It’s an argument that we’ve all heard before.
You don’t have any experience in this space.
Your team hasn’t worked together before.
You’ve never done this before, how could you succeed?
Some people seem to believe that you can only launch a company in an industry that you’ve been working in with a team for a long time. Add to that the requirement that the team has already launched a few successful startups in the same space and then maybe you’ve got the formula to create a successful startup.
I’m sorry, but that’s just bogus. Sure, having a team with a track record is a great thing and may be a predictor of success but as was shown in this paper I previously discussed, an investor’s positive influence is significantly diminished for successful serial entrepreneurs. In fact, according to that paper successful serial entrepreneurs would best be served by optimizing their valuation rather than looking for “value add” investors because the increase in success potential due to experienced investors is minimal. Although I will add that all entrepreneurs, experienced or not, should still avoid taking money from spreadsheet jockeys regardless of valuation.
My story as a young first time entrepreneur and CEO at Digital Envoy isn’t that different. As a requirement of raising money, I was asked to step down and find a new CEO. I did that. Unfortunately, things went sideways (not the least of which was the economy imploding on itself – sound familiar?) and a few years later we had to get another CEO. Investors have an insulting term for this that just boils my blood, but since I’ve written about it before I won’t delve into it again.
If you think two management changes in a few years would be disruptive of the business, you’d be right. If you think this would be detrimental to morale, you’d be right. If you think this would be a needless expense for the company, again, you’d be right.
The problem here is this misguided belief that experienced management from one industry can deal with the realities of business in a new situation and startup environment. Startups are a fluid situations and what is needed is someone who can lead a team while having incomplete information. Generally, traditional corporate executives and managers can’t do this. The corporate ladder training manual is more about CYA than it is dealing with the Fog of War.
There is also a big difference between someone who is a manager and someone who is a leader. Managers don’t fit well with startup culture. In general, startups don’t (or rather, shouldn’t) have a large support structure for individuals who can’t attack challenges by themselves.
Startup employees are looking for people who lead by example. Often, when you’ve hired an individual just because of their gray hair, you won’t get someone who is able or willing to adapt to this reality. When working on my company, the company culture was such that everyone was expected to roll up their sleeves and be involved in the success of the company. I’ve seen gray hairs who manage from an ivory tower (a gray hair tower?) which is neither effective nor inspiring for others within the company.
So how do you avoid this pitfall? First, you avoid taking money from anyone who believes that only gray haired individuals can successful run your company. This should really be suspect if the investor doesn’t truly know you, your team, or your ability to execute and is merely looking at your age or past accomplishments (or lack thereof). Such a narrow world view should signal that this investor doesn’t truly understand how companies, and more importantly startups, function. These people are often pretty easy to identify because they fall into the category of spreadsheet jockey way more than could be coincidence.
That being said, there are many cases where an entrepreneur running a startup truly is lacking in the ability to lead so this may be a realistic request. So when confronted with this, you should ask the motivation behind undertaking a management change. If the reasoning isn’t any deeper than an insulting comment or the need to “feel comfortable with the company”, you’ve got a problem brewing on your hands and you should run, not walk, for the exit.
Second, when you do hire for your management team you need to be careful in your selection and avoid being serenaded by people who have a long list of accomplishments in companies that are very dissimilar to yours – both in size and industry. Skills are not necessarily transferable and the likely conclusion to this will be a messy separation and costly exercise for you and for the company.
Note: I’ve started to get some gray hairs of my own but I do not consider myself to be one of the gray hairs I’m talking about in this post. I also have nothing against people who have gray hair – the use of “gray hair” in this post is a euphemism to denote highly experienced people with skills that are totally inapplicable to startups.
{ 5 comments… read them below or add one }
Hmm. I totally agree that the leader of the company needs to be a leader, first and foremost. Someone who can shout
and make you believe it.
At the same time, somebody’s gotta make sure there’s cash in the bank. And grey-hair skills are definitely applicable there, and transferable from other industries.
Which means I’m a big fan of grey-hairs as CFOs or even (in certain cases) COOs. Early-stage companies who can’t justify a full-time CFO can rent those grey-hairs from Tatum or TechCFO or places like that.
But that’s not the same skillset as the top job. If the person has grey hair, so be it. If he or she doesn’t, that’s fine too. If they’re not a leader, fire them and find one, quick.
Totally agree with you Stephen. Personally, I hate having to manage the books and would rather someone else do it. Especially since my skills are better spent in making the company successful rather than worrying if there is enough in the bank to make payroll.
So thanks for the addendum, I agree that gray hairs are okay in a startup in a limited sense (I think I could stomach CFO but unlike you, COO would be a bit much for me). But they still have to be the right kind of gray hair that can support what you’re trying to accomplish regardless of position. Not all can.
Sanjay: I too had a bad experience with a set of “gray hairs” (sadly, I picked them myself; what a mistake!).
Also a very successful college friend of mine now living in Dublin had a similar experience with Bear Stearns putting a “highly experienced” CEO to replace him. That CEO came from a company that minted money and all he had to do was manage it but my friends company actually required sales to be made. That CEO along with his entourage literally milked most of investment out of the company until my friend was able to wrest back control. Soon after the investment manager from another investor struck a deal to sell for pennies on the dollar, to S1 of Atlanta! What a saga.
OTOH, my friend has done fine for himself since so I guess it was only larger opportunity lost.
I’d just like to add that I think a beard is an accomplishment, but it needn’t be grey.
Great post, however, on the flip side if you do recognize that your startup’s CEO is not up to the task, do whatever is necessary to get him/her out and the right person in the role. I’ve seen a couple of great starts go down the tubes because immature leadership wouldn’t give up the reins.
I’d also like to loudly concur with your last point. Often managers that come from large companies are looked at with starry eyes by investors – they think that someone who has run a huge team at IBM will somehow guarantee your growth. It is rarely the case. Too often these well-meaning managers have a deeply ingrained reflex for the use of resources that simply do not exist in a startup situation. The diligent can get past this obstacle over time as they orient to the realities of a startup’s staffing and funding, but it is precious time that a startup can ill-afford to squander.