Nesheim Online

How to Manage a Real Startup: Nr 36 in a series

Chapter 8: Culture

(Draft of John's new book: Your comments are welcome)

Culture is the organism that grows or inhibits people building the startup bicycle.

New enterprises are living organisms, each distinguished by its unique company culture. Each is unlike others, no two are the same. Each embodies the values of the company’s people, especially the founders and early employees. Serial entrepreneurs pay close attention to the crafting, construction and nurturing of the culture of their startups. Culture comes from the Latin cultura stemming from colere, meaning "to cultivate". Experienced startup people see culture as needing constant time and attention so it can be cultivated as they scramble each day to continue building the startup bicycle they are riding.

Why

Culture distinguishes your startup. “Google is not a business, it is a culture” is what I was told by an early employee. “We are unique” was proclaimed by AOL people. I had heard the same pronouncement by people in Apple and Cisco. It is so pronounced that it has become a mantra for entrepreneurs.

Culture attracts the right people and rejects others. It makes recruiting more productive. Startups use team interviews to screen for culture. “She fits, but he does not” is what is decided at the end of the day’s interviews. “He has the right chemistry” is a declaration of cultural acceptance. The rest are rejected. Rejects can be well equipped with the skills needed, but are not offered jobs because they do not fit that company’s culture. They look for a better cultural fit at other companies. Finding people that fit your company culture is a serious part of interviewing that is mandatory for your recruiting process.

Culture sets the scoreboard for praise and admonition. The cheers and jeers are determined by what the culture values. It may be cold logic or hot intuition. Or innovation may supersede administrative excellence. Delivery on time may be ignored while breakthroughs are revered. The first time CEO that misses those criteria will suffer badly as the culture turns on him or mutinies.

Culture motivates people. They are eager to “go to work on Monday morning.” In fact, they may have continued working all day Saturday at home because they were having so much fun or wanted to see if they were up to the impossible challenge that popped up last Friday. Inherent in culture is the emotional stimulation that drives people to do amazing things. Pride and humility are defined by the culture. So is defeat.

Culture makes clear what is safe and dangerous. People quickly learn when to take large risks and when to be more cautious. Culture signals how to attempt something dangerous. It warns when to throttle back and cruise for a while. It tells people what to say in meetings when superiors and customers are present.

Culture defines ethics. Honesty and integrity are emphasized by some cultures. In others it is assumed. Clever tricks are revered by some. Others despise such acts. Openness is required by some groups. Discretion about sensitive subjects marks others. Employees need to know ethical boundaries in order to adjust their behavior.

==========

More tomorrow.

Tip of the Week: Recession startups are realists

Realism is what keeps startups thriving. During recessions it keeps your startup alive.

Serial entrepreneurs win big because they are realists. It is not hard to learn. It is hard to execute. It demands control over emotions.

"Incoming! Take cover!" That is realism. If you hear the shells coming your way, you are wise to run for cover. That is not being a coward. It is being realistic. As the general said, "Be realistic and avoid more casualties."

The entrepreneurs' unavoidable optimism combines with willingness to take big risks. First timers ride the wave of emotional euphoria and often run into surprises that crush them and their companies. Serial entrepreneurs take their emotional pulse before making decisions and avoid the killer blows.

Here is an example: A startup that cuts costs with a big layoff soon enough can survive. But what happens most often? Instead of having the guts to cut 50% of staff, the CEO wants to minimize the pain and cuts 20% (mostly the lower paid people) so the burn rate drops a mere 12%. The result is a slow death (the company has to do another cut in three months and most of the good people leave, demoralized).

Facing the realism that a recession can go on twice as long as expected and will be twice as painful (The Rule of Two) is what serial entrepreneurs do. That is why they are successful.

BOTTOM LINE: Realism is what keeps your new enterprise alive. Apply that and your competitive advantage will be very unfair. Your competition will be weaker and more likely to go out of business. Your people will be motivated to do innovative things and make it all work out succesfully.

How to Manage a Real Startup: Nr 35 in a series

Chapter 7: Decisions

(Draft of John's new book: Your comments are welcome)

Startup decisions are made on-the-fly as the bicycle careens wildly down the mountain trail, growing at each turn.
===============================================

Loneliness at the Top

Yes, it is lonely at the top. Even in tiny startups with small core teams of vice presidents. Your emotional health will be challenged intensely by feelings of loneliness and isolation. You will feel often like you wish you had never started your startup.

