Category Archives: Team

Closing the Loop

Today, I am currently an advisor/mentor/investor in 10 early stage start up companies, 3 accelerators and 1 venture fund. I pride myself on spending a lot of time with each company and getting as involved as possible, in many cases having projects assigned to me. Regardless, I am regularly shocked by a simple fact:

Only one of these companies sends me a regular update.

I know I shouldn’t be shocked, as the early days of building a company are hectic and busy so updating advisors and investors is never a high priority. There is also a natural fear of bad news, so if things are not going extremely well it is easier to say nothing than admit things are hard.

Unfortunately, the side effect of a lack of updates is that I’m not as engaged as I could be. As a founder you live through a hundred battles everyday, but if I never see them then I can’t understand. For all the time I spend with a company, not knowing about the struggles, the victories and the defeats means that when I do help it is with only a limited perspective. Even worse, I have no idea if the advice that I provided proved useful as I rarely get told the end results of any given decision.

But it’s not the fault of these companies. Almost all entrepreneurs are really bad at closing the loop.

Closing the Loop

One of the fundamental components of Corkscrew_(Cedar_Point)_01continuous improvement is feedback. If you don’t know how you are doing today, you can’t get better tomorrow. Modern engineering processes such as Scrum or Kanban encompass feedback as a core part of the process through the use of retrospectives. This is why the engineering teams at many startups are the best run teams, since they have a clear and well understood process to follow. So what of the rest of the company?

The best way to make sure your company is focused on continuous improvement is to make sure you always close the loop. For every decision that’s made, for every goal that is set you check back on it in the future to see whether it worked. Did that strategic partnership pay off? Did you meet your goal of 10% weekly growth? Make it part of your company culture to always review decisions and goals in the future, and learn from them.

All companies make decisions and set goals, but surprisingly few will review them on a regular basis. Many start up board meetings involve a review of key metrics, but not a review of key decisions and how they worked out. If you don’t review the decisions you made and the results of those decisions, what do the key metrics matter?

It can be scary to review past decisions since many of them will not work out well. However, fear of bad news will slowly paralyze your decision making because it will evolve into fear of failure. If you develop a habit of sharing news, both good and bad, you will feel a weight lifted from your shoulders – the weight of that fear.

Communication as a Core Competency

Making sure your team closes the loop is easy if you’ve set communication as a core competency of your team. If you have done that, then you already have plenty of tools and structures for communicating, you just have to make sure you communicate retrospectively.

Some examples of how you can close the loop:

  • Regular Updates. Send regular updates to your team, investors and advisors on your progress that review the results of key decisions (Leo has a great template for these kinds of updates that is short and easy). These serve not only to update the team around you but force you to put in writing what has worked and not worked on a regular basis.
  • OKR Reviews. Many companies use OKRs, but not many have regular public OKR reviews. Such a public review of individual OKRs should not serve as a punishment or a reward, but instead a chance for everyone to learn from what worked and what did not.
  • Waterfall Financials. When projecting your company’s financials, the only guarantee is that those projections will change (a lot). Keeping track of changes in your projections will help you understand the flaws in your forecasting models and waterfall financial reporting is a great way to do that.

The best way to make sure you are closing the loop is to make it part of your corporate culture. Any decision that gets made comes with a report on how it faired later. Remember, the goal of closing the loop is not to punish failure but to learn from your mistakes.

We all make plenty of mistakes, why not turn them into assets?

Image made available via Creative Commons by Coasterman1234.

The Snowball Effect

I spend a lot of my time advising 113026147_9ce84baa38_zand mentoring entrepreneurs, including coaching at three awesome accelerators. Since almost all the companies I work with are at the pre-Seed stage (translation: very very early), I end up hearing the same questions quite a lot. They are, in order of frequency:

  1. How do I convince my co-founder to quit their job and join full time?
  2. How do I close my first customer?
  3. How do I raise my first seed financing?

These are very fundamental questions for building your business, so it’s no surprise they come up so often. The good news is that the first step towards answering any of them is exactly the same: build up your snowball effect.

The Fear of Being First

If you turn around each of those questions, you realize that the person on the other end represents a first for your company. You are trying to convince the first employee, the first customer or the first investor to believe in you. Being first, while exciting, brings with it the most risk since you clearly have not proven your business if they are the first. Most people have a very justifiable fear of being first which makes it hard to convince them to take that first step.

However, you need to have a first because if you don’t then you will never have a second, a third and so on. So how do you overcome that fear?

The Power of Momentum

One of the best ways to overcome the fear of being first is to use an even more powerful force: the fear of missing out. The more momentum you build up for your company and the more progress you make before asking someone to be the first, the more likely that they won’t want to miss the opportunity. You want to make your company move as far as you can as fast as you can to make it an attractive bandwagon for people to jump on.

