Founder/CEO: Knowing what you don’t know

Recently I have seen several occasions when the Founder/CEO thought they knew more than they did and could not see the cliff that was quickly approaching them. The bigger challenge was that someone was trying to help them see what was coming, but the Founder/CEO wasn’t listening. As a result,  a small issue that could be addressed now becomes a much larger effort to correct.  Whether it is re-writing code, shifting resources from one product to another or re-organizing an entire functional group, the effort to fix it can easily be 10X what it would have been to get it right in the first place.

Company Fix trajectory lines

The reality is that most Founder/CEO’s haven’t done this before, and quite often neither has anyone else on the team. But there are people who have the relevant experience. Although it may not be exactly the same experience needed for this new opportunity, it certainly rhymes with the past.  The risk is that they have ‘big company’ experience and don’t know how to be scrappy and lean to selectively pick what is really needed for a fast growing startup. But these days there are many people who have big company pasts and enough startup experience to strike the right balance.

So, how can a Founder/CEO anticipate the challenges ahead and plan appropriately when talking to experienced talent?

  1. Be open minded – you’ll be surprise how much you don’t know

There is nothing wrong with a confident CEO, but that doesn’t mean you shouldn’t listen to folks with years of experience.  In almost every conversation you should be able to find at least one insightful nugget that will enhance the lens through which you view the world.

  1. Find a specific problem to solve

Being open minded might be a start, but really it all gets down to brass tacks.  Instead talking to experienced talent in the hypothetical try picking a real problem that you currently have (or anticipate) which is in the wheelhouse of your expert.  Working through a real-life issue can surface many benefits:  better understanding of the problem, possible solutions, and how the person would work in the organization.

  1. Don’t expect experts to be totally startup savvy

It takes about 6 months for someone who has been working at a large company to shake all the big company habits that are better left behind at a startup. This doesn’t mean that they won’t fit in or add tremendous value, it just means that they need to get used to their new environment and figure out how to find the best of both worlds.  Focus on the value they can provide to accelerate the company and ensure they don’t put their foot on the organizational brakes by accident.

There are many people out there with a tremendous amount of experience that can be purposefully leveraged at a startup, but knowing how to leverage that experience requires some thoughtful effort.  As a Founder/CEO your job is to find the best way to solve your problems in new ways leveraging the talent and organization you have AND want to build. Make sure you take the time to figure out how to assemble the right amount of talent and experience for the company you are building.

Startup challenges and how they can differ from large companies: Decision Making

Having a ‘Steve Jobs-like’ founder with more of an autocratic style of management can obviously have its pros and cons. But one of the real benefits of this personality–led organization is a simplified decision making process – since it is very clear who the decision maker is and what their decision is. This clarity makes it very easy to align the organization around a common goal and reduces the amount of thrashing that can go on debating what the decision should be. Not everyone will agree all the time with the decision and people might quietly continue questioning it, but the benefit of having a final decision made and moving forward is quite beneficial to an organization.

I’ve worked at or been involved with several startups in which the company did not have a single founder who controlled most of the major decision making. Instead there were leadership teams  with distributed power who worked together to make decisions.  The two main issues I have seen in startups of a reasonable size are either  1) dragged out decisions or worse, 2) decisions that were continually re-opened after they were made.

Over my career I have seen the ingredients that go into good decision making. They consist of three key elements:  a good process, data/information and teamwork.  Big companies use some form of RACI, which stands for Responsible, Approver, Consult, Inform and is used to clearly define team member roles.  By knowing which position to play and acting as a subject matter expert, the team can function more effectively; especially when the right data is presented to facilitate a decision.

 

Agreement & Commitment

Once a decision is made there are two components:  Agreement and Commitment.  Usually getting some form of agreement is possible for most well-organized teams. But the challenges I have seen is where there is passive-aggressive behavior by some team members. Someone who says they agree in a meeting, but then takes steps afterwards to either re-open or torpedo the decision because they didn’t really agree.  This situation is pretty common where there are strong personalities and divergent opinions about the direction of a company, business unit or product.  These types of behaviors are killer for a startup, they can handicap the entire organization when there isn’t true commitment to decisions that have been made. The amount of lost productivity and wasted energy used to further debate the decision has an incredibly negative primary and secondary effect on an organization. Everything from just lost time, to reducing engagement of quality employees who realize what is happening.

