How to know who is good and who is bad

Early in my professional career, a colleague gave me a piece of advice: you see who truly is good and who is not when times are difficult. Of all the “sage wisdom” I have received over the years, this advice is the one that has been proven again and again. It is an invaluable tool in understanding better your colleagues, investors, Board, business partners, customers and vendors. I have passed this advice on to friends recently and felt it was worth blogging about, as you will not only find it very useful in understanding others but it also will tell you a lot about yourself.

The underlying principle is that it is easy to do the right thing when everything is going well but you can understand a person’s true character in how they act in difficult times. Many people seem great when they do not have cash flow issues, when their company is hitting or exceeding its targets, etc. They will often talk about win-win relationships and seem great to work with.

Most of these people, however, show their true colors when the cost of doing good becomes very significant. If doing the appropriate action takes money out of their pocket, hampers their career, potentially risks new investment, makes them look weak, etc., many will take the path of least resistance and do things you would not expect of them. Following are some (but definitely not all) situations that provide insight into the true character of people you associate with:

• Payments when cash is tight. If someone owes your company (or you) money, how do they act when cash is tight. Do they make excuses, avoid your calls or tell you the check is in the mail (when it isn’t). Or do they honestly explain the situation and then do what they promise (and that could include not paying if they just do not have any resources left).
• How layoffs are handled. Letting people go, especially when due to financial and not performance reasons, is one of the hardest things executives have to do but is also one activity that reflects clearly on the executive. They can either be honest with employees, explaining the situation as early as possible (so the employee can prepare and find alternatives) or they can hide the issue until the last minute, which might get slightly more productivity out of the employee. The honesty that the executive shows throughout the process provides a good insight into their real character.
• How do they act when they no longer want to do a deal. Sometimes when parties have negotiated for a while on a deal but the macro-situation has changed the deal no longer makes sense to one of the parties. Often, rather than being up-front about the new situation, the person who no longer wants to move forward disappears, they do not respond to calls or emails, they keep putting things off a few days, etc. Conversely, those of strong character will explain to the other party that the situation has changed and that they are no longer going to move forward.
• Backing out of executed deals. As an extension of the above point, sometimes a changing situation makes an already consummated deal unfavorable to one of the parties (e.g., they agreed to finance a Win8 version of a game but nobody bought a Win8 device). Just as with the above example, there are some people who will disappear and not fulfill their obligations. Others will either fulfill their obligations even if they are painful or openly discuss the situation with their partners and try to find a mutually beneficial solution.
• Lying about reduced resources. When funding starts to dry up, people have to make difficult decisions where to spend their money. Especially for high-flying companies, this could affect perceptions and the egos of those involved. It could be as simple as having to eliminate meals or snacks at the office to having less money to invest in other companies or projects (project size goes down). Again, those who can admit they are facing some tough times and are making tough decisions are respected while those who try to rationalize it away (and most people are smart enough to see through it) show that they do not respect their colleagues or business partners. I see this challenge most often with investors, whose fund may no longer have investable capital or has much less than it once did yet they still want to be the big man on campus.

In addition to understanding individuals better, any entity (not to sound like the Citizens United ruling) shows its true colors in difficult times. For example, a corporation can say it will do no evil when it is making billions of dollars but will it still make the right decision when those billions are at stake (e.g., Google and its China policy). Many mission-based companies say one thing and act very differently either to vendors, employees or other business partners.

As I mentioned, looking at how people act in difficult situations is not only a great way to measure others, it is an even better tool to measure yourself. Everyone has been in difficult situations, just look at what Zuckerberg and Ballmer have faced, so I am sure you also had to make some difficult choices. Look at what you did in these situations and how you would judge others if they had made similar choices. If you would not respect others if they made the decisions you made, then you need to rethink your priorities and how you make decisions.

Author: Lloyd Melnick

I am GM of Chumba at VGW, where I lead the Chumba Casino team. Previously, I was Director of StarsPlay, the social gaming vertical for the Stars Group. I was also Sr Dir at Zynga's social casino (including Hit It Rich! slots, Zynga Poker and our mobile games), where I led VIP CRM efforts and arranged licensing deals. I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) worth over $700 million. View all posts by Lloyd Melnick