High-jacked by Backseat Drivers

Let ‘s continue the conversation about investor’s dilemmas by looking at the time when your product or the idea that you have birthed, nourished and brought into maturity, has been high-jacked! How could this be? This baby is yours. It can happen with growth. You may think, “Isn’t that an indication of a successful start-up, to have growth?” Yes it is, but it can come at the expense of your position. With each round of additional funding that may be gained from investors, there is also a drilling down of control once held by the founder. Wasserman states in The Founder’s Dilemmas that by the third round of funding, “…more than half start-ups have replaced their Founder-CEOs.” (2012, p. 299)

Can you imagine being replaced at a peak in your company’s performance? It happens. This “paradox of entrepreneurial success” is found with the flip of a coin between product development and fundraising. (p. 303-304) As a founder, what is your true area of expertise and how does that translate into value as the company progresses. The developed product now needs a different level of expertise to move it forward (marketing, sales and service). Does your skill set guarantee your seat to continue driving? Wasserman states, “The leap from leading product development to leading a multifunction startup challenges not only the founder’s skills, but-perhaps even more profoundly-his or her value.” (p. 306)

The board that shifts as new funding sources are embraced brings with it the power to fire. “The new board, made up of investors and independent directors who are motivated by the creation of shareholder value, may have a very different view than the CEO does of who is the best person to tackle the startup’s next set of challenges.” (p. 308) What you as a founder may see as growth, investors see as challenges that you may not be able to overcome. This marriage could end in divorce with irreconcilable differences. Unfortunately this reality of substantial loss seems heartless. Even though your start-up began in your heart, it ends as business. So think about your get-away, before you are kick out of the car.

Wasserman, Noam. (2012) The Founder’s Dilemmas. Princeton, NJ: Princeton University Press.

Backseat Drivers

It seems we have come full circle with the first assignment of control versus wealth. Self-funding keeps us in the driver’s seat without any back seat drivers, but for how long? How much of a cushion should you have? In personal finance, it is suggested to have at least six months of reserve for life events like job loss. When the bank I worked for downsized, I was unemployed for six months. I do not know if that is the norm because there have been many unable to recover from the job loss of the primary bread winner for longer periods. But in business, “As Professor Bill Sahlman points out, in startups, money buys time: time to experiment, to collect, and evaluate data about what worked and what did not, and to adjust the strategy and operations based on what was learned.” (Wasserman, 2012, p. 252) What does that time frame look like for your business? What is your financial strategy that will allow you to leave your current position or cause you to have to go back into to the place you dreamed to be out of for good?

I recall one of the childcare services that provided daycare for my daughter. The owner could not afford to commitment her time to building the business and therefore she went back to her full-time position at the hospital. She had a promising business, but when she was not part of the day-to-day operations, I saw a change in the service that was being provided. She had placed unqualified workers in charge and the responsibility was too much. I have seen too many times where management gives too much responsibility to an inexperienced and untrained employee and they fail. This failure creates a no win for both the client and the business owner. Of course I found another childcare provider and the business eventually closed. A business cannot run on hope, dreams and potential. She had the potential for a sound childcare service. But potential means you have not accomplished anything. It is incremental accomplishments that prove the real business owner’s success.

Consider your investment options early in the planning. Forecasting the outcomes, good and bad, will help bring a realistic picture into view whichever outcome. Wasserman points to three types of investors: family and friends, angel investors, and venture capitalist. Do you “play with fire”, potentially “run off” other investors, or give up some control? (p. 256)

I am in total agreement that family and friends should not be the first route. It speaks desperation even though it may be convenient. Then you move from close to home to a distance with an angel investor who will provide funding that will cultivate the ground for a venture capitalist. Is the angel investor a band-aid or true stitch that will heal a wound to full recovery? These are the real questions to consider because a venture capitalist will expect control and a return on the investment. The beauty securing a venture capitalist is that your start-up displays “high-potential.” (p. 267) You hit the jackpot with “financial, social and human capital at the expense of economic and control rights”, but your new partner might take the wheel. (p. 278) Control will be transferred and you need to decide early if it is worth it so you can prepare to manage it later.