Having a brilliant idea is not enough. If you have a brilliant idea and nothing else, nothing separates you from the hordes of other dreamers whose dreams will never see reality. An idea has little value itself, you need to turn it into reality or at least as real as you can make it.

So, how do you get that momentum going in the early days? You don’t need to build a finished product (although that works well), there are many ways to build momentum without a product:

  • Invest In Yourself. You should be investing in your own company, using your own money. The more you invest, the more you will show commitment to your vision and building your business. You cannot ask others to invest or believe in you if you cannot demonstrate that you believe in yourself. It only costs a few hundred dollars to form a legal corporation – how much more than that do you believe in yourself?
  • Prove Demand. One of the most important things you can do in the early days of your company is prove that your idea has customer demand. Building a product can come later, but you can start by talking to prospective customers, industry experts and investors about a product and how much demand exists. The more you can quantify and prove there is demand, the more likely you are to convince others that your idea has value. Along the way, you’ve also lined up a list of prospective customers that make your company seem a little less risky for employees and investors.
  • Sell Your Friends. There is no rule that says your first customer(s) need to be strangers that you cold call. In fact, almost all successful companies start out by selling to friendly customers whom they knew well before they got started. YCombinator, one of the best accelerators, goes to great lengths to get their companies to become customers of each other to overcome the first customer problem. This strategy won’t scale, but it will get you started.
  • Spread Your Message. While your idea might not have value, communicating about the problem you are solving and building a voice in the community does. Set up a blog, join Twitter and start a mailing list to talk about the industry, market or problem. The more you participate in the discussion the more you can start to build your company’s brand even before you get started.

Most of all, be creative. I know non-technical founders that hired people to stand in front of conferences wearing sandwich boards to raise awareness of their company which had no product. I’ve seen founders hire armies of people on oDesk to gather hard to find data on the web to create valuable industry blogs. Even Mattermark, a great market data start up, got started from a blog post.

Accelerators are in the business of helping you build this momentum, at the cost of a small amount of equity. Many accelerators require that you have a working prototype, but if you do have a prototype they can give you a big boost of momentum and help you get past a lot of these early hurdles.

The Snowball Effect

So, what is the snowball effect? The great thing about building up your momentum is that it becomes a virtuous cycle if you can maintain it. You are more likely to raise your first investment if you can close your first employee, which in turn makes it more likely to close that first customer. Then it becomes easier to hire that second employee, close the second customer and so on. Eventually, making progress on all fronts makes it easier to make more progress on all fronts.

That is the snowball effect. Just like a snowball rolling down a hill, the more momentum you have the larger you can get and the more momentum you will get.

All you need to do is start the ball rolling.

Image made available via Creative Commons by redjar.

Speaking, Fast and Slow

Avoid the trap of thinking everyone sees the world the same way you do.

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I belong to a great science fiction writer’s meetup here in the bay area and we have a problem. If you’ve never participated in such a group, the format is simple: each month a few members submit pieces they have written and everyone else in the group reads them. Then, the group meets to provide feedback and discussion for the author.

As with any group of people, there is a wide variety of personality types in this group. There are introverts, extraverts and everything in between. Finding a format that allows everyone to participate in the meetings each month is very hard. If you give every person a turn to talk by going around in a circle, everyone participates equally but there is no discussion and the meeting is very slow. If you have an open discussion, the extraverts dominate the discussion and the introverts are alienated, often choosing not to participate. How can you get everyone to participate effectively? That is the problem.

By the way, this is a problem you have at your company as well.

Personality and Productivity

One of the most popular personality type classification is called the Myers-Briggs Type Classification (also known as the Myers-Briggs Type Indicator or MBTI). While it is hard to quantify human personalities, the Myers-Briggs system uses four different characteristics, each of which have two values. This creates sixteen different possible personality types to which a given person could belong.

Of those sixteen types, none comprises more than 14% of the US population. That means that any group of people larger than one is likely to contain at least two different personality types. Your company of 100? You probably have most of the sixteen represented.

This is good news. Teams comprised of people with different personality types are more effective, assuming they complement each other. Homogenous teams tend towards group think and difficulty defining roles, while diverse teams can provide multiple points of view and more easily fill complementary roles. In short, you want to have a lot of different kinds of people on your team to succeed.

Even people with neurological disabilities, such as autism, which may prohibit normal social interactions can be critical members of successful teams. For example, many autistic people excel at detail oriented repetitive tasks that others might find boring, such as data entry or quality assurance testing, and there are consulting companies set up that allow you to hire autistic people for such tasks.

