Have You Been Productively Paranoid Lately?
Plan for the worst--so the worst doesn't kill you
Last week a senior leader at a large company told me: “We’re planning for a recession.” Her words were music to my ears.
Her team is dialing back hiring now because the company hates doing layoffs. While it wasn’t fun to hear that this might slow down our partnership, I respect this proactive leadership—especially as we watch Silicon Valley Bank implode due to its lack of planning.
I was reminded of the concept of Productive Paranoia, which I first heard as a description of Microsoft’s strategy for protecting its market share. Bill Gates was not only Founder and CEO but also the “Chief Worry Officer”—continually looking for risks to his current business and steering the ship to Embrace, Extend, and Extinguish any threats that arose. Examples go back to Internet Explorer in 1995 and continue through its OpenAI partnership today.
Leaders must worry about existential risks that could screw up the good thing you’ve got going. Productive Paranoia is what Microsoft got right, and SVB got wrong.
At the risk of triggering PTSD in my old agency friends who subscribe here, it’s a lesson I learned firsthand years ago…
“You Always Lose 20% of Your Clients”
That’s what my old colleague, John, told me at a happy hour shortly after I announced that I was leaving my client-side BigCo job to join my friends on the exec team at their small but growing digital advertising agency. John had made the same move a few years before me, so I perked up when he shared this bombshell. He described how his agency and most others lost relationships yearly as their clients felt they needed a bigger or better agency partner. As a result, they were pressured to unearth new clients each year just to keep revenue flat.
Funny how this didn’t come up when my friends pitched me to join their team in 2004. They also didn’t tell me that several of our current clients didn’t exactly love our service quality. I thought my job would be to bring innovative thinking, but mostly it was about stopping screw-ups. But what new hire hasn’t been surprised by reality? I grabbed a shovel and got to work.
Most of our exec team was new to the agency business, so we were able to bring a fresh approach to the challenge and opportunity. In one of our frequent Friday morning strategic discussions, we hit on an Aha!:
Most of our clients were big brands with multi-million-dollar budgets but only spending five or six figures with us at the time.
Marketing was moving to digital, so our clients’ budgets would be “adding zeros” in the years to come.
If we keep these brands as clients, we will build a large profitable business without investing much time and money in sales and marketing.
So, we must be obsessed with not losing our clients.
The strategy was simple on paper, yet it took incredible discipline to practice. I’ve got a million examples. Here’s one:
“Folgers Isn’t Happy”
It’s January 2007. We’re in one of those Friday morning exec team meetings, and our COO, Michael, has that look on his face. He always gets red in the face when he’s pissed off or worried. We cut the small talk short so Michael can spill his guts.
Michael tells us that he just had a check-in meeting with Lisa, the Purchasing leader at our biggest client. Lisa told Michael that the Folgers brand isn’t happy with our recent work and, “If it’s just one time, she usually ignores it, but it’s coming from different places and seems to be consistent.”
We say “Fuck!” in a chorus, clear our calendars, move Folgers to DEFCON 3, and Peter grabs the whiteboard marker so we can start an action plan. It’s almost comical how many times we’ve done this in the past few years, but it’s the strategy we signed up for. We cannot will not lose this top brand.
We spend the next week digging in with the team to understand what’s gone wrong. The biggest thing we learn is that the new Marketing Director, Tami, believes in digital marketing and wants to take its game up several notches. In fact, she’s pushing for her entire Print budget to shift to Digital.
This is normally exciting for our business, but that insight didn’t get to our senior team until now—when months have passed, and Tami is more biased to bring in a much bigger, fancier agency partner.
We also find a few mistakes in our recent work, and a few team members that have been checked out lately. It’s little things that a client spending $50,000—Folger’s budget with us in the previous year—doesn’t worry about. But Tami was looking for a $5 million partner because that’s where her budget was headed.
With the opportunities areas unearthed—and opportunities for growth clearly visible—we pull out steps from a playbook we’ve built by handling such challenges many times in the past:
We have a direct, open conversation with Tami. We learn what’s important to her and commit to an improvement plan—building our relationship with her in the process.
Each exec team member dives in more closely with the team to help guide the immediate projects and get hands-on experience with what’s working and not.
