What De-Escalation Has to Do With Deal Flow

He has backed forty-one founders in twenty-two years.

Six returned more than 10x. Eleven returned capital or better. The rest did what the rest always do.

He has spent a lot of the last five years trying to work out what the six had in common, partly because he is nearing the end of his career and wants to leave something useful behind, and partly because the obvious answers did not hold up.

Not intelligence. Two of the six were not the smartest founders in their cohort and he can name people who were smarter and returned nothing.

Not vision. Three of the six materially changed what the company did within four years.

Not charisma. One of them was, by his own description, "quite hard to be in a room with."

What they had

He describes it as the ability to stay functional inside a conversation that has gone hot.

Not calm. He is specific about this and he thinks the distinction matters. Several of the six were not calm people. What they could do was continue to think while the temperature was rising, when most people cannot.

He gives an example that he says convinced him.

A founder was in a board meeting where a major customer loss had just been disclosed. The room was tense and a director said something sharp about the account management. The founder said, "You are angry about this and so am I, and I think if we do the analysis now we will do it badly. Give me twenty minutes and I will come back with the actual sequence of what happened."

He was twenty-nine years old.

That founder returned 14x.

Why the capability compounds

Emotion regulation under pressure is not one advantage. It is an advantage that applies at every point where a company's trajectory is set, and those points are almost always high-temperature conversations.

The pricing negotiation with the first enterprise customer. The conversation where a co-founder leaves. The board meeting after the first bad quarter. The acquisition discussion. The moment a key employee resigns and the next forty-five minutes determine whether two more follow.

In every one of those, the person who can keep their prefrontal cortex online while the room heats up makes a measurably better decision than the person who cannot.

One better decision at any of those points is worth a lot. The ability to make a better decision at all of them, over eight years, is most of what separates outcomes.

What he watches for now

He has three things he pays attention to in a first meeting, and none of them are about the business.

What happens when he disagrees. He disagrees with something in every first meeting now, deliberately, on a point he does not actually hold a position on. He is watching the second response, not the first. Almost everyone handles the first well.

Whether they can say "I do not know" without a recovery. Most founders say "I do not know" followed immediately by something that repairs the admission. The ones he backs say it and stop.

How they describe someone who has hurt them. He asks about a co-founder departure, a bad hire, or a customer who left badly. What he is listening for is whether the account has any generosity in it. Founders who describe every past conflict as entirely the other party's doing are, in his experience, expensive to back.

The part that is uncomfortable for investors

He is candid that this cuts both ways and that his own industry is poor at it.

He has watched founders with the capability get eroded by boards that did not have it. A regulated founder in a dysregulated boardroom will hold for about eighteen months and then start managing the board instead of running the company, at which point the advantage is gone.

His view is that the capability is a property of the relationship rather than the individual, and that investors who assess it in founders without assessing it in themselves are running half a process.

Doug Noll's new book Empathy Leadership: The Powerful Skill That Drives Winning Results covers building the capability that determines how leaders perform when the temperature rises. Pre-order it on Barnes & Noble.

What he tells founders who ask

He says the capability is trainable, which he did not believe for the first decade of his career.

He gives them one thing to start with, which is to build a delay. In any conversation that goes hot, say a sentence that buys three seconds before responding. "Let me think about that for a moment." "Say more." "I want to get this right so give me a second."

The content of the sentence does not matter. The three seconds do, because three seconds is roughly what it takes for reasoning to catch up with reaction.

He says founders find this disappointingly small and that it is nonetheless the whole thing.

For related reads, see De-Escalation Skills for Leadership Teams and The Conflict Model Operating System.

If you want to build the capability that shows up at every inflection point, book a no-obligation Zoom call with Doug Noll.

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