That feeling will get in the way of your making wise business decisions. It will stimulate fear and doubt. That starts a cascade of emotions that you have to get under control before they drive you to do foolish things in attempts to try to compensate. Here are a few tips from serial entrepreneurs I have worked with:

o    Tell it to friends. When it is lonely at the top of startups you need a friend to unload with. Someone who is private about what they hear. You may know them form church or temple or as professionals you trust (do your legal work or taxes and see a lot of business people). Going solo is emotional suicide.

o    Your personal support group is important for success. That is the team that is going to cheer for you.  Yes, it is lonely at the top but you are not excluded from the human race, believe it or not. You will often feel depressed, disappointed and defeated during the process of building the startup bicycle. To avoid dangerous compensation behavior (alcohol, drugs, co-dependency sex, rage outbursts at people you love, or other acts of desperation), gather family and friends around you, find other CEOs to share intimate fears with. It is a good time to check in with your religious leader. You may find a good a behavioral coach (perhaps a family counselor or psycho therapist). Tell all of them to assist you during the inevitable dark days. They must meet with you, be brutally honest and available on short notice. You are not superman, and you do not walk on water, nor are you expected to.

o    Expect more bad things to happen. Remember the adage: "I was sitting in my room one dark night, lonely and melancholy, when I hear a voice: 'Cheer up, things could get worse.' So I cheered up and sure enough, things got worse." That is what CEOs are hired to do: deal with the messes (that is not a singular word). Investors let you down. So do customers, suppliers, and employees.

o    The dragon wins, often. When it is time to close the doors, close them quietly and move on. That is life in startups. It is not shameful to shut down a failed startup. It is stupid to continue trying to put life into a dead one.

o    You must be realistic. Your planned business may not succeed. You may end up having to shut down the startup. If you look at your modified company plan and think it will not work, then it may be time to skip the layoff or attempting to get another round of financing. Just shut the business down, now. Avoid the pain of six more months of agony and the inevitable funeral.

o    VC icons love CEOs who went bankrupt and learned. Why? Because, as one outrageously successful VC wag I know well puts it (with gusto): "John, do you know why I love those guys who went bust? Because they did it with someone else's money, not mine! And now they are pissed and want to do it right (with my money)!"

o    Your character will emerge during the process. The pain of a lost customer, departure of a key technologist or a layoff will show you who you really are. The real you will show up, loud and clear. That will be who you are deep down inside. Your core values and beliefs will be what you reach for while you do the painful work. What you see in yourself may surprise you. Or even scare you. That is one reason for gathering your support group around you while you go through the bad phase.

o    You can get through it. Companies emerge from missing payroll, product disasters, competitor law suits and lies. They go on. They even thrive. And often become successful. One of my friends loves the phrase from the Bible: "And this too shall come to pass." Clouds do go away and the sun does shine again. There is a silver lining in the darkest of clouds.

==========

More tomorrow.

How to Manage a Real Startup: Nr 34 in a series

Chapter 7: Decisions

(Draft of John's new book: Your comments are welcome)

Startup decisions are made on-the-fly as the bicycle careens wildly down the mountain trail, growing at each turn.
==================================================

Dictators and Directors

Serial entrepreneurs that lead startups rely on their core teams to make decisions. The solo dictator does not last long. There are too many decisions to make very fast, very wisely.

The board of directors will also expect to be asked to review key decisions before they are made. Trying to go it alone will lead to a search for a fresh CEO.

The process of making decisions with the core team often encounters people scattered over the planet when key decisions are needed. Then conference calls are immediately scheduled and the three or four VPs and CEO dial in, talk the issue over and make a decision by the end of the call. It is one reason for the success of the Blackberry and for Skyping from hotel rooms late at night and in the wee hours of the morning.

Similar conference calls take place with board members between board meetings. This keeps the whole board up to date with the issues the core team is dealing with in the rapidly changing startup.

One headache for the CEO occurs if one or two of the investors start one on one phone calls with the CEO that are aimed at changing the direction of the company. If continued, that leads to dysfunctional boards of directors. And it becomes a time sink for the CEO. Each week will be consumed with phone calls of an hour with each of the investors on the board. Then observers on the board (also investors) will find out and start calling the CEO. Soon it is the board that is taking up the most time of the CEO instead of his time being spent on managing daily operations. The outstanding boards have investors who insist on all board members and observers tuning in to the (as few as possible) conference calls to make decisions.

