Sunday, October 1, 2017

Startup Scaling Issues (600-7)

The founder might ask "am I a Bill Gates or a Mark Zuckerberg?". In other words, "Will I be the leader of my company many many years from now?" "Will I retain the powerful position of CEO forever?"

Leaving aside the unique talents and skills of those two individuals, carefully look at their businesses. Microsoft entered the software business for PCs when it didn't exist. Its major potential competitor became its supplier of business, that is IBM. IBM did not see the value in software and allowed Microsoft to control that market. This unique situation that will never happen again. IBM's foolish mistake is a lesson for the history book. Further, in a connected world, there will never be an opportunity for a company which can grow in isolation for so long and allow an individual to develop the necessary CEO skills at a slow and methodological pace, as Bill Gates was able to. Look at the autonomous car market. Can you imagine a few companies that are make cars and one recently created company writing the software to drive them?

Regarding Facebook there were multiple other social media platforms before Facebook so time was moving more rapidly then it did for Bill Gates. Still, Mark Zukerberg was able to grow his idea slowly and incrementally and reach a very specific audience with a successful product. But this all happened before Facebook was created. In today's highly connected world a new idea with potential would become immediately available, probably via Facebook. If the CEO does not grow the idea rapidly it will be easily copied. Today, it will be easily copied by Facebook or Google or Apple or Amazon. Look at what happened with Snapchat and Instagram's rapid copying of its core features. There simply is no room for growing slowly anymore in today's startup culture.

So Founder CEOs must assume from the beginning that they will likely not be able to adapt or acquire the skills required to grow the company at the incredibly rapid pace required in today's business climate. As a visual analogy, the season change too quickly now. for a tree to adapt and survive.

The question then becomes how can the CEO founder prepare for the inevitable?

As always burying your head in the sand is probably not the right strategy. Proactive Founder CEOs will seek out feedback on their performance from the board and self assess their skills and talents on a regular basis. Are they accomplishing their goals? Do they perceive that a new challenge is coming which will be outside the skills they need? If so, the Founder CEO must be proactive and initiate the search for a new CEO since finding the right CEO is not necessarily an easy or rapid process.

By initiating the change in CEO, the Founder CEO actually increases the likelihood of continued involvement in the company at a management or board level. In resisting the change they guarantee that eventually they will be pushed out and there will be an unpleasant transition. In the worst case scenario, that transition tanks the company and the Founder CEO has lost everything they hoped to gain in terms of both financial wealth as well as the ego support for the creation of their company.

As the startup grows this is a significant problem for other founders as well. It is unlikely that they are still the best person for the job they were given and the titles they received. They too must self-assess and be ready to yield to a person who has more talent to handle either the existing challenges or the coming challenges of a rapidly growing company. If they don't see it, then making them see it is the job of the CEO. And a Founder CEO struggling with this decision  proves yet again to the board that the Founder CEO isn't the right person for the job.

Similarly, there are likely to be non-founder initial hires who've been elevated to higher positions than they their skills justify. They may also be paid more then should be based on their skills and talents. The founder and supervisors of such staff must be able to accept the potential replacement of such individuals even if they are family members. Resisting that replacement merely delays the day of their replacement. And again proves that there are leadership problems at a higher level. The positions of the initial hires are not guaranteed. New leadership will inevitably proceed with staff changes that are required based on company growth.

The message above is not one of hopelessness but the need to acknowledge that the company is growing and in today's business market change will come quickly. With growth comes change and every founder in every position should recognize the high likelihood that over time a more qualified person should take over their position.

Reference:
  1. Wasserman Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton University Press. March 25, 2012, ch 10.
  2. Solomon Glenn. Transitioning from a startup to growth-stage company. Fortune. February 11, 2013.
Photo Credit: Four Seasons - Longbridge Road. joiseyshowaa Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0). See a blog about this tree.

11 comments:

  1. Hello-

    Thank you for your post! The ideas presented here are challenged by the innate human behavior of pride. As a founder, we often view our businesses like our children, and giving the business over to someone else is much like trying to give away our child. We swell with pride at the success of our child, but fail to recognize that they may know more than us--they have outgrown our capabilities. That may be a far-stretched metaphor, but, all that to say, a founder may find it difficult to humble themselves enough to hand over the business to someone more qualified. However, if a founder wishes to see their business succeed and continue to grow, as well as wish to increase their chances of remaining involved, they should voluntarily remove themselves from the CEO role. Excellent and thought provoking post!

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    1. Thanks for your comments. Having now given away 2 children to college life, I totally agree. They are not "my creation." They are their own entity and will now go where they want to go even if that isn't what I want. I can influence them and work with them, but letting go is essential if I want them to grow further. I see a business as the same. We do our best to guide and direct, but in the end a business has its own path to follow.

