September 5, 2013
Don’t have time to read? Here’s a quick but comprehensive summary of Matt Blumberg’s “Startup CEO: A Field Guide to Scaling Up Your Business,” released on September 3, 2013 (part of Brad Feld’s Startup Revolution series).
Who should read this: CEOs of startup companies, particularly tech startups.
Elevator pitch: Matt Blumberg has written an instructional manual for being a CEO, which covers the broad topics of storytelling, team building, execution, boards of directors, and managing yourself. He shares lots of his own tips, tricks, and processes, and explains how your role changes as the company grows.
Author: Matt Blumberg is the CEO of Return Path, a global email company founded in 1999 that has grown to over 400 employees and around $100 million in revenue. Before Return Path, Blumberg ran marketing, project management, and the Internet group at MovieFone.
You don’t have to be the one who comes up with your startup idea. In any case, start by talking to customers about their problems and solutions. Then vet ideas according to criteria like customer pain, market opportunity, ability to win the market, strategic fit, and economics. The difference between startups and big corporations is that startups understand that their assumptions are wrong.
To tell your story to investors, create a 10- to 12-slide presentation including your elevator pitch, the size of the market opportunity, your competitive advantage, your current status and roadmap, and a summary of your financials. Later-stage startups will need to add in the good and bad experiences of customers and how earlier plans are progressing.
To communicate your story to the team, create a document that includes your mission (goal), vision (what the world will look like if you accomplish it), and values. You can articulate these using a top-down approach, where they are set by founders and executives; a hybrid approach, where founders create them and employees weigh in; or a bottom-up approach, where you crowdsource the task to employees.
To revise your story, show it to customers, investors, team members, and industry experts, and get their feedback. Also be on the lookout for signs that you need to change: conflicting data, poor results, or internal chaos. That change takes one of two forms: changing the company (including acquisitions and adding or removing lines of business) and changing the business (a real pivot, while still using your core skills).
To bring this story to life, you need to actually start building an organization. The CEO’s role will change from figuring out product-market fit to articulating the vision to developing strategies for expansion and innovation. Along the way, you’ll have to make intentional choices about non-product elements: where to put an office, what technology to use, compensation, HR policies, and more. If your product isn’t world-changing, you might choose to support employees who want to help out different causes to add some meaning to their work.
To hire the best possible team, find candidates that fit with your culture, are amazing specialists, complement your weaknesses, and have solid references. Include the team in the hiring process, particularly for culture fit. Hire a head of HR around 50 people and a head of sales early (particularly if you need customers to test your product or you’re not great at sales). Make sure your executive team doesn’t agree on everything, and know who your “chief paranoia officer” and “chief optimism officer” are.
To scale over time, everyone has to recognize that management is a unique skill that takes constant work. As CEO, you’ll have to supervise sales and business development or marketing, finance, legal, product, operations, and HR.
Companies all have their unique culture, but there are two values every company should have: respecting employees, especially their lives outside of work; and creating an environment of trust. You can do the latter by communicating promptly, practicing what you preach, taking responsibility for mistakes, and praising good deeds.
Hiring. Hiring is particularly hard for startups because job descriptions are constantly changing and the hiring process is often rushed. To avoid the second problem, take meetings with skilled professionals who could someday work for you. Source candidates from your old jobs and your team’s old jobs. And rely on your values, your company’s reputation, and your sales skills to attract candidates. CEOs should be involved with interviews for quite a while and screen for culture fit (the relevant experts can screen for specialized knowledge).
Onboarding should be a process that starts before a new hire arrives; make sure their desk is setup and an orientation is prepared. Then, set a 90-day goal for them and come back to review them after 90 days.
Feedback. Incorporate four types of employee feedback into your organization: informal 1:1s that take place regularly with an agenda driven by the employee, annual performance reviews where the employee and manager assess their performance against objectives, ad hoc hallway chats to offer quick corrections and congratulations, and 360 performance reviews where employees get rated by the whole team.
Also, solicit feedback on your performance as a CEO by welcoming it and acting on it. Then, pick the top three areas to improve in and check in quarterly with the team to see how you’re doing.
Remember to give positive feedback by honoring moments like employment anniversaries, project completions, and jobs well done.
Compensation. Compensation consists of base pay, incentive pay (like bonuses), and equity. To get it right, remember that most people feel undercompensated most of the time. Start by asking about salary requirements early in the hiring process. To set salaries, make sure to performers earn enough equity to be engaged, employees at the same level have comparable salaries, and you aren’t blinded by history (e.g., low-paid interns).
Promotions. For promotions, recruit from the inside when possible. The exception is management positions, because good workers aren’t necessarily good managers. In those cases, try moving employees horizontally to a new role but the same level.
Remote work. Remote workers can lose the benefits of human connectivity, collaboration, and focus (due to distractions). Recommend that employees have dedicated, quiet workspaces set up. Make sure they have the right software, and pay for some of their technology expenses. Also, schedule regular meetings to keep the communication flowing.
