Tag Archives: startup leadership

Don’t Miss the ‘Good to Great’ Way to Startup Success

By Andrew Johnson, Ph.D.

Rocket blast off

Achieving breakout success for your startup is all dependent on what you do before anyone has even heard of you. Do this right and there is no stopping the heights you will attain and the success you will enjoy.

There are no shortages of stories of great ideas and entrepreneurs that, for one reason or another, failed to achieve commercial success.  Is there some secret to getting this right that is being tightly held by the winners in this Darwinian race to startup glory?

Jim Collins investigated this phenomenon in his book, ‘Good to Great:  Why Some Companies Make the Leap and Other’s Don’t’ more than a decade ago.  He selected 11 publicly traded US companies from the ‘Fortune 500’ that consistently out-performed the market by 30% for at least 15 years after an initially lackluster performance of 15 years.  He compared these ‘breakout’ companies to their industry matched (same size, market, revenues in the previous 15 year period) counterparts to see what was behind these company’s’ incredible success.   Mr. Collins and his team used publically traded US companies since there was a wealth of publically available data for him and his team to use to figure this puzzle out.

A look at the stock market valuations of the ‘breakout’ companies compared to their market average counterparts shows that any two comparison companies tracked one another for at least 15 years and then the graph of the returns for the breakout company would just skyrocket up consistently for at least 15 years (some showed even more dramatic growth both in size and duration).  This is the type of financial performance and success that every startup team dreams of achieving as well.  However, this study was originally done with well-established companies whose revenues were high enough to rank them as the top earners in the US.  What, if any, of the findings here could be relevant to a startup?

The Secret Sauce
The answer:  Many of the ‘Good to Great’ findings are a perfect fit for startups as well.  Many of the principles that drove the success of the ‘breakout’ companies in Jim Collins’ study are applicable to startups today.  The following insights are inspired by the findings of the ‘Good to Great’ team but have been adapted for startup stage companies.

  • Selecting your leadership:  The ‘breakout companies’ were all lead by top performing CEO’s that many had not heard of before.  This is because they were not celebrity CEO’s that were interested in driving their own ego’s and compensation, but passionate ‘get-it-done’ leaders.  Startup CEO’s rarely have this issue.  The reason is that entrepreneurial leaders are passionate for transforming their startup into a successful company.  The only ‘watch-out’ here is that sometimes investors will insist on the placement of an experienced executive (well-known outsider) at the helm based on the misconception that this will boost the chances for success.  When this occurs, it is important to make sure that this leader shares the passion for driving the company’s success (rather than their own) first.  In other words, a leader that has an enviable track record of creating long-lasting successful companies rather than just a big name in the industry.
  • Building your team:  The ‘Good to Great’ findings showed that all breakout companies spent some time making sure that they had the right team in place before they worried about their strategy for transformation.  The startup is spared the need of ridding the team of ‘dead wood’ if it focuses on only hiring the very best from day one.  The reason that this effort precedes developing your strategy is that you need the input of a top performing team to come up with the best strategy here.  Another benefit of hiring the very best even before you fully know exactly what all of your needs are is that they will require much less care and handling and help to create a culture of excellence from day one.
  • Facing the music:  All great ‘breakout companies’ had some moments of truth were they discovered that they were in the wrong business or that the market had changed in such a way that they could no longer count on being number 1 or even 2.  Once the truth has been faced, the team can then rally to develop a strategy to redirect the company into a more successful and profitable direction.  Startups with a good leader and a solid team can face the realization that they might have a great technology that has no compelling market early on.  This team , working from these facts, is now in the best position to make the necessary pivots in the early days (before too much cash and time) is wasted to direct the company in a new and more promising direction.
  • Refining and sticking to your focus:  Jim Collins called this the ‘Hedgehog Concept’ (The Fox knows many things but it is the Hedgehog that knows the one most important thing).  This is all about focus and not being distracted by outside interests that do not serve your central strategy to succeed.  The ‘Good to Great’ team found that this central guiding concept (The Hedgehog Concept) was composed of 3 things that are roughly 1) identifying what you are best in the world at, 2) what you are most passionate about and 3)what business model will best transform this passion and world-class talent into financial success.  The startup concern will need to do the same reckoning and this is not always an easy thing to do.  Insight will come from both an honest assessment of the capabilities and talents of the team as well as a reasonably good estimate of how you can successfully commercialize this.  Focus is usually not an issue in the early days for the startup.  This becomes more of an issue after the company has enjoyed some commercial success.  The key here is to stick to this central focus of the company (The strategy for taking you to number 1 in the market) when exploring opportunities for growth from everything from product line expansions to strategic partnerships and acquisitions.  Anything that does not contribute to your core strategy should be ignored.
  • Nurturing a culture of discipline:  Remember that we recommended hiring only the best people for your team.  If you have done this well, you will already have built a culture of discipline.  Many of us have seen the gimmicks and marketing efforts that companies use to ‘motivate’ their employees to do more for the company.  If you have the right people in the company in the first place you won’t waste one minute or one dollar on this since everyone is already aligned with your goals for the company.  Essentially with a culture of discipline, you will not need to find ways to get your employees to get the job done as they will likely already be well on their way to completing this.  Make sure that you continue to follow the high standards you used in the early days as you continue to grow the team.  ‘Quality People’ over finding the cheapest person to do the job will always be more valuable in the end.
  • Turning the ‘Flywheel of Success’:  Success does not come overnight.  The ‘Good to Great’ team found that there was never one event or decision that lead to the company’s success.  It turns out that it was the accumulation of a thousand little things being done right that lead to breakout.  For a startup, this is about meeting challenges every day and working together to achieve that one central goal of first getting the company to market and then building its fortunes after a successful launch.  This last point is kind of a recap of all the others in that with the right leadership, the right team will be hired and with the right team and leadership the right path to success will be found and then the team will work hard together to achieve this goal step by step every day.  Judicious and frequent use of refining and following your central strategy will easily allow the team to determine if a given action or decision will be a push that increases the momentum of the ‘flywheel’ or not.

