Nesheim Online

MANAGING A WINNING STARTUP: The importance of "Trust"

"Trust" is critical to a startup.

The core team (typically consisting of a CEO, techie lead and business development head) have to be trustworthy.

Every stakeholder needs to trust the core team.

Employees need to trust the core team.

Investors need to trust the core team.

Customers and end users need to trust the core team.

Strategic partners need to trust the core team.

Yes, it's a very important word, central to building a winning new enterprise.

EMPLOYEES

Those engineers, marketing people and all the rest trust the leadership to provide three things:

• Competence: the core team is able to shape this great startup idea into a winning business.
• Benevolence: the leaders will not rip me off, they will provide fair compensation, challenging yet still reasonable workload, and a justified reward to me.
• Equity: the people at the top will treat me with the same standard as the rest of the employees.

When you get trust working in employees, you the core team are way ahead of the competitors who do not get it right. The top quality stakeholders will seek you out, give you the first opportunity to work with them.

INVESTORS

There is not enough time for experienced investors to closely manage the core team. Whether inexperienced or old bull-headed, core teams have to be trusted to execute a plan that can win. The people with the money just want to be excited cheerleaders.

When you find investors interfering with your daily tasks, beware: the money people may be sensing you are not trustworthy, less able then they thought to pull off the winning startup they put a lot of money into.

CUSTOMERS AND END USERS

You will get the first wave of end users willing to trust you for their first purchase. If they feel let down, you have a problem. If they feel betrayed, you have a crisis.

The same goes for customers (who send you cash).

Both constituencies must trust you.

When they do, they will rave about your product/service, spread the word around the planet via the Internet, recommending your business to many others. That's a big win. It is central to the primary thing Steve Jobs focused on in his quest to build great products that customers loved.

STRATEGIC PARTNERS

Suppliers, channels of distribution, sales outlets, etc. all need to trust you to deliver what your excited speech said. They joined you because they believed in you. Yes, they expect to benefit significantly, but it begins with trust in your ability to execute as you said you would. They expect you to be faithful and true to your word, not suddenly changing allegiances, not violating contracts, not even breaking promises and handshake deals. Complete trustworthiness is what they expect of you and your core team.

ETHICS AND HONESTY

Trust is not bout ethics and honesty alone. Yes, they are two aspects of what all the people cited above expect when trusting you (to be ethical and honest, among other things). But trust is larger than those individual aspects.

BOTTOM LINE: Trust in a startup is central to the entity's value to the many stakeholders who expect to benefit from trusting the leaders of the new enterprise. It is very personal. It is difficult to overcome a lack of trust once it has formed and thus it is vital to not do things that lead to that demise of relationship. When your stakeholders trust you, they will do amazing things for you. They will become part of your unfair advantage. Serial entrepreneurs understand the power of trust. Use it well to build and manage your winning new enterprise.

I wish you The Best on your Adventure!

THE WILL AND CHARACTER OF WINNING STARTUP FOUNDERS: Part 3 of a series -- Bias?

Are you biased? Not a bigot, just biased?

We see that question in the negative. Yet understanding it can lead to understanding a dangerous characteristic of founding CEOs behavior.

I propose that all startup CEOs are biased, deeply.

In fact I am sure of it. I've seen one trait in all of them. And in myself.

What is that trait? It is over-optimism.

So  why is that so bad? Let's take a look and see.

Over-optimism is the constant bias to see the glass two thirds full. Hey, why not always full? Startups need to think positively, right? What could be bad about that?

Well the veterans will tell you from bitter experience that their genes are biased to tell everyone that the startup is always doing great. The company hits bumps that are so small that no one notices. The product works great. The customers love it. The tech team will surely fix the bugs. The thing is amazing millions of users. Investors love us. Bloggers can't wait to write about us. People are lined up wanting to work here.

It's all true, right?

Wrong. In fact it is a form of lying. Yes a lie.

Worse than that, it destroys trust in you, the CEO. Eventually employees learn that investors do not love the company. That bloggers talk negatively about the startup. That customers complain a lot. That users are bored rather than excited about the thing offered. And then they all begin to doubt the CEO's words.

Doubt leads to distrust that leads to the exit doors.

For a real life example, take a quick read at this blog by founder, angel investor, Ben Horowitz. And note the comments by real CEOs. They agree. (Thanks for sharing reality, Ben.)

