The Sniff Test

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I’ve worked with a number of high-performing CEOs over the years. The best of them all had a unique skill that’s far less common with founder CEOs. It’s the ability to manage via the “sniff test.”

The bias of a founder is to make every decision and be hands-on, involved in everything. This is typically fine for the first few million in annual recurring revenue (ARR). However, at some point (typically, before $10 million ARR), this becomes a ceiling to the company’s growth.

On the road to $100 million ARR, you have to lead quite differently. Yes, you have to delegate (a topic I’ll save for another day), but there is a time and place for you to do a “deep dive” into an issue that goes beyond delegating.

The trick is to know when to manage through others, key performance metrics, and at arm’s length, versus when to roll up your sleeves, drill down, and get into the details.

This is where the CEO “sniff test” comes into play.

The great CEOs are excellent at a skill I call “incongruence detection.”

This means asking a bunch of different people the same question and seeing if the answers are in alignment.

Let’s say your sales team thinks your company’s price points are too high for the marketplace and strongly advocate for a price reduction. But when you look at win/loss interview results, the #1 reason for deals lost is product quality. Something doesn’t match.

Maybe the sales team is wrong. Maybe the win/loss data collection process is biased.

Great CEOs often do not know specifically what’s wrong.

What they do have is an uncanny ability to detect when something is wrong… and worthy of increased, more detailed scrutiny until a deeper understanding is achieved or the incongruence is reconciled.

This is how you can scale your attention span across a much larger business. At $3 million ARR, you can look at everything.

If you’re growing ARR at 50% to 80% past the $10 million ARR mark, there are too many moving parts to look at everything in detail.

You could look at everything, but then you become the constraint in the business. When this happens, your growth rates decelerate, and sales slow (or shrink) to a size where you can look at everything personally.

All choices, including maintaining the status quo, have consequences.

It’s worth thinking about.

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