Putting it all together
It can often look like ‘breakout companies’ just popped up out of nowhere.  Whether they are the next Apple Computer or Genzyme, startup or well-established, this comes about more from the way that the popular press covers these companies than reality.  Jim Collins and his team found this to be true in his study and it is true for the budding startup as well.  The ultimate factors that best predicted for success turn out to be with those companies that are fortunate to have a passionate and capable leader, strong ‘results focused’ team and a single minded discipline and focus to do what is most important for the growth of the company.  The road to success may be long but following these great insights will insure that you stay on track.

Suggested Reading:

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The Mind of the Startup CEO: Why a Little Crazy is Good

Person thinking

The successful startup CEO has a particular mindset that tends to favor the chaos and excitement that are typical in the early days.

By:  Andrew Johnson, Ph.D.

We have all heard stories about the ousting of the Founder and his team once their business has proven itself to be a winner.  Steve Jobs was kicked out of Apple (though famously brought back for a second act), Ben Cohen and Jerry Greenfield (The Ben & Jerry of premium ice cream fame) were ultimately replaced when the company was sold to Unilever.  This phenomenon can be scary to many new entrepreneurs.  However, a closer look at the differences between what makes a successful entrepreneur different from a successful manager not only shows why this is a logical progression but also something that should not be feared.

It is extremely rare to find a person that has the mental makeup and desire to be both an entrepreneur and a manager.  The following points show why this is.

The Mind of a Startup CEO

  • Deals with chaos with calmness:  The startup CEO not only has the resilience to withstand the unpredictability and risk associated with a new company but actually thrives in this environment.  Here are a few examples of the things that can keep you up at night with a startup; making payroll, cash flow, technical setbacks, opportunity costs, launching into an unknown market, threats from competitors, dysfunctional boards etc.  The startup CEO actually thrives with these challenges by finding creative ways to resolve these issues while sleeping soundly at night.
  • Doesn’t shy from risk:  The stakes are often very high.  You only have so much time to prove that you have a viable business before either you lose the support of your investors and/or miss your moment to enter the market.  Being comfortable with taking prudent risks allows the startup CEO to move faster towards success or failure.
  • Is creative, resilient and realistic: The startup CEO can maintain a certain amount of detachment from the pressures that are part of launching a successful startup (resilience).  They will look for non-traditional ways of solving problems (creativity). However, they are also realistic.  This crucial balance between Cassandra and Pollyanna (too pessimistic or optimistic) can be the key leadership difference between a commercial success and failure.

The Mind of an Established Company CEO

  • Skilled at maintaining and growing existing business with the least amount of risk:  The market and business of an established company are well known.  Success here is about strong and steady growth that is scalable.  The successful CEO of an established company knows how to execute on the business plan and provides the calm and methodical leadership it takes to keep everyone on track.  There is much less unpredictability here and this type of leader will look to avoid risks when possible and maintain a strong and steady growth trajectory.
  • Generally most effective when things are good – fails terribly when things go bad:  The CEO’s of established companies are excellent managers.  When things are good, they shine at steadily improving the performance of the company using tried and true procedures and policies that can be easily scaled to grow the company.  When things start to go wrong, (e.g. technical problems, labor issues, and/or entry of a powerful competitor into the market) executing on existing plans only makes things worse.  This is a time for innovation and risk-taking, this is a situation where the startup CEO thrives (turn-around experts are often former startup CEO’s).
  • More risk averse, steady hand on the tiller:  Decisions are made after careful and thorough analysis.  If there is not enough data to guide a decision, these CEO’s will defer making a decision and look to gather more information.  This is often the right thing to do in a successful established company where there are fewer unknowns.