Swap in our top talent—showing that we hear their feedback and can deliver a team to anchor a much more strategic account.
Hire a new Strategic Planner with client-side food industry experience.
Stop using conference calls for weekly check-ins, and start spending more time in the client’s office.
Bring bigger creative ideas without waiting to be asked.
Flash forward a year to January 2008, and Michael is back with Lisa in Purchasing, hearing about how much the Folger’s team loves us. Lisa finds it remarkable how we turned this relationship around—but it’s not the first time she’s seen us rise to the occasion when we get feedback. It’s in our DNA.
A day later, I get a phone call from Tami, and she is glowing with positive feedback. She’s also giving us the Dunkin retail business account—“As long as you keep your current team on my business!”—which would mean $500k in incremental revenue that year.
I’ve got chills writing this story. The good kind of chills.
Not only was it proof that we could rally to a challenge, but we helped Tami succeed in her efforts to be a change-maker at a big company. I always felt my ultimate agency job was to help our clients have successful careers. Unsurprisingly, Tami later left Folgers to do much bigger digital marketing work at Microsoft (irony!) and Amazon.
Please Don’t be Like SVB
The failure of Silicon Valley Bank (SVB) was called “a textbook case of mismanagement” by Michael Barr, of the Federal Reserve. Bloomberg’s finance guru, Matt Levine, says SVB “Took the wrong risks.” Yes, And…its leaders completely failed to plan for a worst-case but very possible situation that could sink the firm.
Burglars gotta burgle, retrievers gotta retrieve, and company managers must manage not to screw up a good thing.
SVB was a large, profitable business in a valuable niche. Customers kept coming without expensive sales and marketing efforts, and competitors had few inroads thanks to its deep, long-term client relationships.
A few things could go sideways in their business, and interest rates were always a watch out. It’s a risk as old as banking itself, and SVB had a higher risk around rapidly increasing interest rates. The company employed hundreds of people in its risk-assessment team and hired a Big 4 accounting firm to keep it in check. But only recently did SVB seem to realize its danger, despite all of these assessors and a direct warning memo from the Fed as far back as 2019.
Responsibility ultimately goes to the SVB CEO, who had one job: Don’t screw it up. He didn’t have to sell a single client, analyze a loan, or hire/train/fire an employee. It’s mind-boggling that this could happen on anyone’s watch—and as I’ve written before, maybe it’s just that nobody knows what they’re doing.
But you, dear reader, are a smarter leader. And you can apply this lesson to your own business and life.
Embrace Productive Paranoia
When things are going well—with your team handling the day-to-day— your main job as a leader is to look for what could cause the gold mine to collapse. Even better, you openly discuss this as a strategy across the company and train every employee to have a bit of productive paranoia in their roles.
At Microsoft, Bill Gates often shared his “embrace, extent, extinguish” mantra with his teams. He encouraged front-line employees to watch for technology shifts among Microsoft users and customers and email him directly when they saw something that could be a potential threat.
This is how Microsoft has survived and advanced through many technology shifts.
At our agency, we openly talked about how we were not going to accept the industry norm of losing 20% of our clients each year. We shared rules of thumb that teams could use to listen for threats. We created tools and processes—like a quarterly client survey—to alert us to their complaints. And we gave lots of credit to employees who admitted they could do better and asked for help rather than covering things up.
This is how our agency grew from $10 million to +$40 million in revenue in 5 years.
A little Productive Paranoia is helpful in your personal life, too. I wouldn’t recommend you become a “prepper,”—but make sure you’ve got at least six months of savings accessible in case you get laid off. Watch for signs that your company is in trouble and find a new job elsewhere before the bad stuff hits the fan. Buy life insurance. And maybe extend that warranty.
Some may think any mantra that uses “paranoia”—even with the “productive” qualifier—is too stressful to follow. But with practice, you will find that spending time considering what could go wrong will make you feel less stress and more freedom. You will avoid the general worries that “stuff will go wrong” and be confident without cockiness.
I hope the black swan never visits your pond, but if you plan for its arrival, you might even smile when it touches down.
Bob Gilbreath is a 2x-exit entrepreneur and co-founder of Hearty, a curated matchmaking service that combines top software developers with early-stage, venture-backed startups.
I love this. You made me laugh thinking about those agency days!