Designing Teams

Since having diverse personality types makes your teams more effective, you need to make sure that your company is set up to recruit and empower a diverse group of people. Some simple ways to get started:

  • Watch for Personality Bias in Recruiting. It is often much easier to get along with someone of the same personality type, which is why you are so similar to your friends. When recruiting, this can cause you to favor people who have a similar personality type even if someone else might be a better fit. Make sure your entire interview team keeps an open mind and considers all the factors, not just personal affinity for the candidate.
  • Mix Up Your Teams. Just as you will gravitate towards similar personalities when recruiting, social groups of similar personalities will form at your company. Be careful not to let these social groups become teams or else your company will divide itself into personality driven teams. On a regular basis, change the composition of your teams so everyone has a chance to work with a different group of people and watch for productivity gains. It should be clear when you have a good team that clicks together, even if they are very different.
  • Have Many Ways to Communicate. Not all people do well in group discussions and not everyone will speak up when they have a problem. Do not rely on town hall meetings and group message boards to be the voice of all your employees. Make sure your leads speak to their people one-on-one and ask how they are doing instead of waiting for them to complain to you. Make sure employees have ways to express their ideas that does not require them to overcome a fear of public speaking. Don’t just tell everyone that you have an open door policy and wait for them to come to you, you should go to them.
  • Recognize Great People, In Whatever Form They Take. It’s always easy to recognize the star salesperson that everyone loves, but what about the quiet engineer that works long hours and does amazing work while keeping to herself?  Make sure your company is set up to recognize contributions of all kinds so that everyone feels involved and appreciated. Remember that not everyone will be appreciated in the same way, either, so buying wine for someone who doesn’t drink alcohol might not go over well.

The most important thing you can do is to avoid the trap of thinking that the other people in your company see the world the same way you do. It is easy to use yourself as the prototype for your employees when you make decisions about the work environment, processes and communication but that will often lead you astray. Always ask instead of assuming.

I take all of this one step further and seek out people who have very different personality types to mine. I find that such people keep me out of my comfort zone and constantly challenge my assumptions, while often succeeding in changing my mind about important matters. I would rather work with someone where I need to put effort into our professional relationship but I feel that I am at my best, than someone where working together comes easily but I get lazy.

So, What About the Writing Group?

I honestly don’t know what the solution is for our writing group, and I fear that it will inevitably disband as most volunteer and unstructured groups do. However, as testament to the positive impact of diverse personality types, we are tackling the problem head on by trying different kinds of formats to see if we can find one that works. In the meantime, the extraverts try to be less extraverted and the introverts try to be less introverted and we all learn something along the way.

The title of this post is in honor of the great book Thinking, Fast and Slow by Daniel Kahneman, one of the founders of behavioral economics. The image was dedicated to the public domain by Mamoru Masumoto.

Who is in charge?

In the early days of starting Flurry, my co-founders and I made all of our decisions by  consensus. It wasn’t hard, since we had similar opinions and were spending all of our time in development which we knew very well. The camaraderie of working together late nights and building something new fueled the excitement we had about our new path of entrepreneurship.

After about six months, we had a working product and were thinking of raising our first angel funding. One of our friends, a venture capitalist, offered to listen to our pitch as practice before we presented to potential investors. We spent a long time putting together the perfect pitch for our business and practiced it until it was second nature. When we pitched our friend the VC, he listened to the pitch, asked questions along the way and seemed generally impressed. Until, at the end, he derailed our entire company with a single question.

“So, who is the CEO?”

That question hit at our biggest weakness which we shared with most first time entrepreneurial teams. But before we talk about why, let’s talk about making decisions.

Democracy vs. Dictatorship

Democracy and Dictatorship are both ways of making decisions for groups of people. Democracy requires a majority to agree before a decision can be made which means a democracy makes fewer decisions, but will avoid making very bad decisions. In contrast, a dictatorship consolidates all decision making power in a single person allowing it to make many decisions very quickly, but with a higher chance of very bad decisions.

For a government, avoiding very bad decisions is the primary concern and the cost of not making any decision at all is often low so democracy thrives. However, in the military where there is a premium on making decisions quickly and it is dangerous to make no decision at all,  dictatorship is used. The decision making framework needs to match the needs of the organization making decisions.

Companies are much like armies, where the premium is on making decisions quickly. You have limited time to execute your plan before you run out of funds, your competition picks up or the market moves. Making a decision quickly and doing something, instead of endlessly debating, is critical to your success.

Companies need CEOs

When we were getting started in those early days, we put off the decision about who was in charge because we were friends first and co-workers second. While I carried the CEO title, I did not act like the CEO nor did everyone treat me like a CEO. This was a dangerous thing to do, as I have seen teams fall apart after 6-9 months fighting about who should be the CEO and I am glad we survived.

Had we been clear about the CEO authority day one we could have set up the right decision making frameworks from the beginning, and avoided any chance of decision paralysis if the team disagreed on what to do. As it was, we had to change the way we made decisions which slowed us down during a critical period of the company.

Note that just because the CEO has ultimate decision making power does not mean they make all the decisions. A good CEO delegates decision making to his team as much as possible, and the best CEOs make sure their teams feel ownership of all decisions even if they don’t make themselves. Still, it is not always possible to make everyone happy with every decision which is the hardest part about being a startup CEO.

