to speed on sort of what's going on in the new paradigm. And you might go to the D Labs website; they have—I think it's BenefitCorporation.net is a national clearinghouse of information for the benefit corporation movement. I would just get very well versed in the basics of socially responsible corporations.

And then finally, I think the frontier is developmental theory and neuroscience. I think there's some very, very exciting developments in those fields which are going to completely transform the way we create business leaders and design businesses. I would get ahead of the curve by checking out some of the articles that Harvard Business Review and other places about neuroscience and or leadership, and pick a developmental theory that you like that will explain the arc of adult development. So you can put that into the context of your business.

Anita Brick: I guess that could also help with who you even choose to be on your team.

John Montgomery: Absolutely. I've started using a developmental theory based leadership assessment with the founders of my startups, because it gives me a sense of what their predominant leadership style is as a reflection of their level of development, and it makes it much, much easier for me to meet them where they are and adjust my approach where they are drawn.

Anita Brick: This is all really fascinating. It's so very different from other conversations we've had about entrepreneurship, where we talk about business plans and we talk about finding your right target market. What you're saying is that if you create the organization infrastructure from the inside out, so to speak, you're going to be able to be more nimble, to be able to take on opportunities to attract teams and also to be able to accelerate growth because you're not bogged down by some organizational things and interpersonal things that other organizations will be.

John Montgomery: That's absolutely right. And I'm just going to briefly touch on, you know, integral theory very briefly. There's, you know, an individual interior exterior or collective interior exterior. The big frontier is on the individual interior. Where this shows up in business is how do we cultivate enough stability of consciousness so that no matter how crazy our business world gets, no matter how often we're getting triggered by fight or flight responses during the day, no matter how full our inboxes and our voicemail box is, we have the personal practices in our interior to be able to return to center.

The real exciting thing for me is that we're on the cusp of a huge change in business, where it's going to revolutionize the way we do business and create leaders.

Anita Brick: It all really is fascinating because in the process of doing that, you create profit and you create good, which is all that's great. Thank you for doing the work that you do, and it sounds like you're doing it and helping others really grow and develop businesses that are having a really great impact.

John Montgomery: Well, I'm trying.

Anita Brick: We’ll have to talk more at some point, but I thank you so much for making the time today. A really different perspective about entrepreneurship. Get us all to think a bit more and stretch and create those benefit corporations. Thank you very, very much.

John Montgomery: Oh, you're welcome, indeed. It was a pleasure to be on the show.

Anita Brick: And thank you all for listening. This is Anita Brick with CareerCast at Chicago Booth. Keep advancing.