Start up CEO: a dangerous job

Start up CEO: a dangerous job

By Paul McLellan

Why do so few startup CEOs last the distance? The Bill Gates, Michale Dell and Scott McNealys who take their companies all the way from the early days as a tiny startup all the way up to enormous multi-division companies are very exceptional. I think that it is obvious that running a little engineering organization developing a technical product requires very different skills from running a large company. Engineering skills dominate in the first; people and strategic management skills dominate in the second. A CEO has to grow a lot along with the organization to be successful at each stage of the company’s growth.

What is less obvious is that the skills getting a company going are very different from running it once the engineering phase is drawing to a close, or in some case just getting started. I’ve read various statistics, but something like 75-80% of startup CEOs are replaced before their company gets acquired (or merges, or goes public etc).

Getting a company started, and raising the first money to fund it, requires a level of focus and obsession that is abnormal. The “doing whatever it takes” attitude is necessary in those very early days, but it tends to leave a trail of turds to be sorted out later. Further, some people like this have difficulty making the transition to being a team-player once the key hires have been made. Nothing will alienate high-performers more than trying micromanage them, or treating them without integrity, or generally not regarding them as close to equals. A startup is more like a jazz-band than a military organization. It is interesting that the highest performing small-scale parts of the military, Navy SEALs or the British SAS, abandon a lot of the military trappings (SAS officers famously are often called by their first names).

I’ve been in several startups where I’ve come in later, well after founding, and had to sort out problems that are left over from getting the company founded. Complete inequities in salary or, especially, stock seem to be the natural debris of getting people out of their current organization and into startups. But not getting them into the company is probably a worse problem.

There are no hard divisions between different stages in the life-cycle of a startup, but roughly speaking there are four. Getting the company founded along with the other initial founders; getting the engineering development solidly under way with a competent team; getting initial sales and starting to ramp up a channel; growth to a more mature organization with an industry standard breakdown of headcount. There is a fifth (and probably more) stages as it become more and more difficult to manage larger organizations. The largest organization I’ve run had about 600 people, and that is like sailing a supertanker. You think you spin the wheel but nothing happens.

At each of those four stages, the CEO may or may not make the transition. VCs are famously ruthless if they think that the CEO is not the best person to look after their investment. The old CEO, no matter how important he or she was in earlier days, is off to “spend some more time with their family” and a new person is at the helm overnight.

The most dangerous phase for many CEOs is the transition from engineering to starting to ship the product. Founding CEOs are often very technical, effectively the primary architect of the product. Like many engineers, they overestimate the importance of technology and they underestimate the importance of marketing and account management. By their nature as founders, they may be much better at driving over objections than at listening. So they fail at the business side since they are out of their natural comfort-zone and they compound the problem because they won’t listen to people who know what they are doing wrong. This happens so often that VCs see it coming from afar and don’t even wait to see if the CEO can handle it before hitting the eject button. They knew when they founded the company that they would change the CEO. Sometimes they even make it a condition of funding, to make the process less traumatic when it happens.

Winning in a Downturn

An extract from a talk by
Rohit Talwar
CEO
Fast Future

1. Use scenarios to plan for an uncertain future.

In this uncertain and turbulent economic climate, businesses no can longer rely on a single business plan or set of assumptions. Instead the most successful are tackling the uncertainty by using scenario planning to prepare for a wide range of possible outcomes and to identify the opportunities that could arise even in the worst case scenarios. At the same time, they are asking themselves tough questions under each scenario:

- Which market segments and aspects of our business would be most at risk?

- What would the implications be in terms of products, pricing and who our key customers would be?

- What resources should we keep or let go?

- Which actions should we be taking under any financial climate?

2. You can still grow in a downturn.

Remember, even in a downturn, there is opportunity. A 5% shrinkage in an economy means that 95% of activity is still taking place. In a worst case scenario of 25% unemployment, 75% of workers are still employed, and their firms are still buying, trading and needing products and services. Some of the world's biggest companies launched in economic downturns (such as Microsoft, HP and Tesco). Recessions create huge upside opportunities. Rents are lower, raw materials are cheaper, firms are keener to trade, capital goods are cheaper and labour is more abundant. Under these circumstances, those with the right mindset can really accelerate business growth.If your rivals are focussed on cost cutting, they are probably not paying enough attention to their customers. This creates a tremendous opportunity to step in, examine and enhance every aspect of your customer offering, add more value, differentiate service, make it better and easier for customers to do business with you and increase their loyalty as a result.

3. Revisit the business plan regularly.

Tight financial management is essential to ensure you have the resources to continue in business. In a volatile economy, we have to rework our business model on a regular basis to ensure we can survive on smaller orders and lower revenues per transaction. Cutting inventories and educing your ‘environmental footprint’ can play a massive part by eliminating waste and improving energy efficiency.

