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How to Manage a Real Startup: Nr 55 in a series

Chapter 10: Agility (continued)

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

Agility keeps the rider on the startup bicycle out of critical danger and ahead of the competing pack.

Agile Strategy

Elisha Otis invented the safe elevator. It made skyscrapers a success. He did not plan to do that. But he did it, through entrepreneurial agility.

During the industrial boom of the 1800s, industrial buildings rose to multiple stories. Lifts were invented to move heavy goods quicker up and down. But they were dangerous. Too often the cable broke and people were maimed.

Otis saw an opportunity. He found the existing safety devices had to be operated by hand by a lift operator. After such a safety brake failed and nearly killed people in the lift, Otis designed and perfected an automatic safety brake. A wagon leaf spring attached to the cable would flatten if the cable severed and the brake would drive stops into the vertical guide rails after a drop of mere inches. He immediately began sales to factory owners.

When the first skyscrapers arrived in New York City, Otis saw the larger market. He took a demonstration to the 1854 World’s Fair. Promoter P. T. Barnum paid Otis $100 ($3,000 today) to cut the cable on the hour each day and show the gasping crowd how his safety elevator worked. After the Fair his sales soared. His business became a success. Today the name Otis is the respected name in elevators.

More details about the man and his motivation are in Jason Goodwin’s book, “Otis: Giving Rise to the Modern City.” Reading it shows how a self-taught entrepreneur used agility to dominate a new market segment.

Sometimes your first target market leads you to a better one. Agile entrepreneurs move quickly to capture the leader’s position. That is how agility works to build unfair competitive advantage.

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More tomorrow.

How to Manage a Real Startup: Nr 54 in a series

Chapter 3: People  (continued)

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

People are everything to a startup. They are the ones peddling for dear life.

People Action

When it comes to people, startup leaders act, they don’t linger in debate nor wallow in analysis paralysis. They get results or get new people. They set goals for people with dates and hold people accountable.

On the board of a hot startup, I watched as the first-time CEO quickly (one year) ran out of ability to manage the accelerating complexity of the organization. Chaos began, morale dropped, deals did not get done and cash burned fast.

The board waited until the pain of incompetence was clear even to the determined but overwhelmed CEO. Everyone finally agreed that the company’s ambitious first product launch had to be delayed. A layoff was going to be necessary.

One of the investors was selected to be the temporary CEO. The first-timer and co-founder stepped aside reluctantly. A month later the former CEO (still an employee and still on the board) was in full agreement that such a drastic change was necessary. He and the temporary CEO did the painful layoff and altered the company strategy.

To find the replacement CEO, the board decided to avoid using a professional recruiter, in part to save the related fee. After three months of slow recruiting, no qualified candidate could be found. After a lot of anger and shouting, the decision was made to engage the services of a world-class executive search firm. Qualified candidates began arriving within weeks. A hiring decision was made and the new CEO was on the job two months later.

The above example of a CEO replacement decision process is typical of venture backed startups. Here are tips to avoid the related traps of hanging too long onto people who just cannot deliver what the startup desperately needs:

·         Plan to replace the startup CEO in the original business plan. Pick the date on the milestone timeline. Give the qualifications for the replacement candidate, including examples of real people in real companies. Repeat for all vice presidents.

·         Replace people, do not compromise. You have too much to do without the added burden of carrying the load for a failed employee. When in doubt, follow your intuition. Let the underperformer go – or give them a push.

·         Be bold while being wise about when you dismiss people. Anticipate sales trips to customers, deal negotiations with strategic partners and industry speaking events. Avoid dismissing high profile personnel during such important tasks and key projects. Act before the work begins.

·         Never pay blackmail. When it is time to say goodbye, say goodbye. Do not think any person is vital to the company. They are not and never will be. Remember that includes you. Either you deliver or you go. If you doubt this, ask the serial entrepreneurs, they have been there.

·         Hire the Dream Team. Work to hire only the best. Find the A class people. Get them to find their friends. Birds of a feather flock together and so on. Don’t give up. It is the most important thing you can do to ensure your success and the company’s.

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More tomorrow.

How to Manage a Real Startup: Nr 53 in a series

Chapter 3: People  (continued)

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

People are everything to a startup. They are the ones peddling for dear life.