A specific example from a past company is when our product team had made a decision on how a specific feature was to be built. However, the engineer who ‘owned’ that module of the  product did not really agree with what should be built, so he just built it the way he wanted to without telling anyone until he was finished. Needless to say when he showed off his works the entire product team was surprised at what he done. Now, to give him credit, there were elements to what he built which had some merit and would have enhanced the original agreed-upon features. But instead we got a little bit of ‘right’ to go with a lot of ‘wrong’.  Somehow the product team needed to do a better job of both listening to the engineer to improve the final decision which incorporated his ideas. This engineer was top-notch.  However his team skills were not up to par. The engineer shared some responsibility in not committing to the decision and finding ways to share his ideas.

 

What to do?

So how do you handle repeated inefficient decision making in a startup? First, make sure the basics described above are in place. If the issues persist, ‘how decisions are made’ becomes a leadership and management issue.  Look at the people on the team and determine if there is a teamwork issue.  Are people playing their position?  In young companies, it is not unusual for leadership not to have a lot management experience and training. It is very possible that someone just doesn’t realize that they are overstepping their bounds in how they try to affect the direction of the company.

My experience has been that some people just fundamentally disagree with the direction that the team is taking and they use their power to subvert decisions and drive their own agenda. This is poison to a startup and people like this, no matter how talented, tenured or experienced they need to either be straightened out quickly or asked to leave. As my first manager at Procter & Gamble told me, it doesn’t matter how brilliant a musician someone is, if  the whole band is marching in one direction and they want to go in another, you gotta let them go.

Startup challenges and how they can differ from large companies: Team Work

In a two-person startup, roles and responsibilities are pretty straightforward.  Figuring out ownership, decision-making and how to manage projects from start to finish is almost a no-brainer.  For five years it has been pretty clear between John and me what each of us is responsible for and how we make decisions.  What typically happens is we might not realizing we missed something until we are done and then go back and address it (wishing we had realized it sooner). Now once a startup has found product-market fit it is probably time to grow the team to cover all these bases, go faster and make sure nothing gets missed along the way.

Clearly as the company grows not everything can be done by just two people, so new resources are brought on board.  Most of the time these new people will be hired in some area of functional expertise whether it is engineering, product management, sales, operations etc.  These people will allow the team to divide and conquer the different operational elements that drive the company’s success as the company tries to scale.

The challenge is that as the organization and product team grows, the amount of information flow, decision-making and synchronization of work becomes much more complicated.  This becomes even more apparent as different layers of management start to get created thus creating updates and decision making conversations occur at multiple levels. For example a product team can develop their point-of-view about a new release amongst themselves, but then need to review it with the founder, CTO, VP of Product Management etc. for final approval.  This is the kind of multi-stage team work that doesn’t exist in a tiny startup.  If you were one of the first employees of a startup this new amount of complexity in getting a product to market could be frustrating.

In fact, in my career I have seen that most people aren’t used to thinking end-to-end when dealing with a large team trying to get a big initiative into market.

Now I am going to use the dreaded ‘Process’ word.

It really drives me crazy when someone talks about there being too much ‘process’ at a company.  Process is usually just a symptom or an outcome. And in fact most of the time having a defined process for your go-to-market initiatives is critical.

Now I will grant you that as a company grows they tend to become more risk averse which then requires Legal, Regulatory and HR folks to become involved (the lawyers will tell you it’s to protect the assets of the company).  I can’t really argue that these types of added steps in a process aren’t causes of frustration.  Each company is different in terms of how much overhead they require from these functional groups. But this post is really referring to the core functions in a Go-To-Market project, some type of inititative that affects the main business operations of a startup.