Why you want to be replaced
Once a company has seen some success it needs to focus on execution and getting every last drop of profit from its established products.  This is where the mentality of an Established Company CEO is needed.  The startup CEO can find this environment to be stifling and may feel constrained.  The ‘seat-of-the –pants’ style of leadership that worked in the early days must give way to new processes and procedures.  This allows the business to scale up quickly and efficiently with a much larger team.  At this stage, even new product launches will feel different than your earlier efforts.  Phased gate reviews, shareholder communications management etc. will need to be part of the process now.

Know thyself and gun for your exit
The chaotic realm of the life science startup is a fast moving, passionate ride with thrilling highs (achieved profitability) and crushing lows (great tech but no market for it).  This is where the ‘Fail Fast” moniker is celebrated.  If you thrive in the worlds of chaos and speed, you will find the life of a manager to be slow and plodding.  You will no longer be as free to innovate as you were before.  If you know this about yourself, you can start to build in how and when you will exit the company.  Keeping this in mind can even be helpful with investors as they look for entrepreneurs with the foresight to put the well-being of the company above their own ambitions.  Stay as long as it is a fit and plan to leave when it is your time.  With a little planning, you can still participate in the success of the company with good exit terms (seat on the board, profit sharing, valuable equity holdings).  By planning for your exit you will now have even more resources to ease the burdens of starting your next company.

Suggested Reading:

A First-Rate Madness: Uncovering the Links between Leadership and Mental Illness by Nassir Ghaemi, Penguin Books Ltd, 2012. | A New York Times Bestseller.

Picture Credit:  © Sklemin | Dreamstime Stock Photos & Stock Free Images

Women as Corporate and Entrepreneurial Leaders

Lions

The business world can be an unforgiving jungle, but women handle it as well as men, and then some.

By:  Michael Kaiser

If you watch nature programs on TV, you have come across at least one dedicated to those Big Cats, the lions and you quickly realize that it is the lioness that looks after and commands the pride. At best, the male serves as a mix of bodyguard, concierge and gigolo. It is the lioness who does all the hunting and caring of her cubs. It is a constant challenge that forces the lioness to erect a fortress of rigorous discipline, alertness and battle preparation. This zoological example serves as an analogy for the vicissitudes and triumphs experienced by women in the business world.

In this second decade of the 21st century no longer can the male gender come up with comments bordering on blatant business misogyny such as “They are emotional”, temperamental”, “They are watching over their family, how can they run the business”, “They will get pregnant”, “They have their period and are impossible to deal with”, “They are capricious”, etc. As if those descriptions were not enough, along came the 2006 movie “The Devil Wears Prada” starring Meryl Streep as the epitome of a ruthless and cynical fashion entrepreneur.

That is definitely not the scenario that we should equate with female entrepreneurs and corporate executives in Western, and more recently, Eastern societies. Time to wake up and get the record straight: women are as strong as men; they are standards of initiative and dedication, intuitive, tactical and strategic leaders, progressive, highly motivated, creative, the list of positive characteristics goes on. And with a good sense of humor, they even bestow positive remarks about their opponents:

“We have ‘arrived.  it means we’re not expending a huge amount of energy battling each other for power, instead we’re having challenging conversations about what we do well and what we need to work on. It’s a fact (I have the research somewhere) that men outperform women in 4 key areas of business. They are better at asking for what they need, for standing out in a crowd, for singing their own praises and speaking up.” Suzy Jacobs in “Can we please change the conversation”.

In a reference quoted for the description of “Female Entrepreneur” we read that:

Studies on women entrepreneurs show that women have to cope with stereotypic attitudes towards women on a daily basis. Business relations as customers, suppliers, banks, etc. constantly remind the entrepreneur that she is different, sometimes in a positive way such as by praising her for being a successful entrepreneur even though being a woman. Employees tend to mix the perceptions of the manager with their images of female role models leading to mixed expectations on the woman manager to be a manager as well as a “mother”. The workload associated with being a small business manager is also not easily combined with taking care of children and a
family. However, even if the revenues are somewhat smaller, women entrepreneurs feel more in control and happier with their situation than if they worked as an employee.

Although many positive changes took place in the 20 years since its authors published their findings, there is still the classical “room-for-improvement” ahead. As an example: early this year the CEO of Yahoo, Marissa Mayer, issued a memo banning the practice of telecommuting for the company’s employees which led to a negative uproar, promptly smothered by a positive retort in her defense from, yes, a male reporter of the Washington Post.

Recent statistics show that women’s level of higher education is on its way of surpassing that of men, which explains the large number of female executives in some of the most complex and demanding scientific sectors. Alas, this has not minimized the obstacles they face due to social mores that still operate under antiquated gender roles; even today, the number of male entrepreneurs exceeds that of women, and that is based more on conventional stereotypes than reality, because women are equally as good as men in starting a company with very few financial resources at hand.

In closing I invite the reader to watch the TEDx video by Gayle Tzemach Lemmon, listed below. It is an uplifting paean to the resilience of women in the face of business entry barriers, and how they have become an integral and much needed part of entrepreneurship and corporate leadership, without gender barriers.

References and Additional Reading

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