Firing. No one should be surprised to be fired. Start by telling them their job is at risk if things don’t change, setting a performance improvement plan, and increasing their supervision. If you do fire someone, only communicate the reasons to a select group because of liability issues. For layoffs – where you can’t afford employees anymore – cut earlier and deeper than you think is necessary, get rid of all poor performers, and have an all-hands meeting afterward.
Startup life can be crazy – you go from periods of extreme, crazy work to long, slow climbs. Throughout all that, make sure the “operating system” of your company stays the same. Employees should know the schedule of major meetings, the format for major communication, and how leadership is structured. You should have an open door policy, and no one should be getting frustrated with the technology they use at work.
An operating plan should include a theme for the year and company-wide initiatives to go around it. Make sure these are communicated to the team and assessed throughout the year. Also include financial predictions. Each department should understand their role in the overall strategy, how their operations may change, and what metrics to judge their progress by. They should also set specific goals.
Finances. Startup finances are difficult because you can’t always get funding when you need it, and we don’t have financial instincts about large amounts of money (e.g., the difference between $500,000 and $750,000). To avoid sudden financial problems, identify risk areas and warning signs, and prioritize which are most important. Also, recognize that you’ll always be trading off between growth and profitability. In general, choose growth first and profitability later, although some startups try to find a balance throughout.
The three forms of financing are equity, debt, and bootstrapping. Equity includes:
- VCs: They have lots of money and expertise, but they may offer bad terms or fatally handicap you by not participating in future rounds.
- Angels: Made up of friends and family, they usually offer good terms but can be annoying or create an emotional burden if you lose their money.
- Strategic investors (other companies): They can become a valued business partner, but that doesn’t always happen and they might not invest in future rounds.
- Convertible debt: Convertible debt is usually a good deal, but bad terms can give away too much equity or stain your balance sheet.
- Venture debt: Venture debt must be paid back, starting with interest payments, and it also involves reporting requirements.
- Personal debt.
- Customer financing: Early customers validate your idea by paying you in advance, but they won’t be understanding about delays and can get scared by failed crowdfunding projects.
- Cash flow: Doing your startup on the side means you don’t have to give up equity or debt, but you’ll have two bosses and may burn out.
For funding negotiations, have a great lawyer and insist on only one investor counsel and one lead investor. Prioritize the terms that matter, including simple security (possibly more important than valuation) and follow-on financing terms. Having other funding options – a plan B – will allow you to negotiate on terms that VCs claim are set in stone. Remember to check out your VCs: ask for references, and expect to “pay” more for good VCs. Set the tone of your relationship during the negotiations, and make sure to say thank you afterward.
As a CEO, you should be able to create a rigorous financial model that includes a balance sheet, profit and loss statement, and cash flow. It’ll help you understand your drivers of success and make better decisions.
Your budget and forecasts are always wrong: things usually take longer and more money than you expect. And it’s hard to predict when your investments will pay off, what your competitors will do, when you’ll miss revenue, and when you’ll acquire another company. As a result, you need to forecast early and often. Find good software, compare your forecasts to reality, and learn to make better, less frequent forecasts over time.
Don’t go looking for an acquisition – you’re bound to run your company more poorly and earn less money. To make the most of acquisition opportunities, have multiple bidders to increase the price. Find a good home for your baby, but recognize that you’ll soon have a new boss. And be transparent with your team, but don’t over-communicate in case things fall through (and they always can).
Data. You know less and less about your company as it grows, so you’ll need to collect lots of data. Collect it externally from industry events and competitors, customers, and friends of the company. Collect it internally by meeting with non-direct reports, substituting in for employees when they’re on vacation, and creating physical proximity so casual conversations and “productive eavesdropping” happen.
Tough times. During tough times, keep an eye on the future: be conservative, but don’t pare things back too far. One way to be conservative is to look for small ways to cut back on your budget. You can also use the tough times as an “excuse” to implement beneficial strategies that can be effective in the long term. If you’re feeling overwhelmed, take some time to write down and talk about problems until you feel in control.
Meetings. Meetings to hold include daily standup, weekly tactical, monthly strategic, and quarterly off-site meetings. You don’t need to do them all, but vary the type, format, and location to keep people from getting bored. Good meetings have an agenda, start and end on time, and discuss next steps.
Alignment. Alignment occurs when everyone has the company’s interests at heart. To create it, make sure to define your mission and set annual priorities, goals, and targets; let employees figure out their own contribution to these goals; and communicate how things are going throughout the year. Also, tying everyone’s compensation to company performance can help align incentives.
Learning. To make sure you keep learning, use benchmarking to compare your metrics to competitors and partners – just remember that they don’t always have the answers. Use internal post-mortems to analyze good events as well as bad ones.
Going global. Opening global offices is useful to get closer to your customers. Three options are available: acquire local resellers or competitors, acquire and pivot unrelated companies (less desirable), or start them yourself. The last is the hardest, because it’s like starting a company from scratch. To do it right, make sure to send executives there to do hiring, take it slow, learn the local business customs and culture, let employees know that things will be a little messy, use a lot of videoconferencing and collaboration tools, and beware of office cultures diverging.