What I have seen quite a bit (and occasionally been guilty of myself) are team members who do not think ‘end-to-end’ when working on a highly cross-functional team project.  For a variety of reasons, they focus primarily on their area of responsibility and have blind spots to other areas of the functional aspects of project.  An example is when product management decides to build a feature in a certain way which reduces the ability for Marketing or Sales to drive more revenue.  Or vice-versa where marketing ‘needs’ a particular feature for a release but it will come at the expense of other important user features.

As a company and its teams grow, complexity naturally increases.  More meetings start to take place, more sub-teams go off and work on specific issues and ‘report back’ to the main team.  Clarity of decision making responsibility becomes fuzzy unless special effort is made to define everyone’s role.

Team work in a growing startup is hard. Without using too many sports analogies, not everyone knows how to play their position.  Some people care more about themselves than the team.  Some people aren’t good at compromising and negotiating to strike the proper balance for the better overall good of the team than just their area of responsibility.  Some folks just completely ignore certain stakeholders on the team. And at a very basic level, some people aren’t comfortable with the amount of communication and interpersonal relationships necessary within a team environment.

 

Now here’s the interesting thing.  All the elements I just described about team work manifest themselves in a process to enable the team to perform at a high level. That is the only way to coordinate an important intiative and get it to market on time. There are more meetings, presentations, multi-functional decisions and collaborative compromises that these new processes are used to address.

In a big company, this amount of team work is absolutely necessary. And in well-run organizations not only do folks learn how to effectively work in large teams, they can also understand why the different steps in the process are (occasionally frustrating, but) necessary.

In a growing startup when I hear about people complaining that they long for the ‘old days’ when there wasn’t as much ‘process’ or ‘we don’t need no stinking process’,  I basically think to myself ‘here is someone who does not like to work in large teams’.

Startup challenges and how they can differ from large companies: Focus

As someone who has spent about half my career in startups and the other half in large organizations, I constantly compare one to the other as a way to figure out how to get the best of both worlds.  There are many examples (and sterotypes) about how big companies are notoriously slow and lack innovation.  Just about anyone who has worked in both types of businesses can put together a big list of pros and cons of big versus small.

The questions that I continually ask my network of former large organization leaders who now work at startups typically relate to the common challenges startups face and what could they learn from large organizations.

This post is the first in a series stemming from recurring observations and conversations I have had across many startups in which benchmarking successful large companies practices would benefit a growing startup.

To start we will discuss ‘Focus’.

There are many smart people who have already discussed the importance of focus to any organization.  Just about every organization says they are focused, and even believe it. However as you start to peel the onion and ask specific questions, you can see how startups try to be clever in investing in too many opportunities at the same time.  To me, in a startup there are two elements to being focused. The first is having the right amount of time, people and resources to successfully achieve a project’s goals. But the second is also not investing in additional projects that could draw on resources, cash or leadership attention that your main project could have/would have needed.

The first question I like to understand about a startup is where they are at as a company. Are they before or after product-market fit?  When I worked at Emmperative we had two big customers who wanted very different enterprise marketing solutions.  Coca-Cola wanted a Sales & Marketing digital asset management distribution solution while Procter & Gamble wanted a Brand Management workflow product. Let me tell you, these are very different types of products. But we wanted to keep both name-plate companies happy. So we split our engineering efforts to solve two separate jobs.  Without going into all the details, our products were still so young they didn’t solve either customers needs completely.

At Adify, we hadn’t yet gotten to product-market fit with our first Build-Your-Own-Network solution, yet we were going after four completely different markets trying to see where we could get traction. Of course each of the markets had their own unique requirements, so until they began to focus on just one market segment which showed promise a lot of cash and resources were spent inefficiently.

One way to think about focus is to divide a startup’s offerings into the three buckets.

#1      Growing & profitable

#2      Fast growing, but not yet profitable (after Product-Market fit)

#3      Before Product-Market fit

If your startup is far enough along to have a product line in bucket #1, it really makes sense to keep investing in your success and allocating resources to buckets #2 and #3 (we can discuss the proportion at another time).