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  2. It takes a big person to step back from a business that they created to see it continue on the path they intend for it to begin with. I would like to see an assessment that could help CEOs make that determination on when they need to let go and cheer from the side line?

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    1. Sabrina,
      I agree that this is such a big decision that some kind of formal assessment is probably the only way that one can confidently proceed. I always find it funny that people use the analogy of a "baby" to describe a company. One of my findings from parenthood is that they don't stay babies for very long. And they eventually grow up to the point that they fly away. So anybody who thinks of their company as a "baby" better be ready for it to chart its own course and fly away at some point in the future.

      -- Brad

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  3. It's interesting thinking about how quickly these giant corporations pick up on the subtle ideas people are creating and then buy (or steal) the idea and build it for themselves. I was always amazed that Etsy held the market so long for handmade goods. When Amazon started their "handmade" realm, it did not take off as well as Etsy. Plenty of makers have a beef with Etsy and all of their changes recently, but the one thing Etsy has that Amazon will never have is the customer's association ETSY=HANDMADE. Amazon will always equal corporate giant and therefore will always lack the boutique feel Etsy created in the beginning.
    I realize this is a far stretch from the life scientist startup, but it says a lot about the Artisanal culture we are seeing more and more. And it is still very relatable to the fast pace of the tech industry you mentioned here and in other posts. Some of the tech coming out now almost feels like an artisanal or boutique technology because almost anyone can craft games, apps, and websites these day.

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    1. What is scary to me is how when the big folks can't win they just buy out the competition. You see it with craft beers. Sadly we allow corporations to eliminate companies that get in their way. Facebook tried to grab Snapchat. Snapchat resisted so they are burying it by copying what they were doing. I'm sure that if Etsy were ever a competitor it would be purchased by someone.

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  4. Great post Brad! From a business and "rich" perspective it makes sense that your post is the natural progression of a company and the founder should carefully consider the progression. How does someone with the 'King" perspective navigate growth of the company though? It always seems like the "company" is more important than the creator, but sometimes the creator truly is what's most important. I think the loss of Steve Jobs is a great example. The rise of Samsung is in a place that they could surpass Apple. Steve Jobs made Apple what is and without him they are struggling to keep their edge. I would argue that Apple is more about business and less focused on how they became the business they are, through innovation and creation.

    I also agree that the tech industry does move fast and someone is going to inevitably copy your product or service. The question becomes how does one become the platform of choice. Why did Facebook last longer than Myspace, Blackplanet, CollegeClub and others? They all do the same thing, and those three all were developed before Facebook. PowerPoint didn't start out as a Microsoft product, but most people do not know that either. Mark and Bill were methodical in their approach.

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    2. I find the 3 companies fascinating. I've felt that Apple should fall from grace for a long time - and been proven wrong time and time again. Still I find their model ("lock them in and tell the world is a scary place") unappealing. I continue to hope it fails.

      Facebook is indeed inspiring. Mark Z clearly drove that car as fast it could go (as with Uber). And Sandberg deserves much credit. But I think that Facebook too, like MySpace, will wane. My 15yo declares them irrelevant. That's what happened with MySpace.

      re: MSFT, Everyone uses their products but few really loves them (like Apple). To me they show the power of a monopoly. I wish the government broke them up when they had a chance. Look how great it was to break up ATT.

      So we are left with Google/Android/Chrome to save us from the Apple Ecosystem and the MSFT Monopoly. When will Google let us down?

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  5. Great post. It is probably impossible for any tech company to grow organiclly anymore. In fact there is something unnatural about taking a large amount of money for an idea that isn't even functional, but merely a concept. It is a catch 22 in that field for the business and the investors. The investors can only make the big money if they venture into high risk, and the company risks losing their power in the company because they are receiving funding under less than optimal conditions. The power immediately sways to the lender. I enjoyed all of your examples for these issues.
    -Beth Pratt

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  6. Very well written post Bradley. It is definitely important to acknowledge and anticipate where things could potentially lead.

    I love the details behind the Zuckerberg and Gates bits. I can tell that you are well-versed in the tech industry. Thus, I have enjoyed reading through your responses to comments as you allowed the conversation to continue. I am glad that I am not alone in hoping that Apple fails. Not to get too far off, but Apple is currently coasting on what Steve Jobs built, which is okay I guess, but the way they are headed is not sustainable in the long term. Eventually their customer base will realize that they are not coming out with anything that is superior to the rest of the technology in the marketplace. They had that advantage at points in their timeline but in the last few years they're just doing enough to get by, no innovation, they make products that are luxurious (not really) and not much more. Now, their marketing is wonderful, but it's easy to see right through their templates. Apple is an evil genius type of brand, cult-like in influence. I would much rather lose my money to a company that does not blatantly manipulate consumers, at least pretend like you care, Apple has that air about them that says "we know you're going to buy it".

    Facebook? Facebook's downfall will be ads, I'm calling it now. The "algorithm" will be a close second...

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