Competition. To outmaneuver your competition, you have to always be innovating: avoid “the way things have always been done” and spin negative chores into opportunities for innovation. Consider acquiring your “good competition,” the passionate little guys without much traction. Don’t try to keep pace with “bad competition,” companies with lots of funding but the wrong ideas.
Failure. Failures are inevitable in startups because they’re part of innovation and the search for a business model. Teach employees that failure is to be embraced as a learning opportunity, and admitting failure is a sign of responsibility. Just make sure no one makes the same mistakes twice.
Boards of directors
Boards are required in some states and necessary when you have investors. But besides that, good boards can be extremely valuable. Board meetings give you some external accountability and deadlines to work toward. Board members should be able to challenge your assumptions, help you see the broader picture, and point out patterns they’ve seen before.
Good board members will give you their time, attention, and honest opinions: they’ll take the time to get to know other executives and have much advice to offer. Take the board member recruiting process seriously, looking for these traits and choosing a diverse set of people. They shouldn’t need compensation, except for independent directors (paid with equity).
Boards should be three to seven people (depending on your stage), with two committees: compensation and audit. It doesn’t matter if you or one of the independent directors is chairman. Make sure to solicit regular feedback on the board’s performance from members and share it with everyone.
Advisory boards, which meet as a group or just individually with you, can be useful on top of regular boards. Treat them just as seriously as boards of directors, and offer members small stock options.
Create a Board Book for board meetings, which is part-meeting agenda, part-report. A lot of the value of board meetings comes from this preparation: it requires you to step back and think about things like core drivers, success factors, strategy, and what’s on your mind.
Effective board meetings will allow you to communicate the company’s status and think through issues together in an environment of “productive conflict.” And a few little details can go a long way here: schedule meetings in advance to promote attendance, spend most of your time preparing for the future, not explaining the past; send out reading materials in advance and don’t use slides; and ban devices. Board meetings should end with an executive session (you and the board members) and a closed session (just the board members).
To improve your board member relationships, have ad hoc meetings throughout the year, a social activity around the board meeting, and a meeting before the board meeting (if necessary) to alert members to big surprises or problems.
Make sure the board does a performance review of you. This will be the basis for deciding on your compensation, which can change year-to-year. For incentive pay, suggest a plan to the board for their consideration. For equity, you should earn at least 0.25 percent per year. And it’s wise to make the board aware of all your personal spending that you counted as business expenses.
It’s incredibly helpful to serve on one or two boards yourself – ideally the board of a similar but smaller company. You can also serve on someone else’s advisory board.
The first step to managing yourself is managing your personal operating system: your agenda (your job description and current priorities), your calendar (the schedule of meetings and appointments throughout the year), and your time (making sure you spend appropriate amounts of time on each type of task).
Hire a great executive assistant, who can free up to four hours of your day by doing things like scheduling, generating expense reports, and preparing documents. You can either hire a smart, entry-level person who will eventually want a promotion, or a professional executive assistant. Empower them to not only do things for you, but act as you.
CEO coaches are useful, even if you’ve been a CEO before. They can help you become more empathetic and influential, help coach other team members and the team as a whole, help you understand how different personalities work together, facilitate meetings and 360 reviews, and give advice on organizational structure.
Have a group of your peers – other CEOs – whom you can meet with to help solve problems and offer moral support.
To stay fresh, be on the lookout for minor tweaks you can make to refresh and reenergize your work – like talking through a relationship with a colleague or editing your list of priorities. Make sure to exercise regularly and preserve some free time by being able to say no to things.
Make time for your family, and explain your work to them in more than a superficial way. You can also bring your CEO skills home: set goals and budgets, have a “home operating system,” and have “meetings.” In dealing with kids, be decisive, a good listener, attentive, and patient, and present a united front with your spouse.
Traveling can be crucial for deals that call for that in-person handshake. Take advantage of the benefits of travel, which include working uninterrupted, socializing with colleagues, spending time alone, and being semi-unplugged. Make sure to take care of your health and take a little time to enjoy the destination.
At the end of the year, take stock of your own career. Are you having fun? Are you learning and growing? Is it financially rewarding enough? Are you happy with the impact you’re having on the world?
Being a startup CEO is lonely, thankless, hard, risky, and stressful, but it can also be the “best job in the world.”
Though one of the longest books I’ve reviewed lately, Startup CEO is still quite digestible. Each of the 47 chapters is only a few pages long and treats a single, specific topic, from giving feedback to your team to when to raise money to how to build a board of directors.
Blumberg gives you a peek into his world at Return Path, including things like his board meeting agenda, the tasks of his executive assistant, and a moment when he teared up in a meeting. But the perspective isn’t his alone: like other books in the Startup Revolution series, it features sidebars by entrepreneurs and investors like Brad Feld who share their own advice and stories. A humbling and educational read, especially for the first-time entrepreneur.
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