4. Deepen the customer dialogue.

Investing time creating a long-term dialogue with your customers will reap long term rewards. The better you understand (i) how your products and services are used by your customers, (ii) the technical and logistical challenges they face and (iii) what their future plans are, the greater the opportunity to provide genuine added value solutions and deepen the long-term relationship. This kind of insight helps you move from simply promoting what your products can do to co-developing solutions and technological innovations for ‘what they want’.

5. Engage and support the supply chain.

Maintain a constant dialogue across your entire industry supply chain. Talk to your staff, suppliers, partners, competitors, regulators and investors to understand how they are all being affected and how they are responding. Use what you learn to identify ways of adding value to your end customers and to your products and services through collaborations across the supply chain. Thinking out of the box about how to build long term supply chain relationships can pay big dividends. At a time when your competitors might be more internally focused, simple investments of time and resources to help address issues for the supply chain will help differentiate you. This might include lending staff time to solve technical problems, helping with product innovation, co-marketing arrangements, contributing to training costs and even mentoring new managers in smaller suppliers.

6. Invest in your people.

Investing in your people will pay dividends in terms of morale and the positive impact on customers. Demotivated staff don’t generally perform well or deliver good service. Low cost training options include e-learning, accelerated learning solutions, secondments, job swaps, inviting in guest speakers from the industry and promoting involvement in physical and virtual social networks. Encouraging staff participation in volunteering programmes for good causes can bring massive motivational benefits.

7. Embrace open innovation approaches.

Many firms such as P&G and Kraft are adopting a more open approach to innovation – encouraging and rewarding those outside the business to contribute ideas. This approach dramatically expands your research and development capability, accelerates new product and process development, cuts costs and provides an effective way to increase exposure to your brand. For smaller firms, it provides an opportunity to be part of the larger innovation ecosystems for big companies.

8. Implement changes quickly and decisively.

Once decisions to implement changes have been made, act fast and decisively, whether reworking your business model, closing down inefficient operations, making redundancies or changing pricing structures. It is critical that once a decision is made, it is communicated and acted on rapidly so everyone can come to terms with it and move on. Emotionally, your people have to be in a place where they are listening to, inspiring and energising customers. If a company does not innovate and if employees are worried more about internal politics than serving the customer, business will inevitably suffer.

9. Focus on the vital few.

Free up time and resource by focussing on the ‘vital few’ initiatives that are critical to your business. Most companies run any number of initiatives, both big and small. Cancel or postpone those which are not considered core and those where you know you are unlikely to receive the investment or support to proceed to full implementation in the current climate.

10. Rethink your marketing tactics.

Never neglect marketing as an effective tool even in an economic downturn. The internet and social media tools such as Twitter are proving to be powerful low cost ways of maintaining and enhancing brand presence. Events can be very effective – particularly when you can provide the kind of training and education that customers may be cutting back on.

11. Be magnetic.

Does your business generate opportunity while you sleep? It is important to ensure that you are working in a smart way to attract new business opportunities and ideas. The more your people are visible in the market and out there communicating, participating and adding value in physical and virtual social networks, speaking at events, writing articles in key publications and keeping the brand visible – the more ‘magnetic’ you become and the more opportunities will come to you.

12. Build confidence for the future.

Firstly generate trust by sharing your results and plans for the immediate future. Secondly, demonstrate all the things you are doing to create added value for your customers. Finally, make it clear that you are not panicking but using the downturn to innovate, plan for the longer-term future and review every aspect of your customer offerings to ensure they are adding value.

13. Focus on the future.

Sales and marketing approaches need to shift away from simply promoting what you have to genuinely adding value for customers. A really powerful tool is to develop and share scenarios for how you see your market developing. Every customer that you serve needs to ask themselves, "What's next? What's going to change in the future?" It could be technology, new markets, environmental pressure or the way businesses are operated. Everyone is desperate for such insights but many don’t know how to gather and analyse the information or free up the time to do it. If you can come in and share your views and insights about the future, this can help clients determine how they would respond to different possible scenarios. This sets up a platform to work together to develop the strategic solutions to the different opportunities they see emerging under each scenario. This helps lock you in as a strategic partner, and provides critical insights on what your key customers plan to do for the future. For smaller customers, you could create half day sessions where they could come to you to hear about your future insights and think about how they should respond. It also creates barriers for your competitors as customers won’t want to repeat the exercise with every supplier.

14. Listen.

You need the insight of your suppliers, distributors, affiliates and end customers and ultimate end-users to fully understand their challenges, which will enable you to create the best product and service portfolio.

15. Adopt a winning mindset.

Give yourself permission to believe you can do things a different way. You don’t have to follow the path of the rest of the industry. You can be the first try new approaches, innovation doesn’t have to be expensive. Try to develop this kind of mindset throughout the business.

