The Power of the Ultimatum
The ultimatum should be reserved for situations in which you are completely committed to the action you are threatening and where the stakes are high. Handle with care.
One of the most consequential companies in Silicon Valley, PayPal, almost didn’t happen. The story, which has been told in many forms, is retold wonderfully in Jimi Soni’s new book The Founders. In late 1999 and early 2000, Elon Musk’s X.com and Peter Thiel and Max Levchin’s Confinity (which operated the PayPal service) were consumed by an intense battle to decide which company would emerge as the winner in the nascent email payments space. It was becoming clear to most that the costly fight had the prospect of ruining both companies. As a result, discussions commenced to combine the two businesses with X.com and Confinity set to own 55% and 45% of the merged entity, respectively. Just before the deal was to close, it blew up. X.com’s CEO Bill Harris attempted to salvage the deal by making it a true 50/50 merger of equals. Musk wouldn’t agree. Knowing that a failed deal would be disastrous for both sides, Harris went to Musk and gave him an ultimatum. Either Musk agreed with the revised proposal or Harris would quit. Musk had no choice. He relented and agreed to the terms. Just a few months later, Musk, Thiel, and Levchin gave their own ultimatum to the board, resulting in Harris losing his job as CEO of the company. Nevertheless, it was Harris’s courage to put himself on the line that saved PayPal as well as the futures of a group of entrepreneurs who would go on to found some of the most iconic technology companies of the last two decades.
A year later, Tony Fadell, who led the development of the iPod and the iPhone for Apple and then founded Nest, celebrated the launch of the first iPod. In his new book Build, Fadell shares that following the product’s very successful launch, he approached his boss asking when he would get the VP promotion that had been promised to him. Without explanation, his boss simply refused without reason. Fadell has an entire Chapter on unreasonable bosses titled A**holes. Outraged and fed up, Fadell promptly quit. As he was packing up his stuff, his HR leader convinced him to hold tight. The next day, Fadell got a call from Steve Jobs, who told him, “You’re not going anywhere. We’ll get you what you want.”
In my second role as a CEO, I confronted a situation that also demanded an ultimatum. I was being asked by my board to pursue a plan that I knew was wrong for the business. I did my best to plead my case but to no avail. A week before my board meeting, I told my team that I was going to put the board deck together myself and attend the board meeting alone. I worked over the weekend to lay out two diametrically opposed paths. Path A was the strategy I was advocating. Path B was the approach the board wanted. I emailed the board deck Sunday night in advance of the Tuesday board meeting. On Monday, I fielded several calls from angry board members. While I tried my best to bring calm to the situation, the tension was still high when the board meeting started. Before anyone spoke, I told them that there were only two paths and that there was no middle ground or third option. I then told board members that if they chose Path A, I would remain as CEO and give my full energy to saving the business. If they chose Path B, I would resign in the meeting. The board chose Path B. I resigned on the spot. To this day, I consider that to be one of the decisions I am most proud of.
The word ultimatum derives from the Latin word ultimare, which means “to come to an end.” At some point, things must come to an end. An ultimatum is a powerful tool. It forces closure and finality. It should be used very selectively, perhaps only a handful of times in your life. The ultimatum should be reserved for situations in which you are completely committed to the action you are threatening and where the stakes are high. As we enter a period of likely significant economic disruption, it would be wise to keep in mind this tool. Using it may be one of the most consequential moves of your life. Handle it with care.
Yesterday, we celebrated Juneteenth, commemorating the ending of slavery in this country. For more on the history and importance of this holiday, check out this New York Times section.
Nike just celebrated its 50th anniversary. Here’s a great piece on the cultural impact the company has had over the last half-century.
This Farnam Street piece is worth reading. This line sums up the key takeaway: “One of the easiest ways to increase your value to an organization is to reduce the friction required to get you to do your job.”