Why Start-Up Leadership Isn’t for Everyone

By Carl Hicks Jr., COO, Earth Class Mail

Participating in MOJO HD TV show Start-Up Junkies™ was a unique experience for our company. When we started out, there was concern that the producers would either overemphasize the fun and excitement or underemphasize the constant risks and stresses of start-up life. In the end, I think they probably struck a reasonable balance between the light and the dark sides, with perhaps a little too much invented drama -– but hey, television has to be made interesting or no one will watch it. It’s hard to make our workaday reality of endless meetings and emails compelling for television viewers, so hats off to the producers for finding a way to make the show interesting.

We’ve received many fan letters from viewers, usually falling into one of two categories: A) I’m doing a start-up now or have done start-ups before and love how your show illustrates what that’s really like, or B) I’ve never done a start-up but it looks like so much fun compared to the big company scene that I’m itching to go start one. This blog entry is for the folks who might fall in the latter camp.

Assuming that anyone could thrive in a start-up environment is like assuming that everyone who enlists in the Army will qualify for Special Forces. It is one thing to work at a start-up… that just takes a certain tolerance for financial risk, long hours and a highly ambiguous conception of what needs to get done each new day. The reality is that most people aren’t cut out for start-ups, even if they think they are. It is another thing altogether to lead a start-up to success, and a whole other thing again to lead it through to each consecutive inflection point of growth.

Start-up leadership is far more challenging than leading a department in a large corporation, where funding and resources may be more plentiful, and the risk of failure is that your team members may have to transfer to new jobs in other divisions if you fail to deliver them to the Promised Land. Investors in public companies will rarely ever even know when an entrepreneurial project was started, much less failed, and aren’t likely to hold the head of the group accountable for the destruction of their equity value since it will often be meaningless in the context of hundreds of other bigger swing factors involved in public-company valuation.

When a start-up fails, the top leadership, such as the CEO and COO, assume personal responsibility for the disruption to the livelihood of the families of all their employees who were laid off, usually after receiving drastically reduced pay (if any) for a long period of time — and of course for the investors’ lost capital. A start-up leader is gambling on future reputation. If they succeed in delivering a good ROI to their investors and employees they will forever have a powerfully affirmative mark on their resumes for any future job or new start-up they attempt to launch. If they fail they may find the adventure to become an even more powerfully negative mark on their resumes — and depending on how bad the failure, may find it difficult to raise money or recruit team members to any future start-up venture. (This last element varies widely by geography. In places like Silicon Valley investors tend to look at an entrepreneur’s previous failures as stripes earned nevertheless — i.e., that experience, even failure experiences, count just the same if not more than successes, for at least you have learned the true costs of failure.)

What many people are unprepared for when launching a start-up is the demand on their leadership skills. Even if they have led large departments or large companies before, they are often shocked at how many of their skills learned in “less risky” environments are not transferrable to high-risk, ultra-high-stress environments. For example, say you ran a department of 400 people in a consumer-products company and your group wasn’t profitable. You might have gone back to your bosses and lobbied for more budget dollars, or you might have been able to find funds in other departments to be allocated to fulfilling some of your group’s needs, based mostly on the merits of your group’s project and without significant influence from things like the IPO market and the shiny-object-chasing whims of the venture community.

By contrast, a start-up going after the same product/market might have only 12 people, no support from an HR department to help you recruit, no finance department to take care of your accounting needs, or no IT department to equip your team with state-of-the-art computing and provide tech support. The start-up is on its own to fulfill all these needs, while trying to establish policies and procedures for the first time. It can be mighty challenging to conduct hiring processes while defining what your processes actually are… the proverbial “building the jet engine in flight.” Add to this the fact that a start-up is always facing a short cash runway, and if certain milestones aren’t met investors are likely to chop funding off and cut their losses. Every day is a fight for survival, something that big corporate folks are typically less accustomed to (yet, by the way, they will often try to debate that this isn’t true — that big corporate life is strewn with as many deadly landmines as startups — but they usually say this without actually having lived through a startup themselves!).