Who is the CEO?

I am glad that our friend asked “Who is the CEO?” because it forced us to confront the question of authority very early in the life of our company. It was also a wake up call to me, as the CEO, to step up as the leader I should have been all along. The team also needed me to become that leader, as it allowed us to move more quickly and overcome some of the challenges we had faced.

And it prepared us for the even harder journey ahead.

This post originally appeared on the FounderDating blog as a guest post.

 

Location, Location, Location

 

city

It amazes me how many people cling to the romantic notion of starting a new business in their garage. Garages are typically full of stuff (including your car), poorly lit, and cold due to a lack of insulation. Your garage is also attached to your home which means you’ve chosen a location for your business based on where you live right now.

That a dangerous mistake.

Even if you are not starting a retail store or a restaurant, location is an important factor in the success of your business. It might not seem so at first when it is just you, your laptop and a phone working from a coffee shop. However, if you are successful and need to grow then you want to make sure you are in a city that facilitates your growth. Just like natural resources fuel economic growth, your company will need business resources to grow.

Three common business resources that depend on your location are: Employees, Financing and Customers.

Location Based Employees

Assuming your business takes off, you will want to grow your team quickly. This might mean hiring engineers, artists, sales people or simple manual labor. Whatever kinds of employees your business calls for, you want to make sure you have a ready supply of candidates in your area to fill those positions.

It is not a coincidence that you find many companies in the same industry gravitating to the same city. Companies in the same industry hire the same kinds of people, and often away from each other. This creates a liquid workforce where you can quickly scale up when you are successful by drawing from employees at larger companies in the same industry.

The major drawback to being in close vicinity to many other companies in the same industry is that your employees are more likely to be poached by those companies. Ideally, you want to find somewhere with enough density to make hiring easy but not so dense that employees will switch jobs every six months.

Location Based Financing

At some point your company will require outside capital to continue to grow. Despite the global nature of business these days, most early ventures are initially funded by local investors. There is so much risk in early ventures that investors focus on the people more than the business and to do that they need to meet you in person. Of course, to be funded by locals there need to be locals that invest in your kind of business. While there may be investors in your city, if they don’t typically invest in your kind of business you will have an uphill battle to raise money.

Put simply, you want to be in a business that your city is in already. It’s easiest to raise money for a high tech company in San Francisco and for a new hedge fund in New York City but if you need to finance a new farm both places will prove difficult.

You want to be in a business that your city is in already.

The good news is that if you’ve already chosen a place with a large pool of potential employees, chances are that they work for competitors and those competitors have raised financing already. That means you might already have an educated investor community.

Location Based Customers

While you can reach customers by email, phone and even video these days there is no replacement for meeting your customers in person. Sales is still a very human activity and your ability to sit down with potential customers and understand their needs will be critical to your success. While you can’t work in the same city as all of your customers, you want to be close to enough of them to fuel your early sales and product development.

Another added benefit of being close to your customers is that other companies who service the same customers will be there as well. This means you will have more opportunities to develop partnerships (and potentially be acquired).

Moving On

The reality is that any location you choose will never be perfect. Whether to move your business, or even your home, somewhere new is a decision that you will need to make after weighing the facts. It is possible that the potential of easier financing is outweighed by your desire to be near your family, which is a very logical decision. However, realizing that limitation up front means that you can plan ahead and work harder to overcome it.

Thanks to Evan Cooke for inspiring this post. He promised me a job cleaning his yacht in exchange for covering the topic. 

Photo made available via Creative Commons by Jim Trodel on Flickr

Recruiting is a form of Sales

Starting on the first day of your new company, 3118776394_d88167cc3eone of your most important jobs will be recruiting a team around you. That includes co-founders, employees and even your supporting cast like lawyers and accountants. Anyone that works on behalf of your company is someone you will need to recruit as the best people always have many options available to them.

Many people think of recruiting as interviewing. The traditional model for recruiting is to write a job description, field resumes and then interview candidates who need to prove you to that they deserve the job. If someone does, you offer them the job and they accept it. It is a very self-centric way to think about recruiting because you focus on your own need instead of the needs of the candidate. It is also a great way to fail.

Recruiting is a two way street. You need to make sure that the candidate can do the job but you must also make sure they want the job. It is critical that you make your recruiting process equal parts evaluation and selling so that you maximize the chances of closing the best people. The best way to think about recruiting is that every single candidate that talks with you, whether you hire them or not, should walk out of your interviews wanting to work for your company.

Every single candidate that talks with you, whether you hire them or not, should walk out of your interviews wanting to work for your company.

So, how do you sell your company during an interview?

