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Not Being Penny Wise and Pound Foolish

Topic: Entrepreneur Evangelist,Growing Your Business | Comments (1)

Posted on December 22, 2009 by admin

Walking AwayI love startups. I love the chaos. I love the insane hours. I love the energy. I love the types of people who are attracted to work on high-risk ideas with long odds. I love the culture that evolves around them. I love it all. I have spent my career hopping from one startup to the next, because there is nothing I love more.

But every startup hits a tipping point, and it’s rarely articulated as clearly and beautifully as Steve Blank does in an article posted to VentureBeat today. The transition from a ‘scrappy startup’ to a mid-sized company trying to be more mature is always infinitely more painful a process than anyone seems to think is reasonable.

This surprises me every time I see it. In his story, Steve recounts watching a new CFO to a mid-sized firm implement a ‘no more free soda’ policy and inadvertently spark an exodus of the founding team of engineers. What’s more interesting, though, is that some of the comments posted on the story miss the point: the engineers didn’t leave the company because the company started charging them $.50 for a Coke. The engineers left because being charged $.50 for a Coke was a sign that the company was no longer the same organization that they’d previously been willing to sacrifice for.

That’s a subtle distinction, but a vital one. More than once, I and many of my colleagues, have been willing to take significant pay cuts to work in environments that had a culture (or other intangibles) that made the trade-off worthwhile. Eventually, though, most organizations change enough to where that trade-off ceases to be worth it. The part that is often upsetting, however, is that those changes are frequently sparked by someone coming in the door more intent on shaking things up than on understanding the culture they are walking into.

Steve’s story is one that I can relate to over and over again. It wasn’t until I had a truly remarkable executive come into our organization, and refuse to act precipitously, but instead insist on watching and interviewing the entire staff for his first 60 days, that I had the slightest hope of someone making positive changes without unraveling the cultural elements that held us together, even in the face of the chaos. So now, when I go into startups, many of which are at the transition point between early-stage/founding team, and their second generation, I have a five step approach I follow:

  1. Recognize that, for founding teams, everything is personal. The people who build a new organization take on a lot of risk and chaos to do it. They have to believe in it. It’s almost a religious experience, and you can’t come in a year or two later and expect them not to take your changes personally. Because, whether it makes sense to you or not, everything is personal. They’ve sacrificed too much for it not to be.
  2. Understand the evolution. You have to be a bit of an archaeologist when you go into a new business. Do not make assumptions about how they got where they are. If you look long and hard enough, talk to enough people, and do your research, you’ll find that even the craziest things you see have a reason for having evolved the way they did. Unless or until you understand that reason, anything you do to try to “fix” the situation runs the risk of alienating people unnecessarily.
  3. Respect the sacrifices made by the people who came before you. Unless you know that the people who are there when you walk in the door are dead wood and you want them to quit, make sure you demonstrate some respect to what they were able to accomplish — especially if they did it under tough circumstances. The single biggest source of alienation I have ever seen has been when new people come in, hot-to-trot, making changes and the people who built the company in the first place are treated like morons who simply got lucky.
  4. Work on depersonalizing the business. It is reasonable that early stage startups are often personal sacrifices for people — they need to be. But a maturing company has to pass the point where that is no longer true. Not all of the early stage team will be able to handle that transition, but many of them can and will if they do not feel kicked in the teeth by new leadership brought in from the outside. Slowly building in an ethic of, “It’s not personal, but this is where the business needs to go now” is actually often much easier than people assume it to be. Founding teams want the business to be successful. That was the whole point for their sacrifice. If you want or need them to stick around, then help them learn to take a step back and not see the evolution of the business as an emotional affair.
  5. Facilitate relationships between the old guard and new guard. Not all of the old guard is (or should) make the transition to the new phase of the business. And not all of the new guard is capable of showing any respect for what the old guard has done. But if you focus on individuals, their talents, and understanding what drives them, it is often possible to help connect people in ways that build strong teams to move the company forward. But you must keep in mind that there is often an automatic lack of trust between both groups, a tendency to point fingers, and a common tradition of resentment that you must work through before you are going to see progress.

Businesses are made up of people. And not every person is right for every business at every stage. Some really do need to move on as an organization grows. But that should be a deliberate, well-considered decision, not a haphazard, expensive mistake spurred by a short-sighted, penny-pinching reason. Unfortunately, that’s the cause I’ve seen most frequently throughout my career. And it’s a bit tragic, because a lot of dynamic organizations have lost a lot of amazing talent that could have helped grow the business and make it successful.