A VC in Vacationland

Remember when you were a kid on Christmas morning?  You ran downstairs and proceeded to rip open every present, often not pausing to play with any. At the end of 15 minutes, you were bored. Nothing more to open. If you need to remind yourself of those days, or if you have another religious persuasion and want to see how the Christians act, just watch one of the 100 reruns of Jean Shepard’s A Christmas Story on televison this week.

Some entrepreneurs are like this.  They have what I call them the "kid under the Christmas tree" syndrome.

They are the people who continuously run after the next new, new thing and do not take the time to make sure that the last new, new thing is properly cared for. They drive me nuts.

Successful entrepreneurship requires focus.  You told your investors, customers and employees where you were going.  Now go there. If you need to change directions due to market or competitor conditions, then clearly define the changes that will need to be made to your business strategy and communicate them to your constituents. Please do not do this very often as you will only cause confusion and distrust.  Buisness plan du jour is no way to run a company.

Don’t be like Ralphie on Christmas morning. Enjoy and savor your "gifts" around holiday time–dedicated employees, trusting investors and happy customers.

We all were required to read–at least 50 pages or the Cliff Notes of– Nathaniel Hawthorne’s The Scarlet Letter.  "The scarlet letter was her passport into regions where other women dared not to tread. Shame, Despair, Solitude! These had been her teachers—stern and wild ones—and they had made her strong, but taught her much amiss." 

This is another in my series of anti-VC cliches, ones aimed at giving you real advice on how to manage your start up.

There are more than a few lessons for an entrepreneur in this classic that you never read:

• You will get  to travel to regions others have never explored.  You better, otherwise why go on the quest?
• You will experience periods of deep despair and doubt in your quest.  Be sure you have companions on your journey to help you keep the faith.  Poor Hester never did and that is why her journey was much more difficult.
• Recognize your teachers. Hester had her teachers with her every day, whether she wanted them along or not.  You should know who your teachers are–advisor’s, board members, friends–and be sure you call on them for help.
• You will have a scarlet letter on your chest.  Until you are successful, and that can be defined in many ways (but assume it means you become an industry leader in your space), you will wear that scarlet letter "L" on your front.  It stands for Loser, in case you did not guess.  You will have it until you become a winner. Get used to it.

In the end, Hester never really regains her status in the town, in spite of her lover’s confession on his deathbed. Being an entrepreneur is always being a little suspect–by your investors, friends, customers and your employees. You are the one taking them to places they have never explored.  They are going to be skeptical that once they get there that things may not be any better.  Making sure that this does not happen to any of them is the best end to your story.

I have always tried to hire people who were smarter than I was.  How can you grow a company if you do not keep adding people who can build on current successes and define new paths to grow in the future? Anyone who has had luck with a different path is welcome to comment on this Blog.

How did I determine if potential hires had the leadership skills to carry us forward?

First and foremost, I sought people who had the experience and ability to make things happen.  You can meet a lot of nice and talented people when you interview without effective screens.  Most of them will turn out not have the skills in hand to help you succeed.  It is important to set careful screens for your recruiters to ensure that only the candidates with required experiences and abilities get through.  Recruiters will bombarded you with candidates that are not quite qualified.  Do not waste your time or theirs doing an interview.

Next, look for people with positive, can do attitudes on life, ones that can pass these on to people who work for or with them.  You are running a start up.  People need to be adaptable, not complain every time a change is made in the workplace or to their assignments.  Ask if they like change, new challenges, constantly shifting requirements, etc. etc.  You will be surprised how many self select away from such an environment.  Recommend they interview at some big, stable corporation.

Look for people who really want to be on the team and pitch in to do what needs to be done. Beware the smart ass who uses the interview to nit pick your strategy and business model–unless they make some good points. But you still may not want them on your team if that is their normal modus operandi.  Lone wolfs or "do-it-myselfers" are also poor candidates for a small startup, or for almost any company.  Ask about verifiable team related accomplishments, especially ones involving cross company collaboration.  Most start ups today really need strong partner networks to survive and prosper.  Having leaders who can make this happen is a key requirement for an executive hire.

Candidates who make great leaders should also have a clear view of your industry, who are the key competitors, where the challenges will be going forward and how they think those challenges can be met.  Beware of "Internet knowledge" candidates. It is easy to do a lot of research on the web and sound impressive in an interview.  I always ask who they know in the industry and how they have interacted with them.  If they are dealing with companies and people who are leaders in the industry, confidence levels around their potential success in your company increase.

I always wanted people with high levels of personal integrity.  Although references are a great place to gain insight into this subject, I have found that open discussions with candidates on business ethics often yields some surprising answers–like the potential hire who told me that maximizing consulting revenue from clients was his greatest strength. On the surface, this was a good thing if you are hiring consultants.  But his idea of maximizing revenue was to underbid engagements to win them, then spend all his time up selling additional work to make up for the underbid.  Next candidate, please.

I never put a lot of stock in fancy degrees from top schools.  Don’t get me wrong.  Some of my best performers were Ivy League MBA’s.  But many more were from state schools, paid their way through college working nights at a UPS sort facility, did entry level manager jobs at top companies to learn the ropes of an industry, etc. etc. These guys had paid their dues and were ready for the next challenge. They did not think that the world owed them a living.