Tolerating A Poor Performer

Turnaround expert Bob Seelert reported in his book “Start with the Answer” how he learned painfully that it is not wise to continue managing people who don’t fit in. Like a lot of startup CEOs, Seelert needed team players who would go the extra mile to help the money-losing company, Cordiant, regain its footing. The following is an excerpt from the story as reported by Investor’s Business Daily, May 26, 2009.

“Hiring the wrong person or tolerating for too long has been my biggest mistake. If people aren’t working out, sometimes you have to let them go rather than hang onto them. I inherited someone in a staff position who wasn’t fitting in. He kept getting in the way. I should’ve terminated him right away, but I didn’t.” So he kept the person for a year, largely because the staffer’s employment contract had a two-year termination agreement with a severance allowance. To avoid paying the severance, Seelert decided to put up with the employee’s poor performance.

Looking back, Seelert laments “wasting a year” managing someone who hindered his efforts to rescue the company. He wishes he had fired the individual sooner, paid the severance and moved on.

Making the Wrong Call

Seelert soon made another misjudgment in filling a key leadership position. An executive recruiter found a candidate with what Seelert calls “an outstanding track record.” Seelert hired him promptly.

“Everyone had the perception we had just found our Babe Ruth,” Seelert said. “Soon it became apparent he was grounding out to second, then popping up, then striking out on three pitches.”

Fresh from his experience holding onto a poor performer for too long, Seelert dumped the executive without dallying. But the distractions caused by the two abortive hires led to lost opportunities and slowed Seelert’s progress in turning around the company.

Seelert replaced the fired executive with someone who understood and appreciated the firm’s culture. More than a decade later, that person serves as the company’s CEO.

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More tomorrow.

How to Manage a Real Startup: Nr 52 in a series

Chapter 14: Organizational Structure (continued)

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

The shape of the startup bicycle is both strange and constantly changing.

Multiple Hats

Job position security is non-existent in a startup, but work security is. There is always more to do than the company can do.

You may have the title of Product Manager, but if you are the only Marketing department person available when the unexpected customer arrives, you will be standing up giving the company introduction along with the Sales Rep and whatever Engineer you can pull off his computer. The VP of Operations will present the latest marketing positioning to the industry conference because the CEO and VP Marketing are on a plane to China to negotiate an order with a large customer. Summer interns are rounded up to write the next business plan as required by the venture capital firm interested in leading the next round of financing for the startup. All of that has happened to startups that I have been close to.

What needs to get done gets done, regardless of title. This is threatening to insecure personalities. It is expected by serial entrepreneurs. There is no place in startups for turf wars. Instead new enterprises are places where mine is yours and yours is mine. They behave more like cooperatives than hierarchical organizations. They are both eager and bold with humility and quiet confidence.

Title Pride

That sense of teamwork and rapid job shuffling requires a culture of trust. Each person must be open to others doing their work for them when that is best for the company. People jump from title to title and give little regard for what is on their business cards. Titles are for helping customers and strategic partners quickly understand what a person represents in the startup.

If you find prospective employees demanding job titles above their demonstrated abilities, it is wise to avoid hiring them. Such pride comes before their fall. If they insist on perks (cars, expense allowances, travel first class) send them on their way. Those are signs of people focused on themselves instead of on the startup.

Promotions

People will surprise you. Some will be set free at last to finally do what they have dreamed of. The results can be stunningly beautiful. They produce amazing products, negotiate significant deals, clean up impossible accounting messes and recruit world-class talent. I’ve seen these results from people freed from big company politics and family dominated multi-nationals.

Then it is your turn to promote them. The announcement may include a fresh job title, more cash and increase in stock option. That encourages others in the new enterprise to aim high, to over achieve, to go for the big win. It excites the culture. It sets a path for others to follow. It is how your organization learns, grows and matures.

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More tomorrow.

How to Manage a Real Startup: Nr 51 in a series

Chapter 14: Organizational Structure

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

The shape of the startup bicycle is both strange and constantly changing.

Startup organizations change as fast as they are agreed to by the core management team. That is very frustrating for leaders who take pride in their being in control at all times. It is also frightening to managers doing their first startup. But serial entrepreneurs expect such chaotic organizations, in fact, they endorse their strange forms because that facilitates success.