16. Drive environmental improvements.

Our environmental performance will be under increasing scrutiny. An honest and pragmatic approach is required. Acknowledge that it is a real issue, sign up for all of the key industry wide initiatives and act fast to implement the solutions that emerge. Measure your environmental footprint, benchmark against competitors and leaders in other sectors and determine the improvement actions you will take. Share your plans and progress with the supply chain and seek their input. Work with customers to create the next generation of more environmentally products that help address their challenges.

There is a lot of good practice case material to draw on. Do not take a defensive posture. Establish solid measuring systems and report progress in reducing emissions, waste and resource consumption. Use your workforce and supply chain to come up with ideas and innovations. Offer tools and training to help customers and partners measure their footprint and how to drive it down. Think of smarter ways to use energy, demonstrate more environment friendly products, show people how they will save them money. Eventually new legislation will hit everyone and you do not want your products to be affected, so it really is in everyone's best interests to act now and avoid having to try and play a costly game of 'catch-up' in the future.

17. Scan the horizon

Many organisations have been caught out by a failure to scan the horizon for the key trends and indicators of ‘what’s coming next’. In reality these megatrends create both opportunities and threats which could either damage or enhance our business depending on how we respond. Examples would include the continued growth of the internet and mobile phone usage, the shift of economic power to the developing world, the rising scale of western government capitalism and the resulting levels of public sector debt, an ageing society, rising population, and an accelerating rate of development in many fields of science and technology.

18. Understand the megasectors

Almost irrespective of what happens to the economy, we know that certain sectors will be multi-trillion dollar global markets simply because of how critical they are to every economy. These would include infrastructure, energy, education, healthcare and green technologies. These are ‘opportunity rich’ sectors for large and small firms alike. The challenge is to select key areas to focus on, research them well, find the right partners and have your radar tuned and your network alerted to advise you as opportunities arise.

19. Raise the positioning of your brand

One of the most interesting trends we are seeing is that of firms shifting marketing budgets from advertising to research sponsorship. The latest Edelman Trust Barometer shows that trust in traditional corporate advertising is declining. The lifespan of an advertisement is also relatively short lived. In contrast, firms are finding that sponsoring research which is of value to their customers and partners creates an output that has a longer lifespan than an advertisement. Furthermore research tends to be shared amongst many readers and positions the sponsors as being serious about the issues of importance to their stakeholders. Finally, research offers a powerful platform from which to create new conversations. Many are finding that while their requests for sales meetings are rejected, customers and prospects are only too willing to attend or host short research briefings that can provide them with useful insights.

20. Looking from the outside in

Who has the responsibility to provide an external challenge to the way you do things? Who around you do you trust enough to ask you difficult questions about the decisions you are making? Who in your business understands what challenges you will face as you go through the next phase of growth? Who is spotting the next set of trends and developments that could impact you in a positive or negative way?

For many small to medium sized enterprises, the temptation is to assume that we can do everything and not seek out external help. However, our research highlights that many of those who have done best at anticipating and responding to the downturn also have trusted sources of external challenge and advice. This can be in the form of non-executive directors, a more informal pool of advisors, membership of a CEO network or a personal coach. An unexpected benefit for many has been that these trusted advisors have also become very powerful brand ambassadors – promoting the business externally and generating additional opportunities.

Conclusions

We have covered a lot of ground here, and hopefully provided some practical ideas. To succeed now and in the future, I would leave you with three key messages:

1. Invest in your people, customer relationships and innovation.

2. Open up to ideas from outside the organisation and think in ‘out of the box’ ways about working with the

key characteristics of a great startup culture

This article is dear to my heart, I have experienced at first how the culture of an organisation can make or break it, not just the start up but it's investors as well, these cultures need to mesh cleanly. This article was written by Greg Gottesman who is the managing director at Madrona Venture Group, a Seattle VC firm.

Greg Gottesman: For the last decade, I have been convinced that the three most important factors in determining the success of a start-up are (1) team, (2) product or service, and (3) market (timing, size, etc.). Take an A+ entrepreneur, with a great idea for a new product or service, at the right time, and about as fast than you can tweet Susan Boyle you’d have a success brewing.

Recently, I have added one factor to the must-have list: the right start-up culture. In other words, add a dose of bad culture to a team of superstars, a killer product and good market opportunity, the result is almost always death by a thousand backstabs.

What defines a great start-up culture?

Justice Stewart’s “I know it when I see it” standard seems particularly apt here, but not actionable.

I am hoping to start a dialogue about what a great start-up culture is and what it isn’t from those of you who are actually living it day-to-day. To kick off the debate, below is my best attempt at defining the characteristics of a great start-up culture. I was aiming for a top 10 but ended up with a bakers’ dozen (because in life it’s hard to beat a free bagel). How does your company’s culture stack up?