BOTTOM LINE: Over-optimistic startup CEOs get into deep trouble when they distort reality. Out of fear or compunction, from habit or trained behavior, for whatever reason it is a character trait worth dumping ASAP. It leads to destruction of trust. It misleads everyone. When instead you can "tell it like it is" you'll be well on your way to building an unfair advantage.

I wish you The Best on your Adventure!

THE WILL AND CHARACTER OF WINNING STARTUP FOUNDERS: Part 2 of a series -- Me?

The movie "The Social Network" is worth studying closely.

The storyteller reveals his version of the behavioral character that is deep inside the movie's version of the stakeholders of Facebook. Much of it is not flattering. Damning some will say.

Character is what you do when you think no one else is watching.

It is what you do when your guts are turning over from fear or lust.

Knowing how you will behave when your startup is going to crash, perhaps fatally, is central to knowing your character.

Bad things are going to come (with the good). You'll have to make a decision about what to do to whom at that time. Founders fire co-founders who are/were best of friends. Investors fire founders and deeply dilute employee's ownership in favor of investors. Customers cancel orders for no good reason. Employees sabotage R&D equipment. Cash rich competitors file frivolous, expensive patent lawsuits that sink hot startups that are taking business away from the rich company. The list goes on and on. I've been on the firing line when all of the above have happened. Those are the times when I see first hand what the character is made of in the founder CEO.

Yes, a lot of good happens as well. Sun does shine in startup land. But a day relaxing on the beach does not reveal a person's character. Rain and storms and rotten days do.

Your character is of top importance to your future stakeholders. Investors, employees and strategic partners want to know for instance if you can be trusted. Do you do what you say you will do (without a signed forty page legal contract)? Do you lie? Do you tell tall tales? Do you deliver on your promises?

Modern capitalism is founded on trust. You can't run a business using legal contracts for managing everything. The world changes too fast. Startups are the fastest changing form of business. Founders are counted on to deliver amazing results under demanding, changing circumstances. It's like building a bicycle while riding it at sixty miles per hour. Trust is crucial to employees and investors of startups.

A few people can be rewarded and go a long time without a dependable character. History books are full of the frauds and their perpetrators. But they eventually were found out and put out of circulation. The same goes for founders of startups: eventually their character will be judged. Someone eventually tells what really happened behind closed doors.

The reason I am today sounding so douer is because you have to be prepared for how you will behave when you have troubling decisions to make. If you are uncomfortable doing that, wait a few years before  doing your startup. Wisdom is gained in the school of hard knocks, over time.

BOTTOM LINE: Knowing how you will behave when crushing blows hit your startup is central to knowing your character. That will become your distinguishing mark. It will brand you. People will recall mostly how you acted when all hell broke loose. Not how brilliantly you guided the ship on a calm day. When your character is prepared to deliver decisions under duress, decisions which are admariable and ethical, you are on your way to qualifying to do a startup. Your character will become an asset instead of a liability and will contribute to founding your unfair advantage.

I wish you The Best on your Adventure!

LEARN FROM MISTAKES OF OTHER STARTUPS: Raw truth stings yet teaches

The old American adage says "Experience is cheapest second-hand".

That also applies to startup leaders (like you).

A great way to learn quickly is to read a book from an a bold author who has written "in your face" about a famous startup leader of a famous startup. A fresh book I recommend is The Facebook Effect. Its author has exposed the dark side and bad decisions as well as the light side and good decisions of the megasuccessful Facebook founder, Mark Zuckerberg. 

As you read it, I suggest you apply this thinking criteria to your observations about what happened, then apply the same criteria to your startup:

• Who was to benefit and how from the original idea for the new enterprise?
• How did the first idea morph, change, move on to become successively different, month ofter month, year after year?
• What was driving the founder to push for success of the enterprise? (Yes,this is shrink the head thinking time)
• Who decided to join the founder, and why?
• What investors decided to join the founder, and why?
• What was "the big break" that "made the company" great (moved it from tiny to amazing)? (Time to also consider the proverbial "Lady Luck")
• What role did "kids" have in the good and the bad decisions?
• What role did the "old people" have in the good and bad decisions?
• What is the founder most interested in?
• Who is the founder most interested in?

That should help you shape a series of questions to apply to your business dream. Perhaps you'll do better than Zuckerberg.