However most early stage startup’s primary/flagship offering is in bucket #2 or #3.

Let’s tackle the easy case first, bucket #3. If your startup has not yet reach product-market fit with its primary offering, investing in multiple offerings or customer segements will be a challenge as you dilute your focus. Even if it the same platform but targeting different markets, this will be a distraction to your team and scarce resources. Now, this doesn’t imply doing market research to seeing how close an offering could meet a different market segment’s need. Or going on a sales call to a potential customer in a different category. I am referring more to building market-segment specific capabilities into your offering that would ‘enable’ you to sell to two different customer types at the same time.  This is where not being focused comes into play.

Now let’s discuss the more common situation. Where a company’s main offering(s) are in bucket #2 and yet they also are investing in new offerings in bucket #3. (And to be clear, in this case I am not talking about a bucket #3 product which is a next-generation version of a product in bucket #2. In fact I would consider that investment as part of bucket #2.)   I am talking about where a company has a fast growing product that still hasn’t reached scale or profitability (bucket #2), and yet the company is investing significantly in new markets, customer segments or products (with or without the same technology platform)  (bucket #3).

There is a company I know who has a phenomenal offering in market that is growing quickly, but has not yet reached scale or profitability.  Thanks to that main product line’s success (with product-market fit) the company has been able to raise lots of cash. With this new cash influx, the company has invested 20%- 50% of its monthly cash burn into new products/markets that leverage the existing technology platform (bucket #3).

Here are some of the issues facing the company:

–          The main product line is struggling to get to scale and profitability.  The company has been able to find a market for their product and sell it, however the commercialization and operational efficiency required to get to scale has yet to occur.  Management experience and organizational focus on these two areas are seen as the primary reasons.

–          As the company struggles to get to profitability with their main product line, the investments in the early stage product development (bucket #3) has siphoned talent, resources and cash from the company.  Their balance sheet looks weak and these new products will still require a huge investment to get to product-market fit.  This has put the company in a challenging position to consider raising more cash that they really shouldn’t need if they were more focused.

–          Given the lack of ability to commercialize and scale the primary offering, there is a lack of organizational confidence that even if the new offerings find product-market fit that the company will be able to scale them too.

The challenges this company faces are pretty big. There are many challenges the leadership needs to address and they need to do it quickly before their cash position creates problems. Their situation is a wonderful example how the leadership did not did not make thoughtful decisions on how to keep the organization focused in a manner which struck the right balance of short term delivery of results and long term growth.

While I don’t know the right amount of resources to allocate to non-primary Bucket #3 opportunities for a early stage startup, I am sure the maximum number is less than 20% and probably more around 10%.

Larger companies with profitable product can (and should ) invest in high growth opportunities. Due to their size they can take a more portfolio management approach to their investments and balance short vs. long term growth in way that fits their ability to generate cash from their core businesses.

If you are in an early stage startup, you should ask yourself how much of the company time, people and resources are we dedicating to these Bucket # 3 (before product-market fit) opportunities? And how much is it ‘costing’ to pursue them in terms of cash, resources and management focus.

How to interpret VC feedback – standing out from the crowd

In my past I have been turned down by VCs many, many times.  And while some of the VCs may not be so great at being a VC and not ‘get it’, for what I was pitching, it kind of didn’t matter.  Overall if you speak to more than five investors and basically get the same result it ain’t them it’s you.  But how do you know what ‘it’ is and figure out what to do about it?  It is really hard for someone who is raising money to figure out how to interpret the feedback (explicit or implicit) received.

You can break down what it takes to get funding into three big buckets Team, Concept, Traction.  Just about every question or discussion you had with an investor is evaluating at least one of these areas.

To get funded, you mostly need high marks on two of the three and ideally all three.  And sometimes funding is a no-brainer. If you are already a successful entrepreneur you can probably get by with just having a team and are essentially ‘instantly fundable’.  But most folks raising money don’t have a previous success.