Selling your company to candidates takes practice and the successful sales pitch will vary depending on the candidate. Note that selling your company is not the same as allowing the candidate to ask you questions. Selling is proactive. Sales people exist specifically because you cannot expect customers to just throw their money at you, in the same way you can’t expect candidates to magically want to work for you.

Here are some ways to make sure you make the case for your company:

  • Ask the candidate what criteria they are using to select their next job and take the time to understand them. Then go through that criteria one by one to show how your company not only meets the criteria but well exceeds it. Listening to the candidate and understanding their perspective is always better than just tossing around the same talking points.
  • Emphasize what makes your company unique, something they can’t get anywhere else. Is it the culture, the technology, the customers? Whatever it is, make sure the candidate has a strong association between your company and your unique characteristics.
  • Give anecdotes about why other people (including you) have chosen your company, and what their life has been like after joining. People love to hear that others who made the same decision worked on cool projects, got promoted quickly or were able to do things they have never done before.
  • Make it personal for them. Talk about how their background makes them the perfect fit for your company and how they will make your company more successful. Candidates that feel like you know them and value them will build a more personal connection.

When making the case for your company, remember that repetition is the key to marketing. If you feel that something is really important for them to consider in their decision, don’t be afraid to bring it up a few times.

It should go without saying, but it is more important to be honest than persuasive. If you lie to a candidate, and tell them what they want to hear, it will inevitably come out and cause more harm than good. Most candidates would prefer to hear the honest story of your company, both good and bad, instead of only the good or lying about the bad. You will be surprised how persuasive the truth can become.

Square Peg, Round Hole 

Even after making your case effectively, you still might not be able to convince an amazing candidate to join your company. Often, this is because the job you have is not exactly what they are look for in their next job. This is where selling becomes front and center in your process because a sales person never goes into a customer with only a single product to sell them. Being flexible and adapting to customer challenges is what makes effective sales people.

If you are faced with an amazing person who you want on your team, you should not be afraid to change the job or create a new job that better matches what they want to do. If the person is an engineer who wants to do product management, and you think they can, create a hybrid product/engineering position. If the person is in sales but wants to do marketing, create a customer development job where they can do both. Truly amazing people are few and far between, so if you find one you want them on your team in whatever form that might take.

Recruiting is a team sport

In the end, candidates will meet some if not all of your team as part of the recruiting process. If you are the only one selling, then your chances of closing a great person are low. Everyone on your team should be following these same guidelines and making the case for your company at every step of the process.

Go through your own recruiting process yourself so you see it from the candidate’s perspective.

Don’t assume that people on your team know how to effectively interview and recruit, be sure to train them and help them practice before talking to candidates. One great way to do that is to go through your own recruiting process yourself so you see it from the candidate’s perspective.

There is no substitute for a great team. More than anything else you do in starting your company, recruiting your team will have the biggest impact on your future success. If you are successful in building an amazing team and make sure they are happy in what they do, your company will start to attract more amazing people who want to be part of a great team. When that happens, you have made your team a competitive advantage – one that will pay huge dividends down the line.

Image made available via Creative Commons by BFI Business Furniture, Inc.

Hire Before Its Too Late

Hiring is a lot like fighting a fire, if you wait too long to deal with it then it might have already burnt your house down. In the early days of your new company (even when it’s just you), there are always a ton of great reasons to wait on hiring. You’ve probably thought to yourself:

  • I can’t afford another salary right now.
  • There isn’t enough for another person to do.
  • I really need to do this myself to make sure it’s done right.

All of those sound like reasonable justifications for not hiring, but they are really just excuses. Hiring is intimidating, time consuming and hard to do well so you will avoid it as long as you can. At the same time, it is one of the most critical factors in your success.

To be successful, you need to be able to make the decision on who to hire and when.

The Power of Focus

A very good rule of thumb for who you need at your company in the early days is that every essential function at your company should have at least one person whose entire focus and responsibility is for that one thing.

Every essential function at your company should have at least one person whose entire focus and responsibility is for that one thing.

While the term “essential function” might seem vague, it covers anything that your company MUST do well to succeed. For example, if you are counting on your launch to have a big impact there should be someone on your team who is solely focused on the launch. If you are scaling up a complex software platform, someone should be solely focused on scaling. If you are raising funding, someone will be spending all of their time on fundraising. The person assigned to each task might be the CEO, a co-founder or an employee but it needs to be someone.

Why is it so important to have someone dedicated to that function? Can’t you just split the work among the team you have? Sure, but then you are splitting focus and accountability. If you have two top priorities you will only spend half of your time on each and hence do each half as well as you could. Having a sole priority means that someone will do a great job and be held accountable for performance with the rest of the team. If something is essential to your company’s success you cannot afford to have someone do less than their best.

Does it mean everyone only does one thing? No, but every essential function needs a dedicated person. If you have as many people as essential functions then, yes, everyone has only one thing to focus on. Perhaps that means you should hire some more people.