BOTTOM LINE: Doing an anatomical analysis ("dig into the guts, find the dark sides as well as the good") works for startups as well as living bodies. Similarly it exposes the truth about what happened and gives the thinker lessons to be applied immediately. Startups are living bodies. So are their leaders. When you can do a deep dive analysis of your startup (any startup,in fact) as well as yourself, you'll be able to build an unfair competitive advantage your competition will see as overwhelming. Read and listen, ask and learn. Those are characteristics of the greats who become leaders of great startups. You can be one of them.

I wish you The Best on your Adventure!

STARTUP FOUNDERS HAVE TO BE A BIT CRAZY: Religion and unusual thinking belong in great startups

As I drove home today from assisting a superb founder present to a VC, I listened to an author of a very helpful book. I heard the founder of Noahs Bagels talk about his personal adventure in life in his book, Business Mensch: Timeless Wisdom for Today's Entrepreneur. He eventually sold Noahs Bagels and cashed in his chips.

Noah discussed several points he makes when talking to people wanting to do a startup. Here are two standouts for you to think about, points rarely mentioned but very important to big thinking entrepreneurs:

• Religion matters. Alper is a Jew who applies his fundamental beliefs to his businesses (he did six startups). In his case religious values include charity and "do onto others as you wish it done to you". Ethics and values matter. They came from his family traditions which he learned at home and respected. Alper put them into practice. That distinguished his business from competitors. People talked a lot about how Noahs Bagels was different, in a positive way.
• Entrepreneurs have to be a bit crazy. Alpers spent some time explaining the importance of applying basic business methods that work , but he also said that then when special situations pop up, the entrepreneur has to step out of the mainstream and get very creative ("out of the box"). He had to get the city of Berkeley to make an exception to a food regulation in order to serve coffee in his first shop.

I've seen Noah's points about being different applied in many of the great startups I've been privileged to witness. There is something strong inside the founders of such enterprises that they call on when the biggest challenges suddenly loom up (just at the worst of times). The personal values and creative thinking are two of the most powerful things they use in such times. For example I've see this "crazy thinking" turn a startup with two businesses (consulting and software products) focus on one and wildly succeed (Informatica). Of course you know about the web site for faces of college girls that became Facebook. The list is endless.

BOTTOM LINE: Listen for entrepreneurs talk about what made their enterprises different. Look for their moves that they made which used strong personal values and that are very creative out of the box thinking. Then try that thinking on your enterprise. It can be central to boosting the power of your stalled or slow startup. It can propel your business to greatness and an unfair competitive advantage.

I wish you The Best on your Adventure!

PRESSURE REVEALS CHARACTER: West or East, Startup Heat Refines the Person

As the plane descended to land at Ithaca, New York (Cornell University is here), I closed my book and reflected on thoughts it triggered in my mind. "Death of a Red Heroine" by Qiu Xiaolong is a mystery that takes place near Shanghai. Today's booming times in China breed entrepreneurs, shift the social structure of a giant country, race faster than people can keep up, and trigger behavior in people that generates good and evil.

Besides being a good read (I'll do a few more chapters before bed), the book got me thinking about how police inspector Chen reviewed the character of his friends who had gone through the terrible days of the Cultural Revolution. The survivors were a mix of those who emerged with character improved by their ordeals. And some had succumbed.

I find startups like that. The intensity of troubles that are inevitable are the heat, the cauldron, that is the Cultural Revolution of the entrepreneur. It shapes the character of every person who goes through it. Some grow and improve.  Others wilt and depart. A few have actually died. E.C. has grown stronger every day. She has forged a business from nothing and no cash into a successful enterprise with over ten figures of revenue which generates a fine profit. I have been privileged to witness others who triumphed because of their strong character. That should be encouraging to you budding entrepreneurs.

However, the traps along the way are many and the temptations very alluring. I have experienced technical fraud (a person claims to be proficient but has flawed or very thin skills in a discipline critical to a new enterprise). I have watched original sounding ideas turn into copies as veterans dug deeply into competing technologies. I have seen co-founder friends turn into enemies over disagreement about how the company should get out of trouble. Several have told me they had to lie to get their companies funded. I have watched as pride and arrogance took over and engulfed the people in foolish errors.

In case you were wondering, none of the startups in the above paragraph survived. It is the E.C.'s of this world that do. In fact, they do not survive, they thrive.

BOTTOM LINE: Like the good inspector in Shanghai, reflect on character as you do your work. It is being shaped as you read this. The hard times will advance it the most. If you have set your standards (ethics), then your behavior (morality) will remain high. Otherwise, you are most likely to learn very painfully. Strong character is the mark of great leaders and a powerful element of a company's unfair advantage.