“Unfortunately the vast majority of businesses do not qualify for venture capital funding. VC firms are very choosy about the businesses they invest in – according to the U.S. Small Business Administration less than .1% of businesses are funded by venture capital. Of the few that are able to obtain VC funding, almost all are firms that are past the startup stage and can demonstrate a viable product or service. .” (Ward, 2016) So we are back to the beginning with your money or that of an angel investor. Make your money count longer through assessment and investment before you take you first step vehicle.

Ward, Susan. (201, August 16). What Is a Venture Capitalist? What Every Start-Up Needs to Know About Venture Capitalists. Retrieved October 10, 2016 from https://www.thebalance.com/what-is-a-venture-capitalist-2947071

Wasserman, Noam. (2012) The Founder’s Dilemmas. Princeton, NJ: Princeton University Press.

Stick and Stay

Leaders can create loyalty among A-Players through vision, value and reward.

Vision is not just for the company but for the people. Knowing your team’s strengths and weaknesses and who can and cannot move to the next phase is part of the vision. “Forward thinking” from a leader is like spinach to Popeye A-Player. (p. 192) A strong leader needs to be able to make projections as to the direction and growth of the organization and where each A-Player fits into the big picture to keep them energized.

Habakkuk 2:2 states, “Then the LORD answered me and said: “Write the vision and make it plain on tablets, that he may run who reads it.” (Blue Letter Bible) The leader must deliver the vision, goals strategy or next phase in a way that A-Players are motivated and can articulate it to others that will cause synergy. When people can see the end, they have a visual to follow-through for a successful outcome. Accomplishment is a beautiful thing! I remember when our bank hit a billion in assets. The company had a billion-dollar-bash for all employees and stakeholders. It was a great feeling to be a part of the landmark goal for our regional bank in that five year period of time. Every employee felt valued.

Where the A-Player takes ownership is also the place where the A-Player visualizes their value to help bring the vision pass. “Á-players don’t want to be taken for granted.” (Herrenkohl, 2010, p. 198) A synergistic culture creates a place for everyone to be an important part of the process. From the courier to the Chief Financial Officer, each person’s value should be expressed by senior management. It takes human capital to make it happen. A-Players should not be made into this elite group of untouchables, but they should be tangible to the worker bees. Value must be openly expressed and rewarded at every level.

Rewards are a result of measurable results. Measurable results also play a major role in the advancement of the company and the people. Goals that result in positive outcomes, gives A-Players a ladder for success. Incremental accomplishments add value not only in position but in dollars. These increments also allow for evaluation and change if necessary to reach the desired goal. I see it like a road map. There are landmarks along the way to let you know that you have made right turns or when you need to take an alternative route due to an unexpected change. A-Players are resourceful and flexible when there is a detour that causes a different route, yet yielding the same end results. Rewards in pay, recognition and promotion are incentives for them to stick and stay.

Habbakuk. (n.d.) In Blue Letter Bible Online. Retrieved from https://www.blueletterbible.org/nkjv/hab/2/2/s_905002 .

Herrenkohl, Eric. (2010) How to Hire A-Players. Hoboken, NJ: John Wiley & Sons, Inc.

Hiring Dilemmas

Who to Hire? When to Hire? How to Hire? These are all questions to ponder when starting a company. Do you acquire, lure, steal or merely invite these new team members to come play in your sandbox? We have been studying roles, relationships and risks involved with a new start-up. We have looked into the eyes of our own truth to determine if we are in it for the money or to be King or Queen of the sandbox. We have had to take a long hard look at family and friends, long term acquaintances, or newbies in the neighborhood coming to our playground.

It seems easy to go with the people we know, but Wasserman believes your comfort zone is a like “playing-with-fire”. (2012, p.216) “Teams whose members have prior personal relationships may be less likely to discuss sensitive issues and may also face major damage to those relationships if things go sour in the startup.” (p. 217) I was asked to be a part of team for a non-profit organization, where I was very close to the CEO. When she asked me to be the Chair of the Board, I declined. She asked me to step in until they could find someone because I was the most qualified. I told her that the person that eats at her dining room table is not the same person that would lead the board. Needless to say I resigned because I could not fulfill the role as Chair without damaging the relationship. I was qualified for the role, but not at the expense of hurting her. I respected her too much and I did not agree with the way the company was run. I resigned before there was a crash and burn. And I can say that our relationship is not the same for me.

