Code Red

Many of the companies that we invest in are the leaders in their respective markets. Often they create the market. Sometimes they appear out of no where and dominate. And sometimes they are in a brutal fight every day with another company or two for market leadership. We don’t care which case it is – we just want to be investors in the companies that are #1 or #2 (and have a chance to be #1) in their markets.

Jack Welch taught us the power of being #1 or #2 in your market many years ago and the VC business reinforces that over and over and over again with relative exit values. The VC cliche is that the market leader gets 50% of the value, #2 gets 25% of the value, #3 gets 10% of the value, and #4 through #263 get the remaining 15%. While these numbers move around (I’ve been in situations where #1 got 90% and in situations where I got lucky and #17 got 25%) they are directionally correct.

Whenever a market leader I’m an investor in is threatened by a competitor, I’ve encouraged them to call a Code Red like they do on ER. In a Code Red situation, every who can is focused on the threat for a short, intense period of time. If the company is less than 10 people, this is easy. But if it is 50 people or more, it’s really hard. And – at 1000+ people, it’s a magic trick to get it right.

When the CEO calls a Code Red, there is often a negative reaction from parts of the organization ranging from sales, development, to operations. Often some people in the organization don’t believe or understand the need for a Code Red. Other times they’ve been through so many unnecessary fire drills in other companies that they don’t believe the Code Red is real. They simply don’t see the same threat the CEO sees. Or they feel undermined by the CEO.

Part of the CEO’s job is to call a Code Red correctly. If you call it every other week, it’s not a Code Red, it’s shitty management and leadership. If you never call it, you’ll one day find yourself no longer the market leader. There’s no right tempo – it’s random, but as with many things you’ll know the moment when you encounter it.

A Code Red can’t last forever. It has to be incredibly focused on the specific threat you trying to address. It has to be clearly communicated across the entire company. It has to be quantitative – once you’ve effectively neutralized the threat, the Code Red is over. This might be in an hour, a day, a week, or a month. But if it lasts much longer than a month, something else is wrong.

I know some people who like to use DEFCON 1 instead of Code Red. I don’t – it’s too nuanced – who cares about the difference between DEFCON 3 and DEFCON 1 – you are in a critical situation. Make it binary.

I know some managers who hate the idea of ever being in a Code Red situation. This is unrealistic view to take in a startup or fast growing company. Once you are a visible leader, people will be gunning for you, imitating you, or coming out with products that disrupt your business. Welcome to being a market leader – own it and when a Code Red occurs use it to propel your business into an even more dominant leadership position to build on. And – for every employee in a company having a Code Red – take it seriously and crush it – the rewards will be quick and obvious and the downside of not dealing with it sucks.

  • Great approach Brad!


  • This is a great post Brad.  Being able to identify and manage “Code Red” emergencies is an essential skill that a startup or expansion stage CEO needs to learn in order to effectively run a business.  

  • Brad, this is an interesting concept but could you give a more concrete example of a type of threat you see as relevant for calling the “Code Red,” a successful execution of it, and when to call it off?  The concept of a team rowing together to a common goal is intuitive, but the type of intense collective sprint that you’re describing seems more specific. It would be really helpful to hear of specific examples that spring to mind. 

    • How about reminding me by email to write up one or two code reds that are going on right now after they are finished. Prompt me in February.

      • James Mitchell

        How about if Brad implements David Allen and has a leak-proof system to track everything? That way, Brad’s system can remind him in February to write such a post. See:

        • Nah – I prefer my approach. It’s a much less cluttered mind than being a slave to GTD.

          • James Mitchell

            David Allen has discovered a universal truth that applies to every person who has to self-manage himself. Allen does not apply to a factory worker on an assembly line who makes no decisions aobut what to do each day. And ironically Allen does not apply to a few individuals at the far right tail of the spectrum, such as the President of the United States. Allen does not apply to the President because the White House has systems in place so that the President does not need to think about these things. But the White House systems are based on Allen.

            A million times more important than what I think is what cognitive psychologists think. If you were to ask all of them at your alma mater, ALL of them would say that Allen has uncovered some fundamental truths.

            If I observed your daily work habits, it’s possible you’re doing GTD without realizing it. At the same time, if you don’t have a system where you can easily make a note to yourself to remind yourself of something in February 2012, then your current system is suboptimal, or to use a more technical term, it totally sucks. In Outlook this would be trivial and it would take 15 seconds to make the note, less time than it took for you to write a reply saying “remind me in February.”

            Properly implemented, Allen eliminates ALL clutter. All of the paper in one’s office is gone except the few pieces of paper you are currently working on. More important than the physical pieces of paper, the clutter is gone from your brain. And imagine what a guy as smart as you would accomplish if your brain was uncluttered.

            You are going to be a slave to something. You can be a slave to the GTD system or you can be a slave to the thousands of unresolved ideas/reminders/unbroken agreements floating around in your head. You will be much happier if you choose the former.

            Allen’s latest/third book, Making It All Work, provides a non-debateable proof of this. Let’s assume that at this moment I blow up your calendar. It’s gone, poof! How would you feel? Terrible. Why? Because you know you have hundreds of meetings scheduled for the next 12 months (you’re the guy who has every trip in 2012 already scheduled) but you can only remember some of them. What would make you feel less anxious? To recreate your calendar. You would keep writing and writing and looking things up, and you would become less anxious. But even when you are done, you would still be a bit anxious, because you would not be certain you remembered everything.