The list of essential functions is entirely up to you and very dependent on your business. However, it should already be reflected in the top priorities for your business that you review with your team regularly and are baked into everything that you do. If you have a top priority that does not have a dedicated person next to it, then it’s time to start hiring.

Get a Head Start

Even if you have made the decision that you need to hire to fill an essential function, you can still fall into the trap of putting it off. You will be busy in the chaos of building your business and with all of the short term urgent issues the long term benefits of hiring seem easy to put off.

However, putting off hiring is a dangerous trap. If you don’t anticipate and hire ahead of your needs then you’ll find yourself stalling out and suffering later. You can’t just snap your fingers and make employees appear after all. Consider that even if you decide to hire someone tomorrow you still need to spend the following amount of time:

  2 months searching for the right candidate
+ 2 weeks notice at their current company
+ 1 month training before they are productive
  ----
  3.5 months lead time

And that assumes they don’t take any time off between jobs. For sales people you need to assume another 2 months after training before they are productive because you can’t close deals the minute you start selling. That means that you need almost 6 months lead time before sales people will be productive after you decide you hire one.

To put it in perspective, let’s say you are an enterprise sales driven company (revenue is derived from sales people) and you have a revenue forecast that has you growing by 10x in nine months. Your hiring plan should reflect that you need to grow your sales team by an equivalent amount and account for lead time before they become productive.

Hiring Ahead Correctly (1)

In order to meet your aggressive nine month revenue growth plan, you need to start recruiting aggressively in the next three months with the goal of hiring one new hire in month 3, 2 in month 4 and 4 in month 5. This assumes equivalent production per salesperson which is a safe assumption and plenty of lead time for both recruiting and on-boarding.

If you had taken a conservative approach to hiring and only hired 1 sales person per month, you would have failed before you even started. Nine months later you would wonder why you are falling short of your plan and why it’s taking so long to ramp up your team.

This example uses sales people, but the same principle applies to engineers, marketers and every other part of your business. If you don’t think you can hire enough people to meet your plan based on the lead time to productivity, perhaps you need to revisit your goals. If you MUST reach your goals, then you better hire ahead of the goal.

Hiring is Selling

Even after deciding who to hire and giving yourself enough lead time, you will probably fall back on the final excuse: I can’t afford another person right now.

That might be true, very few new businesses can afford the salaries of their founding team and definitely can’t afford new hires. Regardless, that should not stop you. As an early stage company you can offer prospective employees things they can’t get elsewhere: large amounts of equity and the chance to be in on the ground floor of a huge company.

Many people work for start up companies for fractions of a percent ownership later in their lifetime when there is less risk. Many of those same people would jump at the chance to own a few percentage points of a new company, even if they need to work for much less salary or even minimum wage. Don’t worry about giving these people a generous equity package because they will become the leaders as your company grows, hiring and building teams of their own. You want them to feel as much ownership in your company as possible.

Also remember that as you become more successful, you will start paying better salaries. Someone who joins you early for a lot of equity and a low salary will eventually get a better salary, and still own their equity. Many people would take that trade and live off their savings for 6-12 months, especially the kinds of people you would want to hire.

In the end, hiring is hard and it’s easy to put off. However, the satisfaction you get from hiring great people to fill important needs for your business and see them contribute to its success is one of the best rewards.

You Are Your Corporate Culture

Corporate culture is an elusive thing. Everyone agrees that you need to have a great one, but no one can really define what it is and what makes a given culture “great”. You can read books about legendary corporate cultures like they have at Zappos, but the lessons you learn never seem directly applicable to your company.

How then do you build the kind of corporate culture you want?

In reality, you start defining your corporate culture the minute you start your new company. You might not even realize it, but the decisions you make (and more importantly how you make them) add up quickly into a culture. For example, do you:

  • Discuss major decisions with your team or delegate responsibility to one person?
  • Communicate status in person or through written documents (git comments count)?
  • Involve everyone in hiring decisions or just a small team?
  • Use outsourced help or not?

There are no right or wrong answers to any of the above, but as you choose you start to define your company. You make dozens, if not hundreds, of these decisions everyday in the first few months of your company and eventually they add up. As new employees join, they see the company as the sum of the decisions you have made which in turn shapes how they interact with the company and contribute to the culture. Eventually, a small decision you made early made can affect how a team of hundreds of people goes about doing their jobs.

With that in mind, you have three levers for controlling how your corporate culture evolves:

  1. The types of people you hire. When you first start you have no culture as a company, only personalities as individuals. Those personalities, and the decisions they lead you to make, will start forming the basis of habits which become process which becomes the lifeblood of your company. The best way to end up with a culture you want is to start with personalities you like and decisions that you want to stand by in the future.
  2. The decisions you makeThink about the culture you would like your company to have a few years down the road and make decisions that people at that company would make. Again, decisions become processes before you know it so be sure that any decision you make is one you would make again and again. Define a mission that can act as a guide for future employees who face decisions, like yours, that might shape corporate culture.
  3. The incentives you give your team. People will always tend to do what is in their best interest so it is important to align their incentives with not just what you want them to do but how you would like them to do it. For example, if you want a culture that values customer happiness, make sure that your sales people are not just compensated on closing the deal, but also on whether that same customer makes additional purchases in the future. With the right incentives in place you will find that the behaviors you want to encourage become part of the operating fabric of the company.

