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Three envelopes

July 10, 2014 @ 1:59pm

I routinely mention the "three envelopes" story when talking to entrepreneurs about how startup CEOs often act when faced with a crisis. Many of them have never heard the story, so I'm recording it here for future reference:

A new CEO was brought in to run a tech company. The CEO who was stepping down presented him with three numbered envelopes and said, "If you're ever faced with a crisis and you can't think of a way out, just remember these envelopes."

Months later when the sales team had badly missed their revenue targets, the CEO was under fire and the company's stock price had fallen. Unable to come up with another solution, he opened the first envelope. The message inside read, "Blame your predecessor." He scheduled a press conference and explained that the sales team was held back by the previous CEO's decisions. The market agreed and the stock price rebounded.

Another year later, sales were again way off and this time there was an uproar over some serious product defects. Share prices were at an all-time low. Unable to come up with an alternative, he opened the second envelope. Inside was a message that read, "Reorganize." He did, and there was another strong rebound.

Later on, the CEO was facing his third huge crisis. Inside the third envelope was a note that read, "Prepare three envelopes."

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Older: Brett Terpstra's Systematic podcast