            So clearly the only way to keep your mind at piece for your hard fixed items (i.e., appointments) is to record them in a leak-proof system. Allen goes on to ask, “Why is this not true of your soft items?” (e.g., a memo you have to write which is due three weeks from now). He argues that the agreement you made with yourself (write the memo) needs to also be recorded in a leak-proof system. If you agree that the hard items should be recorded, then it logically follows that the soft items should also be recorded.

            For those who are interested, Allen’s company is giving a public seminar in Boston on January 31, 2012. See:


            (no affiliate link) The only downside is that David himself will not be the presenter, so if it were me, I would call his company and find out the next seminar where he is the presenter. He is a gifted presenter, truly unique.

          • Actually, I know Allen’s methodology extremely well. I disagree with a few parts of it which is why I say I don’t want to be a slave to it. So I use my own version, which I think is even more effective. I’m highly confident that I’m as productive as I could be using Allen’s and believe (but don’t have empirical data – since I haven’t A/B tested it) that I’m more productive. Here are my modifications.

            1. I don’t schedule anything. I have my assistant Kelly (who is brilliant) do it. So I spend 0 time on scheduling.

            2. I run zero inbox. I have no clutter – ever.

            3. I never touch something more than once. I read, respond immediately, and delete.

            4. I keep ONE task list. I only keep two categories: “urgent + important” and “not urgent + important”. This list is visible at all times. I schedule time to work on the not urgent + important things. I do the urgent + important things before the day is over and – if I can’t get to it, first thing the next morning.

            5. I schedule all phone calls. It’s unusual that I get a random call during the day and when I do it’s almost always urgent + important. All phone calls are scheduled for 30 minutes – they rarely take more than 5 – 10
            minutes so I have plenty of slack time during the day.

            6. I have zero paper in my life. Everything is electronic at this point.

            7. Things I don’t view as important I push to other people to either “bring
            up again” or “do”. The example you are using is one of them.

            8. I spend zero time on the administration of my systems. They are simple.
            They don’t require me to think. They have no overhead.

            Philosophically, one of the differences is that I toss away anything that
            is not important, other than things I process in the moment. The ONLY
            things I want on my todo list are the important ones. Everything else
            either gets done by someone else (and they might be in the important
            category for them – e.g. “scheduling stuff for me is in the important
            category for Kelly”).

            The simple truth of Allen / GTD is the power of a mind empty of clutter. I
            totally agree with that.

          • James Mitchell

            Then you are following the Allen system. There are only two essential points:

            1. The goal is to get your mind free and uncluttered, rather than to get organized.

            2. Have a leak-proof system you trust.

            Everything else is details which are subject to modification depending one’s circumstances and preferences.

            I don’t understand your comment about your to do list and tossing things away. I don’t see how they are related to each other. Sure, most things should be tossed, but there are some things that should be stored for reference. If you don’t want to think about where or how they should be stored, then have your assistant store them. But something that is stored does not (and in almost all cases should not) be on your to do list. I think you are combining two things that are separate.

            For example, I assume you save your tax returns? So they need to be stored somewhere (in a paper or electronic version) but they don’t need to be on your to do list most of the time.

            Anyway, I think Allen would say you are following 99 percent of his system.

            Also, do you manage anyone? If so, how do you track “I told Peter to do this today, I need to be reminded a week from now to see if Peter has done it.” Or maybe you don’t manage anyone.

          • Keeping my tax return is not something that needs to be on my to do list. My family office has my tax return.

            Anything that needs to be stored for reference exists somewhere – but not in my head or my todo list. My family office, our back office, or my assistant has it.

  • Anonymous

    Oracle was masterful at that.  Just ask the boys at Sybase, Informix, Microsoft, etc.


  • David


    I’m a regular reader of your blog, and enjoy much of what you have to share.  The following statement, however, seems mathematically challenged:  (Also, I might be a sniveling, pedantic weasel…)

    > While these numbers move around (I’ve been in situations where #1 got 90% and in situations where I got lucky and #17 got 25%) they are directionally correct.
    If #17 got 25% of the market, that means that #1 through #16 also got at least 25%, each, totaling to 425% (or more) of the market.  If you got 25% of the market, then you were at least the 4th biggest in your market.

    • Oops – I guess I wasn’t clear enough. The point was every now and then someone gets a disproportional win. #17 was meant to be the 17th entrant in the market, not #17 in relative market share.

    • Had the same question. Thanks for asking, David

  • What effectively changes in a code red? Teams work longer, harder? 

    I’m unclear. 



      • Hmmm. Thanks Grimster, for your point of view.

  • Lucasrobby

    Yeahh… I think it is so difficult to
    do this. buy term paper

  • Good post, I’m surprised nobody posted what a real code red is like:

  • James Mitchell

    Somewhat related to this is “how does a CEO to get his troops work harder?” One tactic is to have outside forces set deadlines:

    We have a sales meeting next week for a large account and we need to get A, B and C done before the meeting

    The quarter ends in 3 weeks and we really need to meet our projections

    Our Board meets in two weeks and if we don’t have contracts 1, 2 and 3 signed, they will really be pissed

    There’s a major investor who says if we do A and B before X date, he probably will invest

    The tactic has to be based on real facts and it can’t too incredibly obvious that the CEO is orchestrating the whole thing

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