Serial entrepreneurs know that either they manage their board or it will manage them. If the latter happens, you can be sure the search for a fresh CEO will not be far behind.

Often the managers in the startup will change hats from week to week, sitting in for one another while some are traveling or deeply involved in a crisis and fire fighting. That is common in startups. There is no time for turf battles and defense of job descriptions (as in large corporations). Instead there is a high level of trust within the core team. VPs become CEOs who become VPs and so on. That drives control-intensive corporate managers to anger. It is accepted as normal by startup core team managers.

==========

More tomorrow.

How to Manage a Real Startup: Nr 33 in a series

Chapter 7: Decisions

(Draft of John's new book: Your comments are welcome)

Startup decisions are made on-the-fly as the bicycle careens wildly down the mountain trail, growing at each turn.
==================================================

Information and Intuition

Startup managers make important decisions a lot of information and without much time to analyze what they have. Analysis paralysis of terabytes of information is for giant corporations. Serial entrepreneurs seek the best facts they can get in a matter of minutes or hours and then decide. There is no committee formed, no series of meetings for months that lead to a final series of presentations and a crisp, well documented decision for the CEO.

The missing information is part of what will be learned on the journey down the trail as the startup bicycle bounces up and down the unmarked road. Each encounter with something new (negotiation to partner on distribution with Amazon.com) or with the outcome of a risk taken (deep price discount to get an order from Cisco) produces fresh information that impacts the next decision (when to launch the next product). That is one reason for looping, keeping short the time spans between the big decisions. A lot is learned by deciding now to take the next step. More will be discovered after the step is made. It is part of taking risks.

Intuition is a powerful tool for startup leaders making decisions. It is based on years of experience with an industry, technology, business and managing people. For youth, that is difficult to produce. For the grey haired it can be so entrenched as to be too inflexible for a startup. There never seems to be an optimal way to come up with the right amount of intuition. But it is very valuable for decision-makers in startups. Some of the greatest moments in the life of the new enterprise are when its leaders use intuition to make the highest risk decisions.

Intuitive decision making is done mainly with our right brain half processing information. That is one reason that so many colorful startup founders are intensely right brained. They are comfortable with less than the best information and making decisions in the hallway, on the fly. Left brained thinkers seek more facts and more time to analyze information more deliberately. Both kinds of thinking are important to startups but the intuition needed will come mainly from right brained thinking and is typically in short supply.

Startup CEOs respect the impacts of the lack of information and the use of intuition to make decisions. They do not operate with gut feel. I find them very calculating minds. They use both left and right brain processing to manage the decision making process. That balance is part  of what makes them outstanding startup leaders.

==========

More tomorrow.

How to Manage a Real Startup: Nr 32 in a series

Chapter 7: Decisions

(Draft of John's new book: Your comments are welcome)

Startup decisions are made on-the-fly as the bicycle careens wildly down the mountain trail, growing at each turn.
=======================================================================

Strategic and Tactical Decisions

Startups are lead by strategic minds. Strategy is how you out-maneuver your competition. Strategic people constantly think “If we do this, then they will do that, so in response we will do the following.”

Startups are managed by tacticians. Tactics are the things done each day to execute the company plan. Daily tasks become weekly accomplishments. As the company plan is altered week by week, tactics are changed in response to what was accomplished the prior week.

Competition is at the top of the list of concerns for managers of startups. Those leaders constantly compare themselves to the many competing alternatives that the targeted customer has available. The managers seek with passion ways to turn the psychology of potential buyers to the solution offered by their startup. Decisions on how to do that are at the core of the company plan and how it is managed.

Think of the company plan as a collection of planned responses to the company strategic plan. These will add up to a lot of work to be done in a short period of time by a very small number of people with very limited resources and time. That sense of being overwhelmed is often experienced in startups. Serial entrepreneurs manage that dread by being realistic about what limited staff can accomplish week by week. Remaining realistic avoids burnout and poor results, those outcomes which begin the path to ruin of a new enterprise.

Because strategy is dynamic, the company’s plan changes rapidly. It is updated almost before it is published. This flurry of alterations turns control-minded managers into basket cases – they can literally have nervous breakdowns. But serial entrepreneurs take shocking change in stride. Like the bicycle rider in the Tour du France who gets a flat tire. He stops, gets a fresh tire, and pedals a bit harder to catch up. No panic, calm acceptance of reality with the know-how of what needs to be done because of the set-back.