The best way to see if your corporate culture is growing the way you like is to test it on a regular basis. Challenge your team in ways that require them to lean on the culture of the company such as shuffling their responsibilities for a day. If everyone showed up tomorrow and had to do a different job than they knew, how will they communicate and how will they work together? It can tell you a lot about whether you are headed in the right direction.

Decisions become processes. Processes become habits. Habits become culture.

The good news is that if you succeed in building a healthy corporate culture it will become a virtuous cycle, as you will begin attracting the kinds of employees who want to be part of the culture you have created. Attracting more and more like-minded people will increase the strength of the culture even further, attracting even more people.

If you understand the culture you want to have and start, from the beginning, to lay a solid foundation it is likely that one day you will show up for work and have the kind of company you always wanted to build and a place where you love to work. That is one of the most fulfilling achievements of all.

Confidence vs. Arrogance

Starting companies is hard, and it is true that the world is out to get you. It is no coincidence that many of the most famous entrepreneurs and CEOs of Fortune 100 companies are borderline narcissists. In order to overcome the armies of naysayers you need a preponderance of confidence, bordering on arrogance. While everyone is telling you ‘no’, you need to continue to respond ‘yes’.

However, it is dangerous to cross that line. Arrogance can make you sloppy and lead to mistakes. You need to be confident enough to believe in yourself when no one else does, but humble enough to realize that you will only succeed if you execute flawlessly.

If you’re afraid you are near the edge, take the following quiz and find out if you are Confident or Arrogant:

1. Do you think or know that you are better than your competition?

Arrogant Answer: You think you are better than your competition because you have worked really hard, you like your product a lot more than your competition and imagine your customers must as well. This also applies if you think a great new feature you will release next week will change the market overnight.

Confident Answer: You know you are better than your competition because a majority of your customers tell you that you are, or better yet if your metrics demonstrate it. You have done a full competitive analysis and understand your strengths and weaknesses as well as expected changes in the industry over the next twelve months.

2. Do you think or know that your employees are happy?

Arrogant: You think your employees are happy because you are happy and they seem to have fun around the office. You throw office parties and have social events on a regular basis that you enjoy, so they should as well.

Confident: You know your employees are happy because you ask them regularly. You understand why they like working for your company, where they aspire to go in their careers and are doing your best to help all of them achieve their goals. You still have social events, but you ask your team what they like to do instead of just doing what you want. 

3. Do you think or know your investors are happy with your performance?

Arrogant: You think your investors are happy because your metrics are improving and you are in a hot space. You assume that since they don’t ask many questions during your board meetings that you have already answered them.

Confident: You know your investors are happy because you have asked them about their expectations for your company’s performance and how it relates to their investment strategy. You brief them about important events ahead of board meetings and meet with them individually on a regular basis to get their private feedback.

4. Do you think or know you have enough capital to reach your next milestone?

Arrogant: You think you have enough capital because your revenues are going to increase and investors will be excited at the opportunity to invest when you start fundraising in a few months. Besides, you have plenty of money in the bank.

Confident: You know you have enough capital because you understand your cash flow model and have worked out the worst case scenario. Based on your current model, even if things don’t go according to plan, you will have 9 to 12 months of runway left when you start fundraising again.

5. Do you think or know you are not burning out?

Arrogant: You think you are fine because you are not afraid of hard work, eagerly working 20 hour days and weekends for 2 years. You feel so close to breaking through that if you push just a little harder for a little longer, you will get there. You don’t think your team performs as well when you are not around, so you work even harder.

Confident: You know you are fine because you have a support network that helps you understand how you are performing and you ask them regularly. You take regular breaks to decompress and gain perspective, while trusting your team to work in your absence.

So, how did you score? Over the years, I’ve both passed and failed this test many times.

It is easy to lose yourself in the day to day chaos of building your business and in doing so cross the line. It is easier to believe you will win because you are better than to make sure you are executing well enough to win based on your merits. Self-evaluation is a critical skill to develop to make sure you maintain healthy perspective.

Stay confident.

The 5 Minute Guide to Advisory Boards

“If we knew what we were doing, it wouldn’t be called research, would it?” – Albert Einstein

It is impossible to know everything that you will need to know to build a successful business before you start. While you should have some industry expertise, some experience building products and a decent understanding of start up fundraising there will be many twists and turns along the way that no one can predict. If you were to spend the time to become an expert in everything you might need, it would take dozens of years and you would never get started.

