Often, startup founders are eager to launch their companies and, consequently, don’t take the time to attend to the most critical activity — surrounding themselves with the right people. They fail to remember that success is based upon execution, and execution is based upon people.
At the beginning, everyone is in a honeymoon period of their relationship, holding hands, singing “Kumbaya.” Founders move quickly to get a company off the ground, taking the nearest recommendation (low-hanging fruit) for key management positions and board directors. This gets tested in the first 18 months of operation, typically.
When it gets real
Founders can’t anticipate the issues because “founders don’t know what they don’t know.” When things inevitably go wrong, humans often don’t reveal their best behavior. Quite the opposite — their worst behavior surfaces.
At this time, a founder’s leadership will be tested, and he or she will have to deal with inappropriate behavior, incompetency and team malfunction. This not only occurs with the executive team, but also with the board members.
Why the board, too? Startups use their boards to help with operations, financial strategy, managing cash and hiring critical executives. They require a hands-on working board. Consequently, when issues arise, board members are very involved in critical decision-making and can exhibit their worst behavior, too.
When things go wrong, emotions prevail, and dysfunction occurs. This depletes precious time, which equates to burning even more precious capital in a capital-deficient operation (a state for all startups). Also, the more time wasted on egos and “who is right,” the more opportunity costs are wasted, such as garnering more customers, developing new products, pivoting for new market opportunities, etc.
Averting the dysfunction
A CEO and board chair should exhibit their best skills to manage the dysfunction without judgment, in a calm professional manner. Boards should meet at length and multiple times to discuss effective and helpful action items to obviate the worst — a bankruptcy of the company.
Be careful to not alienate others; listen to everyone’s suggestions. Agreement and alignment should be the goal. At the beginning of each meeting, individuals need to commit to this. Remind board members that they’re also legally bound with the duty of loyalty and care to the company. Meaningful alignment for the sake of the company’s success should be foremost in minds and in action.
These issues can also affect key management teams. The outcomes of dysfunction are the same, whether among the managers or board, or both simultaneously.
Some of this can be averted by simply taking time at the outset of company creation to devise a plan for selecting the best person for each position (management and board). It sounds simple, but assuring alignment of principles, values, goals and best behavior is difficult to assess. It is easy to select talent (financial talent, marketing talent, etc.), but assessing values and how one behaves requires more time and effort.
In the fast-paced world of startups, this is one place speed will not guarantee success.
Catherine V. Mott is the CEO and founder of BlueTree Capital Group, BlueTree Venture Fund and BlueTree Allied Angels. As one of the more than 370 professional managed private investor networks in the U.S. and Canada, BlueTree Allied Angels has invested more than $27 million in 43 regional startup companies.
