“Urban Sombrero” Syndrome
In one Seinfeld episode, the principal character is an “urban sombrero,” a very wide Mexican sombrero to wear in the crowded street chasms and packed subways of New York City. The episode stars Elaine, whose boss – the CEO of the J. Peterman catalogue, appointed her as the interim CEO. She whines about her new job responsibilities, not having any direct experience in running a large operating company. Kramer encourages her by stating that she should be very capable in her new job, and he attests to the recommendation by using his own experience as a successful Karate student in a short span he has been taking those classes. She felt so confident that she orders the urban sombrero and promotes the hat as the lead product in the next catalogue. What she didn’t know and Seinfeld found out, that Kramer’s success is in large part due to the fact that the average age of his opponents in the Karate class was 12-13 years old. When she made the same discovery, she knew that her executive decisions might be questionable. And her decision about the urban sombrero, a disaster.
How does it apply to start-ups? Inexperienced entrepreneurs and managers solicit advisers for an advisory board. How are they picked? Direct experience in the field helps. Generally, good advisers should have had some demonstrable financial success. They will do it to help a company reach a level of success that will allow them to hold some equity and grow with the company.
What you don’t want is a “Kramer”! That is someone who is looking for monthly fees or recognition. There is an air of suspicion about an adviser who demands a monthly retainer from a start-up when every dollar is precious for that same start-up. There should be some professional compassion; he/she would see that every dollar goes to marketing or production. It also infers that that the adviser has severe doubts about the success of that company, getting cash in hand over any potential equity.
Another red flag is the lack of evidence that the individual has had any direct experience in the same industry. If that adviser doesn’t understand the business, asks too many questions, cannot fathom the strategic directions, then the learning curve is either too high or may not be able to comprehend the space. It doesn’t matter if that adviser had a wildly successful prior business. It is difficult to jump from one space to another and see how that the new space is clearly understood by the adviser. More often than not, I have seen advisers not show any evidence that they comprehend the space and are able to add value to the company. And any advice from that profile consumes time. I remember a previous company which raised over half a billion to install terrestial optical cable in Europe. The adviser, although an engineer, had little knowledge of fiber optics and unique installation. Yet he recommended engineering routes in contravention of professional suggestions. Because of the poor installation, the fiber had such poor performance in DWM that led the company to file for bankruptcy and was delisted.
Another red flag for advisers is the failure to act collectively. There is that American saying – too many cooks spoil the broth. Too many directions or disparate suggestions demonstrate a lack of continuity or direction for the company. Every day not spent productively means another day of losing sales or revenues or product completion. When advisers provide advice that is not part of the overall strategy of the company is essentially useless advice – hence, the Urban Sombrero syndrome.