New Corporation

Today’s modern corporation is rapidly morphing beyond the virtual organization of the 1990s which introduced global enterprises to aggressive outsourcing to gain strategic competitive advantage. Experts today see fresh forms that include metaphors related to proteins (see for example “the protean corporation” in “The Future Arrived Yesterday” by Michael S. Malone) and rings and balls and orderly chaos.

Startup organizations begin with a core team consisting of a founder and three others. Typical this consists of a person who has run a business before, a marketing business development veteran and a technical or idea leader. Together they form the vision for the new enterprise and raise its seed financing.

The work done in the early Chaos Stage is performed by a mix of full time employees, part timers, contractors, and outsourced service providers. Examples include project engineers who are expert at setting up testing facilities, finance people who set up the early accounting system, legal services, marketing research, and public relations buzz. It is not uncommon to find more people working for the startup than it has full time employees in the early days of the new enterprise.

I like to keep startup organization charts simple and think mostly in the form of a circle surrounded by concentric rings. Or it could be in the form of a three dimensional ball with layers like a baseball. Or even an orange with sections. Whatever you use to describe it, be sure to leave room for a lot of change.

The next ring around the organization arrives with strategic partners. These can be key suppliers (servers or telecommunications services), middlemen in the chain from you to end user (independent Internet service provider, game publisher, module manufacturer), or strategic investor (Intel, Cisco, Netease, Shanda). These increase and decrease in their importance as the company moves on to successive stages of growth during which more strategic partners are added to this organizational ring.

The board of directors is added when investors sign big checks. That will add a governing group formed with an independent director, the representatives for the investors, and a couple from management, typically the CEO and founder.

All of the startup organization is constantly shifting and changing as the startup grows, runs into surprises and adds to its increasing complexity. That behavior makes it very challenging to manage the startup organization for the first time startup CEO.

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More tomorrow.

How to Manage a Real Startup: Nr 50 in a series

Chapter 14: Organizational Health

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

All components of the bicycle must work well individually and together with unity.

The health of the startup organization is as important as your good health, mental and physical. Serial entrepreneurs build their companies by continually promoting efforts to keep the health of the organization in great shape.

Doctors use simple check lists when doing an annual physical examination of you. Here is a check list to use for checking on how healthy your organization is:

·         Resilience. Startups run into surprises every week, some good, some bad. All require a swift response. Markets are fickle, customers do not arrive as hoped for, buzz is dull instead of exciting and the next financing round can be a dud. Or a sudden arrival of excited customers from an unexpected sector challenges your carefully laid plans. Healthy startups are good at spotting and managing such risks before they happen. They anticipate catastrophes and avoid them. They keep cash reserves ready. They build mechanisms that prepare the company for responding quickly. This is a key aspect of being an agile startup.

·         Execution. Startups must do the basics right, make good decisions, and perform essential tasks. Brilliant products, hot buzz, or surging markets can cover up sloppy performance for a while, but eventually poor execution catches up and can kill a startup. Every department must execute well. It is dangerous to focus management on high performance marketing communications if it cannot build great products. When execution breaks down, it is time to get a new CEO, quickly.

·         Cohesiveness of Purpose. This is part of the vision thing, yet it is more than that. Startups need everyone to believe in and be dedicated to the purpose of the company. That is one reason why it is so hard to manage startups with people separated by thousands of miles, in several countries. Even worse, is mental disaggregation because it divides the company emotionally and dissipates energy. People need to work in a common cause. So your vision must be shared with the organization. You achieve that by crafting a compelling articulation of your story. This generates a shared identity. It reflects corporate values, reinforces the common purpose and produces enthusiasm.

·         Momentum. The startup must have a sense of growth that is accelerating. That comes from lining up your bowling pins as successive market segments. Then you start by knocking down the first so it leads to beginning the market penetration of the next two, simultaneously.  The limited resources of the company become focused and produce expanding sales that grow the value of the company. It demoralizes less organized competitors. Keeping momentum alive calls for creative minds to find the next market segments while the early ones are being entered. It calls for quick moves to respond to surprises during marketing campaigns. Speed is very important for startups building momentum.

·         Complementary. All your departments must act in concert. They are not silos. They must communicate effectively and collaborate like twins. The startup’s informal social structure comes into play here. The culture of the organization with its shared values is a powerful asset in keeping everyone reinforcing the drive for successful growth.

All of those check points will tell you how healthy your organization is. It should assist you in finding where your company needs attention.