So in a new enterprise tactics depend on strategy that depends on tactics. Both are changing daily so the managers change plans daily. That is how the bicycle gets built while it is being ridden.

==========

More tomorrow.

Tip of the Week: Recession Startups Focus on Ideal Customers

Focus is your startup weapon of choice during a recession.

What do you focus on? Simple: Focus on your Ideal Customer.

Ideal Customer is that specific person who you want to say "Wow!" when they see what you are selling. When you get that emotional response, you have just out-run your competition.

Ideal Customers are very specifically defined: Males, 19-29, living in China, middle-class income, young mobile professionals. Not all males in China. The more specific you define your Ideal Customer, the more compelling your offering will be to their emotions.

A 40-50 year old male in China is not the same as the precise profile I just described. They respond to different emotional probes. You cannot appeal well to both at the same time. Your marketing message looses its sting, its boldness, its persuasive power. Your competition will be able to be more focused and trigger the emotion you that have not. You lose.

Once tightly focused, you will find cousins related to your Ideal Customer. In my example, that would include Females, 17-29, living in China, with the rest the same profile. A second would include the Chinese males not living in China, but with the rest of the profile identical. These secondary profiles are like bowling pins lined up behind your first pin, the targeted Ideal Customer. Line them up and you will see how to gather sales momentum as you succeed with the first bowling pin.

These people are going to communicate with the people in your first bowling pin. That makes your marketing messaging more efficient. The same blogs will buzz and spread the word about your great product offering.

BOTTOM LINE: Focus is your best friend during a recession. Startups that win identify a very specific customer profile and aggressively drive to dominate that market segment (share of market around 30%). The CEO will then go after the next two related bowling pins and sales will gather momentum. Resources will be saved. Bloggers will not be confused about what your business is trying to do. Clarity will spread the word accurately and with the passion that comes from your Ideal Customer saying "Wow!" when they hear about what you are offering. That is a key element to use to build your unfair competitive advantage when doing a startup during a recession.

How to Manage a Real Startup: Nr 31 in a series

Chapter 7: Decisions

(Draft of John's new book: Your comments are welcome)

Startup decisions are made on-the-fly as the bicycle careens wildly down the mountain trail, growing at each turn.

Decisions being made in chaos – that is how a startup appears to the large corporate manager. Normal is what the serial entrepreneur sees.

The startup is a rapidly changing company that responds to what it encounters internally and externally by making decisions on-the-fly with limited information. That is terrifying to left-brained managers who take pride in forecasting accurately and delivering on time, on budget, using the maximum information that can be gathered.

Rapidly changing is normal to the serial entrepreneur who sees the bicycle building progressing with every decision. There is more right-brained decision-making in entrepreneurs. That makes their decision making process different. It is what spurs their creativity and amazing innovations. It results in plans changing daily so radically that in less than a half year a startup appears to be in a different business, focused on different customers with vastly different products. It drives corporate people nuts, especially engineers.

Looping

Think about startup decisions as a series of small loops connected one after the other. A decision is made by the core team which then executes it and quickly reports back on the results. It may be a test of a change in pricing, or perhaps a probe of how more compelling a fresh marketing message will be to the ideal customer. Returning with the findings, the core team once again gathers (in-person, on the phone, over Skype) to discuss the results and make the next decision.

Such decisions are part of a series of decisions made along the path agreed to after the last decision. The fresh findings will alter that path once again. Perhaps customers reacted with anger at the proposed pricing, or they were bored by the fresh marketing message. The core team then decides what to do to the plan for launching the new product line. This is what is meant by the term “looping.”

Looping keeps fledgling startups from making big mistakes. The series of decisions are made with little more than a few days between each meeting. This keeps the leadership together, “on the same page of music,” avoiding dysfunctional management processes. Giant corporations meet much less often, monthly is frequent, with quarterly common. There are so many people executing the last big decision that it is impractical to meet weekly and change the plan significantly and expect 10,000 people to immediately adjust. They are like a super tanker which takes miles to stop and turn around. Startups turn on one foot, immediately. When a giant makes a mistake it is a big one. When a startup makes a mistake, it is commonly a small one, thanks to looping decision making.

==========

More tomorrow.