So, by definition, when you are starting a company you are in over your head. That is both thrilling and scary at the same time. Good luck!

One of the many ways you can increase your chances of success is to assemble a team of advisors for your new company. Advisors can fill in some of the gaps you have in your own knowledge and experience and provide outside perspective on important decisions. When done well, advisory boards can provide an invaluable resource for your company. However, done poorly they can provide a distraction when you can least afford one.

Step 1. Picking Good Advisors

When you are considering who might be a good advisor, here are some good criteria. They should:

  • Have expertise in at least one area that is at the core of your business.
  • Have a strong network to connect you to others when necessary.
  • Provide advice and insight that is thoughtful and specific to your situation.
  • Be someone who you like and respect.

If someone doesn’t meet these criteria they can still be an informal advisor, but it likely does not make sense to make them a formal advisor. Formal advisors have a formal relationship with the company because they can materially help the company succeed and you compensate them in some way for that. Informal advisors have a friendly relationship with you and can be helpful just like any of your friends. The difference is subtle, but in general formal advisors commit more time and effort on behalf of your company. Whether you need formal advisors for your company is completely up to you, but most successful companies have at least a few formal advisors.

The good news is that almost everyone loves to be an advisor for start up companies. As an advisor you get to learn a new business, meet some passionate people and help work on new problems while not needing to invest a lot of time. It is rare that anyone, no matter how successful or distinguished, would turn down an advisory opportunity if they like you, find your business interesting and have the time available. So, be aggressive in recruiting advisors and don’t be embarrassed to reach out to someone you do not know.

Step 2. Setting Up and Advisory Board

Once/if you’ve identified some potential formal advisors you should give some thought to the overall advisory board. The name “advisory board” is somewhat of a misnomer as, unlike your board of directors, your collection of advisors is unlikely to ever meet together at the same time. Some key points when assembling your advisory board:

  • It should have at least 2 but not more than 4 members. You want at least 2 perspectives on important decisions but managing more than 4 advisors is too time consuming to be useful.
  • Expertise among the advisors should be well distributed. You want to cover as many areas as possible so you want a diversity of advisors since you don’t know what questions you might face. Having two advisors with exactly the same expertise would be a waste since they should, in theory, tell you the same thing.
  • Advisors should be compensated with between 0.1% and 0.5% equity (depending on stage and value they add). If an advisor isn’t worth that much you shouldn’t make them a formal advisor to the company. Equity should vest monthly over at least two years.
  • You should set expectations on how often you need their help and how much of their time you require. Establish this up front so there are no surprises on either side later. You should talk to advisors at least every quarter but likely not more than once a week (the more time you want the higher the equity would be as well).

The reason that you will rarely, if ever, have a meeting of all the advisory board members is that typically their experience is so varied as to make such a meeting unproductive. The best way to make use of advisors is to have them engage with specific problems and issues you and your team are facing that are within their area of expertise, as if they are an extension of your team. Treating advisors like members of the team usually creates the most productive chemistry.

Advisors should all sign advisory agreements that are a combination of the advisor contract and NDA. Your law firm should have a standard advisory agreement that you can use.

Step 3. Using Your Advisory Board

Now that you have an advisory board in place, it’s time to make use of them! It is easy to set up an advisory board and not utilize it effectively because of everything else going on around you, so it can help to make using the advisory board part of your process. A good use of your advisory board may look like the following:

  1. When a new advisor joins, have them present something from their area of expertise to your entire team. It is a great way to introduce them to the team and learn new things.
  2. Hold quarterly sessions with each advisor to either review the product roadmap, talk about your sales pipeline or brainstorm solutions to hard problems – depending on their area of expertise. Having this regular cadence will help build a habit of using the advisors.
  3. Encourage your team to connect with advisors directly over email with questions whenever they occur. Having a single point of contact for advisors will limit their usefulness and having them build relationships with your team will make it easier for them to help.
  4. Send regular updates to the advisors on progress your company has made. Since you are already sending regular updates to your investors and board members, you can just send a slightly watered down version to the advisors. The more they are up to date on your business, the more helpful they can become.

Remember that your advisors have their own day jobs and are likely very busy, so they don’t spend every waking minute thinking about your company like you do. You should be very specific in asking them for things and giving them clear ways to contribute to your success since it might not be clear otherwise. By their nature advisors want to be helpful so tell them explicitly how to be helpful.

Conclusions

Learning lessons the hard way can cost you time and money, adding additional risk to your already risky new venture. Advisors can help you avoid some of those pitfalls since they have already learned those lessons. It is also helpful to have someone on your team who can critique your pitch, challenge your assumptions or validate your decisions.

Since you are in over your head in starting a company, you need to give yourself every advantage. Having an advisory board is like having backup, they won’t make you successful but they can help when you need it.