What start-up CEO’s, Boards and Shareholder can learn from the US election
Given that I am an outsider, I recognize that by commenting on the US Election in a polarized political environment, I risk offending someone. So with my apologies given in advance, here are four observations of what start-up's can learn from the US election…
1. Don't make your CEO re-interview for their job every 4 years.
Consider the challenge facing every US president. Like every job, it takes some time for a new President to learn their job and get their team working together. Consider Tuckman's model of the Stages of Group Development (often referred to "Forming – Storming – Norming – Performing"). Assume for the first year of a new Presidency, the Administration is progressing through the Forming and Storming stages. That leaves three productive years to accomplish their goals. Now take away the last fifteen months as the President's attention is distracted and their Administration is overshadowed by the coming election and the intense campaigning cycle. The effective time for the Administration is now less than two years.
So what is the analogy for Start-ups? Like the Presidency, Start-up's are not immune from Tuckman's model and will face distractions of team dynamics as they hire (and possibly fire and hire again) their team. The CEO will also face distractions as they deal with the ebbs and flows of confidence that the Board has in them. The final major distraction is the effort every Start-up CEO faces each time they pursue the next round of investment funding. CEO's acknowledge this often takes 30% of their time and mental energy for a period of six to twelve months to complete a round.
So what can you do about minimizing these distractions? First is hiring the right team up front. The old adage "Hire slowly, Fire fast" argues for care in picking your team, but if you make a mistake, don't hesitate to deal with it quickly. Second, when you are raising money, if possible raise more than you need. Extend the time period between raises. Obviously, this is a trade off between taking more money at a lower valuation now and doing a second round later at a higher valuation.
2. Don't have 50 Shareholders, each with their own rules.
Coming from Canada where federal elections are uniformly run across the country with one set of rules, I still don't think I fully appreciate the complexity of the US system where each State sets its own rules for electing the President, Congress and the Senate. But consider the implications for a Start-up if it had 50 active shareholders, each with its own rules, needs and priorities. I have yet to see a company succeed with this type of diversity and dysfunction in its Shareholders and Board.
When raising money, be selective whose money you take. There is "smart money" where investors not only brings funds, but bring skills, domain expertise and networks that will increase your value. There is just "plain money", where investor bring funds but will likely be passive or at least not disruptive. Finally there is investment available that brings baggage with it. It can be disruptive and damaging to the focus and progress of the business. "Smart money" is great and "plain money" is ok, just avoid money with baggage. You don't need a "State of Florida" on your Board.
3. Focus on the Right Issues
Since Election Day, the issue dominating the news is the impending "Fiscal Cliff" in the US. Prior to election date, the issues that dominated the election were Big Government versus Small; Pro-choice versus Pro-Life; Second Amendment versus Gun Control; Pro-Israel versus Pro-Palestine; Universal Health Care versus Private Health Care; Keystone Pipeline versus Green Energy; and the list goes on including everything but the Fiscal Cliff.
Start-up CEO's can't afford to get distracted by the minutia. What are the two or three things that you have to get right in your business to succeed? Stare at these every day. Build metrics that tell if you are on track or not. Focus, Measure, Adjust, Re-measure. Boring stuff, but that is what makes successful companies. For example, don't be concerned about what should be your brand strategy or whether to re-write your website if your "Fiscal Cliff" is that you will be out of cash within the next six months.
4. A company isn't a democracy
The President, Congress and the Senate have specific checks and balances built into their mandate and have to answer to their constituents, often through the harsh glare of the media, polls and ultimately on election day. Conversely, the Start-up CEO has greater latitude for un-democratic action. While they are accountable to their Board and ultimately to the shareholders, the CEO is usually the key person in the company and a great deal of the company's value is wrapped up in them.
The CEO was hired to lead. A smart CEO's leads their Board versus letting their Board lead them. The Board is there to advise, not operate. It can be intimidating for a young CEO to deal with their Board. If the CEO has done it right, the Board is usually made up of significantly more experienced and senior people than them. That said, these Directors are not full time, are not as close to the business and technology and are not as motivated or committed. Unfortunately, they are probably also "A" type personalities and like to be heard. Start-up CEO's need to work independently with each Board member, but especially the Chair to lead, educate, debate and build consensus. By doing so, Board consensus will emerge, usually in the direction the CEO believes is correct, but with improvements based on the Board's experience.