The other ‘instantly fundable’ attribute is having big and growing traction. Mark Zuckerberg was able to raise his Series A from Accel Partners not because of the team, but because he had a pretty good concept and most important traction. Having great traction solves almost everything (except for maybe a small market) in order to get funded. And not just good traction, accelerating traction.

So assuming you are not a previously successful, repeat entrepreneur and don’t have accelerating traction, then it is basically a mix of the team, concept and traction that the VC is looking at.

With your product still in development (and likely without deep proprietary technology behind it) and traction several months away, it is all about evaluating the concept and the team. Interpreting all the messages that were sent by an investor can tell you how close you are.  Do not be surprised if you are a lot further than you expect to be despite all the nice things the VC says to you (like ‘when you have a lead’ or ‘I’m very interested to track you guys as you see some results’).

So let’s start with the team starting with the founders.  Attributes to look at include the technical background of the team. How much engineering experience is there on the team that knows how to ship a scalable product. Also, how much business acumen on the team to address acquisition and monetization elements of the strategy.  Education and previous companies worked at play a role in experience, but at the end of the day an investor wants to know if they can trust the team to build something and get people using it.

One thing most first-time entrepreneurs don’t appreciate is that most other entrepreneurs are also really smart. Most have really top notch educations, strong technical backgrounds and some previous experience in a related field to what they are working on. The question that a VC is trying to answers is ‘Are you exceptional?’.  The best (clichéd) analogy is American Idol. However, not during open auditions, but when the number of contestants has been narrowed down to a much smaller number like 20 or 30.

At that point everyone is a great singer. But what makes you have star potential even though you have never recorded an album before and not a professional singer? What makes the VC believe you have star potential?What crazy thing(s) have you done that most people would never do that shows you got something special? Did you start a business when you were 12 years old?  Did you build a cool product on your own that solved a cool problem? The ‘exceptional’ usually involves some level of either incredible domain expertise that you were able to do something great with or demonstrating some form of salesmanship that accomplished something most people would never dream of even trying.

There are many things that could show that you are ‘exceptional’, but in reality most don’t.

Given the market the team is going after, how much domain expertise is there to understand the nuances associated with the target customer. Of course, more is better.  Most thoughtful VCs can quickly ask a few questions to the founding team to see if the understand the basics and some subtleties associated with the market they are pursuing.  In a consumer business, developing some consumer insights and understanding behaviors is critical.  I can’t tell you how many times I have spoken to a startup who is developing a new product and has yet to talk to anyone who would be a target user.

At the end of the day, a VC is trying to understand if you know your stuff and do you have the passion and dedication to figure it out quickly.

A related element to evaluating the team is their ability to eloquently address the second big attribute VCs care about…the concept.

By concept I mean everything from ‘What is the problem being solved’ to the product experience, to proprietary technology, distribution to market potential.  All that rolled into one. Like we used to say at Intuit…Is it a big unmet need, that you solve well and can you have a durable competitive advantage?

And then there are the other common questions:  How will you get users/customers? How will you get them to come back? How often will they use it? How will you make money? Basically Acquisition/Distribution, Retention, Engagement and Monetization. Related to this is the network effects and scalability of your offering or model.

Do not underestimate the need to have convincing arguments for each of these elements.  Without data around adoption of your product it is very possible that there are risks on several of these attributes. Each of these risks affects your fundability.   This is where an investor can easily drill down and see how well you understand your business by asking questions about your metrics. Even if you don’t have any tangible numbers, you should know the benchmarks you will be compared to. Whether it is eCPM, DAU/MAU, CPA etc. a good knowledge of the key target metrics will demonstrate that you know your stuff.  A red flag for an investor is if they know more about the metrics than you do.

Finally, one last attribute to consider is sex appeal. How hot a space are you pursuing? If you are working on a standalone web property versus a social, mobile, local (insert hot space name here) then you probably won’t be doing so great on the sizzle scale.