Execution of creation and management of a healthy startup organization is one of the prime tasks for the CEO. It includes performance reviews of individuals, a task that is typically done poorly by startup CEOs. When every employee has written goals, you have one of the most important processes in place that contributes to a healthy organization.

If you are from a public corporation and are looking at a startup, try comparing the above list and comments to the one for giants that was published in the McKinsey Quarterly of 2007 Number 3. That should encourage you that with some modifications, the checkup on organizational health for a giant can be used for a startup.

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More tomorrow.

How to Manage a Real Startup: Nr 49 in a series

Chapter 13: Board of Directors

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

The board of directors rides the handlebar watching as you build and ride.

Managing a Board of Directors (continued from yesterday):

It is simple: Either you the CEO manages the board or it will manage you. Once it starts managing you, the end game is already in play: in a short number of months your services as CEO will no longer be required. As in fired.

The board does not what to manage the startup. They have too much to do with their other startups, especially the ones that are in deep trouble. They do not need one more troubled company (yours). So the board exercises extra energy in attempts to not get to that bad situation. That is one reason they meet with the CEO and core management team each month.

Managing a board of directors may sound like a paradox to first time startup CEOs. After all, the board is the boss of the CEO. But the serial entrepreneurs know what is expected: the CEO leads the board and the board members contribute as each sees best. That is how it is done when it is done right in startups.

Here are some tips for how to manage your board of directors: (continued from yesterday)

·         Report history, avoid making promises. Report results since the last meeting. Work hard to not make predictions and promises. If you hope to meet Amazon, it is best to wait until you do and then report that.  If not, you will be dinged for not meeting Amazon. Sales forecasts need a lot of careful thought: most are wildly optimistic. Use waterfall charts to discipline your company and yourself. Do what you say you will do. Write down everything you agree to do during the board meeting. The board will. Do not volunteer to walk on water. Only one man did that without drowning.

·         Use resources of your board members. They will be on boards of other companies with access to important information, people and other resources. They expect you to ask them for help from their networks of contacts as well as executives in residence and associates.

·         Have fun at board meetings. This is part of the adventure. When board meetings convert from fun to work, from enjoyment to dread, then it is time for you to look for something else to do. Without the fun the adventure dies, for everyone. The board wants to behave like cheerleaders, excited about your growth and the company’s success. If you think like that, the meetings will be productive and an enjoyment for you and everyone there.

How to Manage a Real Startup: Nr 48 in a series

Chapter 13: Board of Directors

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

The board of directors rides the handlebar watching as you build and ride.

Managing a Board of Directors (continued from yesterday):

It is simple: Either you the CEO manages the board or it will manage you. Once it starts managing you, the end game is already in play: in a short number of months your services as CEO will no longer be required. As in fired.

The board does not what to manage the startup. They have too much to do with their other startups, especially the ones that are in deep trouble. They do not need one more troubled company (yours). So the board exercises extra energy in attempts to not get to that bad situation. That is one reason they meet with the CEO and core management team each month.

Managing a board of directors may sound like a paradox to first time startup CEOs. After all, the board is the boss of the CEO. But the serial entrepreneurs know what is expected: the CEO leads the board and the board members contribute as each sees best. That is how it is done when it is done right in startups.

Here are some tips for how to manage your board of directors: (continued from yesterday)

·         Expect to be alone. Leading the board is your job. No one else can do that without you capitulating as leader of the company. Sure, you can have a strong personal relationship with the lead investor, but you should not expect to do whatever that partner tells you to do. Instead, you have to discuss and agree on differences of opinion and then go to the board meetings united.

·         Be 100 percent honest: Trouble for you begins when the company gets into deep trouble. Then you will know what it feels like to be a spear catcher. It is not pleasant, but it is part of what comes with the CEO job. The human tendency is to give only the good news and try to fix the bad things in time for the board meeting. Then you will start to dig your own grave because you will start to shade the bad news with undue optimism and week after week the truth will be bent out of shape. Eventually the bad news will emerge and you will become the bad news. That leads to career shortening.

·         Declare bad news immediately.  Learn to announce the same day you get the basic news of big trouble. Pop the short email instantly. Then dig for more facts. As they arrive, pick your subsequent days to report on how the company is coping with the trouble. By the monthly meeting you will have had a lot of phone calls, mostly with suggestions on how to work on the trouble. Few board people will be screaming at you, demanding your head. Instead, they will work together to support you and the employees putting out the fire.