But perhaps the single most difficult aspect of start-up leadership is not the usual things you hear about -– like finding their market focus, obtaining funding, or putting out quality product in a rapid development cycle -– but what it takes to build a team of top performers who can scale with the organization as the business grows. Start-ups tend to be high-turnover environments. Start-up leaders must be comfortable with this reality, and must be prepared to release people who might normally survive the cut in a larger corporation. If they are unable to take the necessary actions to continuously hone their team -– whether by coaching the future superstars or removing swiftly those who won’t make the grade next year if not next quarter -– their company will likely fail to meet expectations. Failed expectations could mean outright failure of the business, or just a lower ROI than what was promised to investors when they backed the deal.

Statistically, most start-ups are led by unproven, first-time start-up leaders. And statistically, they fail the most often. In fact, the average successful start-up entrepreneur has had three to four failures under his or her belt before striking gold. Since there is no university program for teaching you how to build the next Google or Cisco, practically the only way to gain this kind of leadership experience is from mentors and the empirical knowledge you gain through trial and error. There are some good books out there, even some weekend immersion courses you could take, but don’t kid yourself — there is no substitute for actually going through boot camp and a few tours of service before taking on a critical leadership role in a start-up.

Running a successful start-up is indeed similar to building and leading a unit of Green Berets. According to Wikipedia, “Special Forces units are typically composed of relatively small groups of highly trained personnel equipped with specialist equipment and armament, operating under principles of self-sufficiency, stealth, speed, and close teamwork.” I’ve just never seen a better description of what it takes to lead a rapid-growth start-up to success.

The basic building block of a Special Forces organization is that of the “A Team.” It consists of 12 highly trained warriors whose mission is to be able to recruit and train and if directed, employ an entire battalion of indigenous fighters. Achieving this extraordinary degree of force multiplication is not easy, and interestingly, there are some parallels with some of the challenges faced in a start-up organization.

It should be no surprise that the knowledge, skills and abilities (KSAs) that are necessary at the squad level (approximately 10 fighters), are not the same as are those required at the battalion level of 500 fighters. The ever-present challenge for the “A” Team commander is finding the personnel with the inherent leadership ability that can be developed to populate the various leadership positions as the organization scales to become a battalion.

It is commonly known in the start-up world that the KSAs required of a handful of individuals in a start-up company are decidedly different than those required in a larger, more mature enterprise. As a result, considerable turbulence always ensues as the company grows, and this is much more pronounced if the growth is rapid. This can be mitigated to some degree if the start-up business leader carefully recruits with an eye towards those candidates with the broadest (vertical) degree of experience.

It has been my experience that most start-up CEOs collect a team around them comprised of people they already know and trust and are willing to work for free. The classic pattern is three guys leaving Intel together to form a new venture, together with the brother-in-law of one and a former co-worker of another. They come together because they like working together, have a similar vision of the opportunity, and are all willing to live off their savings and credit cards for a while. When I look at failed ventures I very often notice the same tight pack of individuals who started the venture were still largely together when it ended. When I look at successful ventures, most of the time I see that only a small number of original players are still in the management team by the time the company reaches $1M in revenue, fewer when it reaches $10M, and often just one or two, if any, by the time the company reaches $100M. The successful leaders often had to be more Draconian in releasing their friends or earlier hires to bring in the right people over time. This is very, very hard to do if the reason you started the company in the first place is to have a fun money-making venture with your buddies. Even though they may be working seemingly for free, that may not necessarily be the case. They could be costing the company greatly, due to a simple inability to scale.

Like military leaders, seasoned start-up entrepreneurs will build up their core management team by pulling in experts in particular disciplines they need covered and fellow comrades who survived and thrived together with them in previous rapid-growth start-up environments. Similarly, a Special Forces commander is not going to take a group of newbie recruits with nothing more than textbook knowledge and conventional training and place them into harm’s way with a superhuman mission to accomplish. Successful start-up leaders realize that they can’t expect to beat the odds of failure unless they start with at least a few seasoned veterans at the top, brought in because they’re the best people for the job, not just because they were willing and available to work for cheap. But more importantly, along the way they will constantly monitor for weaknesses in the team and make the necessary upgrades as early as possible. There is fundamentally less time to “see if Jimmy can figure it out on the job” than at a large company. If Jimmy’s been coached once, maybe twice, and still can’t perform, Jimmy has to go, even (or especially) if he’s your COO’s brother-in-law.

About the writer: A retired U.S. Army officer and combat veteran, Carl served in various command and leadership positions from the infantry squad to army group level for nearly a quarter of a century.

May 16, 2008 | Filed Under Start-Up Junkies 

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