When I was a hiring manager at the bank, I would seek out referrals first when needing to fill a position. I would rather have a first-hand account from someone tangible than from a cold call on a reference list. My concerns were more about work ethics. As we have discussed before, the technicalities can be taught. I have invited a new-hire into the sandbox and then wanted to tell them they can’t play anymore. I recall thinking that I wanted the person on the resume. Letting people go or reassigning them to another branch was never easy. People tend to think, what is wrong with me or am I not good enough. My regional manager would send employees to my branch to determine a valid termination. That sucked for me. I was always the bad guy. But I was the one to get the proper documentation in order to dismiss them according to policy. Therefore, my sandbox always had turnover.

Finding a balancing between the right people, the right time, and at the right cost is an act that takes maturity. Learning and growing in a new startup is part of becoming successful. I believe accessing risk is a key component of finding balance. Who can you afford to let go or bring on the team? As the Founder, you have to decide the degree of risk and make decisions that can be most favorable for the company whether the sandbox is full of friends from the neighborhood or full of strangers from around the way.

Wasserman, Noam. (2012) The Founder’s Dilemmas. Princeton, NJ: Princeton University Press.

Born or Made?

Leaders? What do you think? Are leaders born or made? Psychology Today points to the fact that they are “mostly made” to a tune of two-thirds to one-third. (Riggio, 2009) Riggio goes on to say, “To expect that a person would be born with all of the tools needed to lead just doesn’t make sense based on what we know about the complexity of social groups and processes.” (2009)

I grew up on a farm. I remember getting up early, planting crops, harvest time and fresh vegetables. I didn’t mind getting dirty. I recall running freely in the fields and going to sleep with the sounds of the crickets in summertime. Never once did I think I would be found in leadership roles as an adult. I learned how to work hard and do things right to yield favorable results. But college taught me how to work smart. I was taught that I didn’t have to work that hard anymore for favorable results.

I agree with Herrenkohl when he says “…there are skills that you can teach (technical knowledge, product knowledge, understanding of a particular client) and skills you can’t (motivation, leadership, commitment, the ability to sell and the desire to achieve).” (2010, p.99) However, I believe the skills you can’t teach can be cultivated, but it hinges on how a person internalizes or whole heartedly receives the change. People can be motivated by money, success and achievement, or helping others. If you place a person in a leadership role and give the tools and resources to succeed, they can become transformed by the positives of the assignment or the role. Recognition and praise by peers and feeling valued can move a non-motivated person to another place of being engaged. A favorable environment can bring life-changing results.

The average person is not lazy, ignorant or hopeless. They just need to be around the right person or people to believe in them. Everyone has a gift. Everyone has that something they do well. For some, they capitalize on it and for others they bury it. So the two-thirds of being made a leader gives access to everyone! It is not something that only a certain number of people have. They have a 66% chance to succeed as a leader.

“When it comes to hiring, more employers are going beyond standard questions such as asking candidates to list their biggest strengths and weaknesses.” (Picchi, 2015) Even more, “Employers are looking to test a candidate’s critical thinking skills, as well as how they problem-solve on the spot and how they handle an unexpected challenge.” (Picchi, 2015) According to Glassdoor, questions ranged from, “What’s your favorite Disney Princess?” to “Describe the color yellow to somebody who’s blind.” (Picchi, 2015) The questions were position specific.

When hiring, I look at more for character traits and not so much skill details. They had to have the skills in order to be chosen for an interview. As long a one is willing to learn, new skills can be taught. I look at personality traits that are complimentary and a good fit with other employees. I look for the person and not the position. The resume will tell me if the person can perform the job, but the interview gives me insight on who the person is. I recall reading an article a couple of years ago about what kind of questions millionaire CEO’s asked. One question was if you were and animal, what would you be? The CEO asked that question to get insight on the personality of the interviewee. What type of animal would you be?

Herrenkohl, Eric. (2010)How to Hire A-Players. Hoboken, NJ: John Wiley & Sons, Inc.

Picchi, Aimee. (2015, March 18). MoneyWatch. Top 10 weird job interview questions. Retrieved October 2, 2016 from http://www.cbsnews.com/news/top-10-weird-job-interview-questions/

Riggio, Ronald E. (2009, March 18). Leaders: Born or Made?. Retrieved October 2, 2016 from https://www.psychologytoday.com/blog/cutting-edge-leadership/200903/leaders-born-or-made