As the anecdote goes, a group of women is sitting around discussing recent conquests. One turns to another and asks her to characterize her latest flame on a scale of 1 to 10, but adds “now remember, we’re in a world with no 7s.”
Think how elegantly that puts the answerer on the spot. In my experience, anything reasonably good is always a rated a 7. Forcing yourself to go with either a 6 or an 8 is hard to do … on one side is wheat, and the other, most assuredly chaff. A 6 is only 20% better than average, while an 8 is only 20% away from perfection.
[As an aside, the other ridiculous human tendency in these matters is to add a .5 to whatever scale is offered. 1-5? You will definitely get a 3.5 in the mix of answers (of course, that is the equivalent of a 7). Even 1-10 will produce some 4.5s and 8.5s. People, if we wanted .5s, we would double the scale. We get it … 8.5 out of 10 is 17 out of 20. That wasn’t the question.]
I was thinking about this recently as we analyzed our portfolio companies. We haven’t ever really put it in these terms, but we have a good “no sevens” culture at our firm, thankfully. The temptation is to conclude that most all of your companies are doing well, are “largely on plan” and “our initial investment thesis holds, despite some bumps in the road”. The fact is, some companies are continually raising your eyebrows in a good way, and others in a not so good way, and deep down you usually know it. Having said that, things change quickly in our business, and you really do not want to go negative too early. But there are important issues on the table and decisions to be made, about where you invest your follow-on capital and your time, and “sevens across the board” doesn’t help you to do that. Some firms force rank their portfolios, or have each partner force rank his or her companies; we don’t do either, we just push each other to avoid the banal 7.
This is important for entrepreneurs as well. The most obvious application is in evaluating or hiring your team. GE famously force ranked and fired their bottom 10%. If I thought the evaluation techniques were good enough, I could endorse that; inevitably, they are not. But some flavor of that kind of rigor is vital, to avoid the gentleman’s 7, as it were. I think this can be applied to a company’s pipeline of customers, its funding options, partnership opportunities, etc. Anywhere there are prioritization questions, force yourself to truly separate … it is too easy, and all too human, not to.