In “People, Part 1”, I outlined the combinations of three key “inspection” characteristics of founding teams (professional, startup and industry experience) that favor startup success. These characteristics are “inspected” because they can largely be assessed from LinkedIn, resumes and surface discussions. They describe what people have done and achieved (outcomes), less so how they achieved those outcomes. The how, or “experienced” characteristics, matter tremendously for two reasons: first regardless of past outcomes, certain actions are more likely to lead to more good outcomes in the future. Second, regardless of future outcomes, certain styles are much easier to work with than others. Any investor will tell you they learned quickly to avoid difficult people and teams – the only thing worse than an unsuccessful investment is a dramatic one. Founders can rightly say that about investors too.
Experienced characteristics are observed and assessed over time working with a team, both pre and post investment. If you’re wondering why an investor is going slow or “hanging around the hoop”, it may be because they want to see “more traction.” Just as often, however, the investor wants to get to know you better. It isn’t unheard of for HPVP to go from first deep-dive meeting with a company to term sheet in 4 weeks, but that’s almost exclusively with teams we’ve known for many month or years.
In a series of interviews I did with top VCs to understand how they assess teams, I found the typical time a VC spends getting to know a team before investment ranges from 6 to 20 hours. Of note, this is only for a first investment. By the time a second investment comes around, time-with-team grows to 50 to 75 hours via accrual of board meetings, dinners, phone calls and email communications. The collaboration, strategizing and observation afforded in this time provides an investor priceless insight into the team they’ve backed and highlights why VCs make smaller investments upfront but reserve heavily for follow-ons. They know a lot more later.
If experienced characteristics are about how people achieve outcomes, then these habituated activities can be broken down into a set of five key actions:
The five actions that matter in startup teams:
Execute, Hire, Learn, Build Relationships, Communicate
Stories are more fun, so let me describe these actions in short vignettes from my experiences with great teams, both within and without our portfolio.
Execute: I met with a founder nine months ago. She had a great idea, no product and no customers. Her target customer is in the healthcare industry – a 9 to 12 month sales cycle I believed. After nine months, she had 4 signed customers, 3 operational already, with a strong pipeline to boot. She had assembled a team, launched a product, sold 4 enterprise customers and raised a seed round all in this time. Is the sales model repeatable beyond founder sales, will customers churn, will everything work perfectly? Don’t know yet. I do know she gets shit done.
Hire: One of our CEOs was looking for a VP of Finance and interviewed a large slate. Any of the candidates could do the job, but the CEO struggled to see the uniqueness and new perspective any would bring to the startup’s relatively young executive team. Along came an overqualified candidate who was considering CFO (not VP Fin) roles at larger and more prestigious startups. The CEO both recognized he had found a diamond when he’d been looking for gold and was able to attract this CFO to a smaller company. I have written several times on talent in “Walking the talk on talent” and “T is for talent”. Nothing speaks to a team’s potential like their talent disposition. Does talent follow them from past roles? Do they know the gaps they have on their senior team? Have they brought in senior people to take the company to the next level as it grows? Are they planning to? If so, whom?
Learn: The best founders are constantly learning – from experiences, customers, advisors and each other. After raising a post-seed round, one of our portfolio companies endeavored to design and ramp an inside sales team. The COO/founder had sold the product himself, but never hired or built a sales team. Three weeks, 15 phone calls, one optioned advisor/consultant (an expert in the field) and countless blogs read later, the COO was interviewing BDRs, designing training materials and writing scripts. This isn’t to say startup teams should learn how to do everything from scratch; I would much prefer that someone on the team already had sales ramping experience. Given they didn’t, though, this COO did an amazing and efficient job using outside resources to avoid mistakes others had already made, and it was much cheaper than hiring a VP sales too early. Further reading: Dweck’s oft discussed “Growth Mindset” may seem cliché, but it is critical that founders are adept at applying effort with process and the input of others to develop abilities and achieve outcomes (my paraphrase of the growth mindset) as this team did. A fixed set of abilities doesn’t cut it in startups.
Build Relationships: In order to execute, learn, hire or sell, we need to get people on our side, something that comes through facility with relationships. A founder I know has this “it” factor with people. We initially didn’t invest in this founder’s startup, but he’d drop me emails or voicemails each quarter with updates or requests for input. Yes, I was on the investor “drip” campaign, but it felt genuine, and our relationship grew. As we later moved into diligence, we made five potential customer intros. Three of them emailed me unsolicited later and commented on how much they liked the founder. This is a person who will be able to achieve anything through other people.
Communicate: And to build relationships, we must communicate well. Whether you like in-person, phone, email or text, consistency and transparency should be the common thread. An experienced CEO we backed likes to prep each board member (and observer) separately with a 15 minute call a few days before a board meeting. This CEO also provides a 2-3 page written discussion of how the company is performing, what is going well and what isn’t. This isn’t a 15 page deck with one number a slide that means nothing without narrative. Nor is it 50 pages of squint-inducing excel schedules whose existence is proof of wasted time and money. It is a way for the CEO to organize his thoughts and communicate to his board unambiguously about how the company is doing and what he is thinking and feeling – there is no better pulse of a startup than this. By prepping each board member with a call and this document, this CEO completely aligns the Board to the problems and opportunities that need to be discussed in meeting and avoids potential for derailment. Amazing.
The five styles that matter in startup teams:
Fast, Tenacious, Confident, Motivated and Practical
Then there is the how of the how, the modifiers to these actions – the five style characteristics that reflect a team’s culture and approach.
It’s clear from the story vignettes above that being fast and tenacious are paramount (think about the sales team ramp and healthcare startup stories). Time is the lurking enemy of startups – the merciless denominator that must be defeated to hit milestones before your money is out. Tenacity is achieving and moving fast even when things get tough.
Being confident is a more complicated because it is often conflated with arrogance and overconfidence. Arrogance and overconfidence result from a belief that you have a set of skills and experiences that are superior to most others’. Confidence, rather, comes from a belief that you can apply effort with process and the input of others to develop abilities and achieve outcomes – the “growth mindset”. In this sense, confidence relies on others to help you while arrogance assumes others are inferior. True confidence is key to achieving the five actions above.
Motivated. In my discussions with other VCs, I found a common trend. Successful founders are motivated both by a passion for the problem (what one top VC described as “I can’t believe this doesn’t exist, and the world needs it”) and money. Consistently, VCs cited stories of one being necessary but not sufficient. Each VC had seen cases of (1) founding teams giving up when the payday seemed further and less likely on the horizon or (2) founders passionate about the problem but unable or even un-interested in sniffing out how to monetize it.
Last but not least, practicality is crucial in achieving success AND avoiding brain damage along the way. Yes, values and principles matter, but when it comes to business (not moral) decisions, being practical builds credibility and respect with employees, customers and investors. My favorite investments are ones where terms are negotiated in a quick call and a few emails. When we see contention in negotiating terms, we assume that’s how a founder manages every business deal, and we run for the hills.
What’s missing here? We hear a lot about achieving a perfect balance of EQ (emotional quotient) and IQ to drive success. And of course honesty. What about those? Well, many of the traits above are integral components of EQ. With respect to IQ, this isn’t middle school anymore; there aren’t smart kids and dumb kids. Most people you’ll meet in the startup world are pretty smart, whether credentialed or not. Most are honest too. There are certainly exceptions to both, and of course we look for smarts and honesty in our diligence, but they are table stakes. Smarts and honesty alone don’t get you far in a startup.