How to Manage a Real Startup: Nr 30 in a series

Chapter 6: Money (continued)
(Draft of John's new book: Your comments are welcome)

Startup money lurks everywhere, looking to finance teams eager to build the next world-class startup bicycle.

=====================================================

Cost of Capital

Like gasoline, money is delivered when you pay the price at which it is offered for sale. That is the price or cost of capital. It is expressed as the percentage of the company (shares) the investors will get after they give you the cash.

It is up to you to know the going market price for venture capital. The price rises and falls monthly as the stock market does because the psychological emotions of the investors impact their expectations for risk and reward. The cost of capital is higher during recessions and very low during the mania phase of a boom period. Serial entrepreneurs know what is too high and what is a bargain.

Experienced founders do not accept whatever price the investor offers. They manage the process of negotiating by starting with a range of cost of capital. They set a line beyond which they will not cross (the “deal buster” pricing). They are not going to do the startup if they have to give up more than that maximum percent of the company.

Serial entrepreneurs get competition working for them. They manage that by lining up six strong investors (e.g. venture capital partners from top ranked venture firms) and getting them to eagerly press to invest in the startup. Competition is the entrepreneurs’ best friend.

You get to know the cost of venture capital (from any source) by talking and watching. Talk to other entrepreneurs, especially founders and CEOs who sit on boards of directors. Lawyers doing a lot of startups also are good sources, as are the CPAs who account for startups. Reading the deals done is easy via the Internet sources.

Knowing the going cost of capital for a startup is one of the most important things you manage as a leader of a new enterprise.

==========

More tomorrow.

How to Manage a Real Startup: Nr 29 in a series

Chapter 6: Money (continued)
(Draft of John's new book: Your comments are welcome)

Startup money lurks everywhere, looking to finance teams eager to build the next world-class startup bicycle.

=====================================================

More Than Money

People come with the money. That person is the investor. He will sit on your board of directors and direct you. He is your new boss. You will have to live with him for half a decade. So pick wisely.

If you pick family-friends-fools money, you will have to live with less-than-the-best investor professional. That can slow you down when they ask so many naïve business questions. But it may give you freedom from a heavy handed boss (the occasional ego-centric angel or arrogant venture capitalist).

If you pick an angel, you will live with a person expecting to often meet with you, give you advice that is expected to be followed, and dig into your business in minute detail. That may interfere with your time to execute your business plan. But it may give you the executive experience in your industry that you are missing.

If you pick a venture capitalist, you will live with a tough minded professional who expects to be in charge (“The person with the gold sets the rules.”). That may pressure you into making strategic moves you think are not wise. But it may give you connections to large customers, strategic partners and to a lot of precious cash.

You manage each type of investor in different ways. Family-friends-fools are best managed with regular (every two weeks will do wonders) email communications about progress (be honest about the bad things) and a phone call to each, one-on-one, every month. One person will attend monthly board meetings (but others will occasionally request to observe at a meeting).

Angels are managed by embracing their eagerness to jump into the business and help. They have less time than they think they have (“Ops, time to go fishing for three weeks for black marlin off the outer banks of Australia”). So make appointments, perhaps for a weekly in-person morning of work. Hand-on work is expected of you and the angel. Take full advantage of the time offered. Assign work tasks to the angel, just as you would a vice president. Angels are experienced business people, from successes in the past as outstanding managers. They can be of significant assistance if you manage them proactively.

VCs are hard ball professionals. They expect you to meet monthly at board meetings and tell them everything important. You manage them best with frequent communications between board meetings. Emails are used to ask questions (copy everyone on the board, including observers). Use ad hoc telephone conference calls (including everyone, just like in a full board meeting) to address an important issue that has popped up and to make a decision (“We need to decide on how to respond to attacks at our customers in Asia by XYXCorp whose sales reps are telling lies about us going bankrupt.”). If you do not manage the VCs, they will manage you. Give them homework and hold them accountable for results (e.g. the introduction to the VP of business development at Amazon).

VCs are optimists, just like you, the entrepreneur. So they promise more than they can deliver. Serial entrepreneurs know that means CEOs must do the heavy lifting. VCs will do their best to provide a few introductions to strategic partners, customers and other VCs as requested. Experienced CEOs will not lean on VCs because they know you cannot win a race running with crutches.

If  you  respect that a person comes with the money, then you will not be disappointed. You can then plan to manage your new enterprise to get the most out of that person.

==========

More tomorrow.