1. No politics. In great start-up cultures, everybody is giving everybody else credit. Ideas are judged on the merits, not on who came up with them. People feel comfortable that they will get their due. In not-so-great start-up cultures, everyone wants to make sure everybody else knows what he or she did, even if he or she didn’t do it.

2. It’s not a job, it’s a mission. Redfin’s CEO Glenn Kelman likes to talk about how invigorating it can be once you realize that you don’t have to be doing what you are doing. Great start-up cultures are comprised of people who could be doing a hundred other things, but actually choose to work themselves silly over the particular product or service their company is building. These cultures are often centered around the belief that the company is working on something important.

3. Intolerance for mediocrity. Great start-up cultures are psychically rewarding for A players and thoroughly awful for those who are not pulling their weight. Instead of performing to the least common denominator, great start-up cultures quickly reject those who are not meeting a high bar. Those who remain revel in the fact that they are surrounded by colleagues who are as good or, in many cases, better than they are.

4. Watching pennies. Great start-up cultures make every dollar count. Expenses are viewed with the same kind of discretion as they are on the home front. The beauty of the Amazon.com making-doors-into-desks tradition was not that it was cheaper (it probably wasn’t), but rather the mentality that it engendered that Amazon.com was a place that didn’t waste money on fancy furniture. In its early days, Intrepid Learning Solutions used to give out “Scrappy Awards” to employees that demonstrated superhuman abilities to save money. The CEO won one for renting a U-Haul and personally picking up and then moving in a free conference table from a local company that was moving. A cost-conscious attitude can be cool and, in great start-up cultures, contagious.

5. Equity-driven. Great start-up cultures create a sense that everyone on board is building something significant, an enterprise that will be valuable long-term. Employees want a piece of that future. Less optimal cultures are focused almost entirely on short-term cash incentives. That’s not to say that short-term cash incentives are always bad; in fact, in many cases, they can be helpful in driving toward short-term goals. But when employees are focused solely on cash and not the least bit interested in equity, that’s a sign that they may have lost faith in the business.

6. Perfect alignment. Great start-up cultures are well-aligned. The strategy makes sense and is aligned with the vision. People are doing what they are good at and in the right roles. Every employee, from the CEO to the office manager, is on the same page. McKinsey, the well-known consulting firm, developed a good framework for assessing alignment.

7. Good Communication, Even in Bad Times. Transparent communication is a hallmark of a great start-up culture. No one is confused about the vision and where the company is headed. Communication is open and free-flowing. Hard issues are addressed directly, not ignored. Every start-up goes through ups and downs. The tendency is to not want to share bad news. It’s not as much fun. In great start-up cultures, communication to all stakeholders actually increases during the down times.

8. Strong leadership. The leader of a start-up should the “cultural soul” of his or her company. A good leader takes that responsibility seriously and leads by example. I love this quote by former Secretary of State and Army General George Marshall about the importance of leading by example and maintaining a positive attitude. “Gentleman, enlisted men may be entitled to morale problems, but officers are not. I expect all officers in this department to take care of their own morale. No one is taking care of my morale.”

9. Mutual respect. In not-so-great start-up cultures, the business guys think the technical folks are more interested in cool technology than in building what the market wants. The technical side of the house thinks the business side isn’t smart enough (or technical enough) to understand what the market wants. The architects look down on the devs who look down on QA. The sales team thinks marketing isn’t doing its job in generating leads. Everyone thinks the sales team is overpaid and should be selling more. In great start-up cultures, everyone shares a mutual respect for what each party brings to the table and celebrates wins from wherever they come. Heated but healthy debate leads to decisions that are accepted, even if not everybody agrees with them.

10. Customer-obsessed. Great start-up cultures are manically focused on defining who the customer is, what the customer wants/needs, and what the customer will value enough to pay for now. It starts well before a single line of code is written. These cultures value talking to as many potential customers as possible before a product is conceived. They make customer feedback a key part of the process once the product or service is delivered. Great start-up cultures are rarely surprised by customer issues because they are proactive and process-oriented about understanding everything they can about their customers.

11. High energy level. You can literally feel it when you walk into a great start-up culture. The room has energy. There’s a buzz. Doors are open. Whiteboards are filled with hieroglyphics. People are getting stuff done. Meetings are short and to the point. You might trip over a dog.

12. Fun. Start-ups should be fun. In great start-up cultures, everyone reinforces that fun is happening, even if it isn’t at that particular time. Employees tell their friends how much fun they are having. Whining is unacceptable.

13. Integrity. Great start-up cultures do not cut corners. They maintain the highest integrity in the way they treat customers, handle employee issues, write code, and go about their daily business. They have integrity when it is easy and, more importantly, when it is hard. This kind of integrity should not be confused with lacking toughness. Integrity in this sense means having a team with enough confidence in what it is building, and then delivering to customers, that cheating in any form, or even just going halfway, is unacceptable.

What did I miss?