Finally, career failures should not an automatic rejection for a candidate. Remember Winston Churchill, who failed miserably numerous times while leading the United Kingdom, but turned out to be one of the greatest leaders of the twentieth century. Failure is OK if the candidate grew out of the experience.  Ask them why it happened, what they learned and how they recovered from the failure. If they blame other people and take little responsibility themselves, their failure may repeat itself in your world.

In a previous post, I outlined the three stages of managing a start up–managing for survival, managing for growth and managing for exit.  The management challenges varied widely across each stage and requires a different leadership style over time.

Managing for survival–Here is where the entrepreneur is usually at his or her best.  Each day has big challenges to solve, whether with securing funding, product beta releases, or landing those first few customers.  Key leadership skills include blatant cheer leading around the vision, the ability to extract investments from all sorts of distant relatives and an unmatched ability to charm customers into being guinea pigs. But seriously, early stage leadership does require a huge amount of faith on the part of the founders, enabling them to make skeptical employees, investors and customers true believers in their vision. The founders also need to provide the leadership discipline to set realistic release deadlines for their products and services and meet them without fail. The best way to describe the most effective managing for survival leadership style is the "worry wart" phase, where the entrepreneurs need to constantly check and recheck that all is being done right to achieve a successful launch.

Managing for growth–Once the launch clients have solutions which are creating value and new investors are in the fold, leadership priorities must evolve as well.  Leadership now must focus on building out sales and channel partner strategies, ensuring a stable and content workforce and creating effective marketing.  Here is where the passionate entrepreneurs must learn to back off and let other people run parts of the show.  Trying to have a hand in every decision is a recipe for disaster, and one many entrepreneurs fail to learn.  Why did you spend all that money hiring sales, marketing and customer support gurus?  To spend a lot of time second guessing their decisions?  Not a great strategy for success.  I refer to the managing for growth leadership style as the "letting go" phase, where entrepreneurs must learn to build the right team to take them to the next levels of success.

Managing for exit–Exits can be thought of in two ways: the departure of the founders for new adventures or the sale/IPO of the company.  In either case, the same leadership skills are required. The founders must continue to work hard in building the right teams, instilling a positive, achievement-oriented culture and creating a marketplace aura that they are the industry leading solution. More time need to be spent with customers, making sure that the current solutions are delivering on the expected results and that new solutions in the product pipeline meet or exceed their expectations. Another key leadership space is networking in the industry community with all sorts of private equity, investment banker and advisor’s who can help the leaders formulate correct exit strategies, or perhaps prepare for a new growth stage. But the most important part of leadership in this phase is spending the time with key people to develop the leadership team of the future.  I refer to the managing for exit leadership style as "preparing the next generation" phase.

Finally, recognizing when your company is ready to move form one stage of growth to the next is a critical skill all entrepreneurs must cultivate.  The best way to know when the company is getting ready for a transition among growth phases is to ask your constituents–customers, investors, and employees.  They all may have different ideas about whether a company is ready, but you should be able to assemble a good overall sense of readiness for transition from their insights.

Perhaps the most frequent question I am asked by CEO’s in my investment portfolio is how do I become a good, or better yet, a great leader? Leadership is an adaptive process, one that changes frequently during the life of a start up.  This post will be on the basics of great leadership. Whether it be a start up or multi-billion dollar corporation, the fundamentals are the same. In future posts, I will look at how leadership must evolve as the start ups goes through various stages of growth, Finally, I will examine how to hire people with the right leadership skills.

Leadership is both an art and a science.  The science part is knowing what you have to do to be successful–having detailed, quantitative information on customer/marketplace needs, for example.  The art is getting your people to do it–having them buy into the vision and understand the value both to them and your customers.  And I always remind myself that getting the vision right is often much harder than making it happen.  If you are wrong, then a lot of people are going to work very hard and get no rewards–not a good model for success.

The three core characteristics of a great leader are: having right vision, being able to effectively communicate the vision , and sticking to the plan to implement the vision.

Having the right vision is more difficult than it sounds: you need to have both a short term and long term views of where markets are going, for example.  You need to keep the long view in mind while being able to execute against short term goals, such as completing an initial product launch which may not have all the features in the long term vision.

A great leader communicates the vision early and often to all their constituents–investors, customers and their team if you are a start up.  Don’t assume people understand all the nuances of the vision.  You may think about them a lot and refine them constantly, but they may not. Constantly ask if people understand where you want to go and how you plan to get there.

The hardest part of leadership is sticking to the vision and the plan.  You face many challenges, are torn in many different directions and question the path you are on at times, but you hang in there to get it done. The best entrepreneurial leaders are those that have a fanatical focus on what they want to accomplish and politely exclude interesting, but distracting tangents.

A final attribute, and one often overlooked, is sharing the rewards.  Never let anyone feel that you are only in this for yourself.  Make sure that you make your investors, customers and people successful first. Unselfishness around rewards will bring you success, and happy team members.