It is hard to get a term sheet from a venture capital firm. All you need to do is to look at the numbers of how many Series A investments any firm makes compared to how many startups are created annually.  A longtime venture capitalist once told me that VCs are not risk takers. In fact they are exactly the opposite, they are risk eradicators. The more you have reduced each of the risk factors related to the team, concept and traction described above, the much higher the probability of closing a venture round. Do you have what it takes to be the next American Idol?

Getting the right people in the right seats on the bus

One of the biggest challenges in an early stage startup is to have enough talent on the team to do all the tasks required to get stuff done right.  If you only have a handful of people in your company (i.e. four or less) it is almost impossible to have all the skills needed to deliver a new offering, especially if it is some type of consumer application like ours.  So how do you find all the people to do all the work that is needed?

For many years now I have talked to people I work with about people I would label ‘Swiss Army Knives’ and others who I would call functional experts.  Swiss Army Knives are basically like the metaphor suggests, they are talented individuals who can perform multiple types of tasks well enough to accomplish the required objectives. This does not mean that they are experts in any specific functional area, but in a startup environment they are able to figure out what is needed and to make it happen. Almost always Swiss Army Knives are choosing this breadth vs. depth capabilities. My experience is that they are very smart and flexible individuals and if they chose to go deep in any specific functional area (and usually they have at least one or two in which they have gone deep) they would be world class in that area.  I started my career at Procter & Gamble and they really encourage attracting and developing Swiss Army Knives, and a lot has to do with their philosophy of promotion from within, general management skills and an upward spiral career path.  Which basically means that at P&G high performing employees are encouraged to take multiple cross-functional roles during their career as they move up the ladder. Being able to perform well in multiple functions and appreciate different functional roles is a critical leadership and career skill.

A few additional thoughts on Swiss Army Knives, while I don’t have statistical data on this I have found that only a small percentage of people fit this categorization, even in great organizations. What’s even more interesting is that I have found that SAKs tend to find each other and hang out together. I really don’t know why, but it just seems that they tend to have similar values, experiences and outlooks. Also, not being a SAK is not a bad thing either, having deep functional expertise is necessary in almost every company especially when combined with the depth of experience that the SAK will almost never have.

So how does this relate back to driving a successful startup?  Well, if you are small and can only have a few folks working full time in your company I would suggest having as many of your early employees being Swiss Army Knives as possible. By having as many people on your team who are able to get things done (in a ‘good enough fashion) within your team means that you do not have to tap outsiders (contractors, consultants, agencies etc.) to help you get them done.  Kind of obvious, but it all start with who do you have riding on your startup bus.

My partner John is a Swiss Army Knife. Not only can he tackle just about every technical aspect of our product (such as architecture, web service integration, functional coding, presentation layer functionality, HTML/CSS, dB management, operations etc.) he also has a unique appreciation of consumers and marketing from his past experiences. Thus when we discuss new features or user feedback we can immediately have a great, productive discussion about what to build and translate the conversation into new requirements.

However as you grow your startup you can’t do everything yourself and you can’t hire full-time people for every role that need to be done. There are lots of ways to address this issue via contractors, interns, consultants etc.  What we have found to work pretty well for us is using oDesk (www.odesk.com).  We use oDesk for both product development and marketing-related experts. oDesk is a great resource if you use it properly but it is certainly not a silver bullet. In fact, our experience is that unless you put a very big effort upfront into hiring and managing the functional experts you find you will be very disappointed in the results. Leading a team on oDesk takes as much effort if not more effort to coordinate (to account for time zone, language and not being in the same room).  In fact until we developed the right process and tools for the team, it was hard for some oDesk people to succeed was a challenge for them. But as we have found if you get your ducks in a row and find the one or two key people that ‘get it’ and can ‘do it’ the bang that you get for your buck compared to hiring locally really pays off.

To-date, getting the right people in the right seats on the bus has been a long, iterative challenge with our efforts finally paying off. We are happy where we are today, but of course it is a never-ending battle as we try to grow and keep up with all the new changes to our product and small company.

Good luck to you on getting the right people on the right seats on the bus – and may as many of them be Swiss Army Knives as possible.