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More tomorrow.

How to Manage a Real Startup: Nr 47 in a series

Chapter 13: Board of Directors

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

The board of directors rides the handlebar watching as you build and ride.

Managing a Board of Directors

It is simple: Either you the CEO manages the board or it will manage you. Once it starts managing you, the end game is already in play: in a short number of months your services as CEO will no longer be required. As in fired.

The board does not what to manage the startup. They have too much to do with their other startups, especially the ones that are in deep trouble. They do not need one more troubled company (yours). So the board exercises extra energy in attempts to not get to that bad situation. That is one reason they meet with the CEO and core management team each month.

Managing a board of directors may sound like a paradox to first time startup CEOs. After all, the board is the boss of the CEO. But the serial entrepreneurs know what is expected: the CEO leads the board and the board members contribute as each sees best. That is how it is done when it is done right in startups.

Here are some tips for how to manage your board of directors:

·         Set a firm calendar of meetings. Such a calendar generates motivation for everybody and makes managing the business easier. Drive the calendar. This adds rhythm to your new enterprise and like a beating heart becomes the focal point for reporting each month on results. Employees will anticipate the date and look forward to it eagerly.        Work hard to not make frequent changes in either time of start or day of meeting. Expect a lot of people to be on the phone to attend board meetings.

·         Prepare materials for a three hour board meeting. That is not a delegated job. It is your job. It is your presentation. Yes, there will be reports by your core team, but the agenda and most important information is yours. You will have to create your own PowerPoint slides. That is one special aspect of being CEO of a startup.

·         Let the core team present. Each of your key direct reports will be expected to join the board meeting for most of the time and stand up to present their own report. This includes engineering, technology, marketing, sales, human resources and financial departments. This is important time for each person to learn to be grilled about what has happened on their watch. They share the issues with you about what the board is focused on. That makes managing the company easier.

·         Attendees will include time consuming observers. These are non-board members who are investors. And the non-partners of board members. At times you will run out of chairs in the room. This is normal. It adds to the importance of you managing the agenda and time, in spite of interruptions and long discussions. Not all questions will get long answers. That takes too long. You have to learn how to be polite, respond and still keep the meeting moving along.

·         Give homework to the board members. They are eager to contribute to the success of the startup. Take notes in the meeting of what they volunteer to do (e.g. “I will call Joseph at Amazon to figure out who we should talk to there.”). Present the assignments at the next board meeting and note who completed them and who did not. Venture capitalists are competitive. They will be motivated to deliver and will compare themselves with other board members.

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More tomorrow.

How to Manage a Real Startup: Nr 46 in a series

Chapter 13: Board of Directors

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

The board of directors rides the handlebar watching as you build and ride.

Your job is to manage the board of directors or they will manage you. First timers have to learn that. Serial entrepreneurs take that job very seriously. Done well it ensures the best for the company. Done poorly the management of the company becomes hell for the CEO and employees.

Composition

The board consists typically of an odd number, three or five or seven, to ensure that decisions are made. For instance, a board of five would include two from management (CEO and a vice president, typically founders), two venture capitalists and one so-called neutral executive (from a related industry or as a person experienced with startups). Smaller boards work more efficiently than larger ones. Five is typical for early stage venture backed startups.

How They Work

Startup boards meet monthly, unlike the quarterly meetings of large public corporations. This frequency enables non-management board members to keep up with the rapid changes in the startup. That keeps information fresh and contributes to quality decisions. The agenda is agree to in advance, PowerPoint slides are emailed a few days before the meeting and the CEO calls each board member in advance to confirm the day and agenda.

Between board meetings it is common to have the CEO responding to random phone calls and emails from individual board members who have asked questions or sent information to the CEO. This can lead to more time spent with one board member and can distort the process of decision making.

If an issue pops up between board meetings that cannot wait for the next scheduled meeting, then a conference phone call meeting is arranged. There the issue is reviewed and action is decided on. Such meetings are common in startups and are done in spite of the havoc created with time schedules of active people on the board. Strange times of the day are required when people are spread over the globe in different time zones. That is one special aspect of startups.

The CEO must ensure that board meetings are not where surprises are announced. Everyone is expected to know in advance of any sensitive issues. That is avoided by having the CEO spend time on the phone with each board member before scheduled meetings.

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More tomorrow.