We all like to think of startups as “non hierarchic” organizations and to some extent that should be true. I’m not a big believer in too much hierarchy. A good early-stage CEO needs to be accessible, to be accountable for producing results and should be establishing the cultural norms of the company through direct leadership at all levels.
But issues do arise as your company grows. I never built a Google-sized business but I did build an organization from scratch that grew to 120 employees in 5 countries before we sold it. And having sold two companies I worked inside much larger companies that acquired us and observed even bigger company structures.
As your organization grows and you hire senior staff where you are no longer managing every employee directly the issue of how to manage people that are not your “direct” reports arises. This applies to both founders and to VC’s that work with them.
I see two common mistakes in companies (not just in startups, in fact).
1. Dipping:
As a decision maker you rely on information being passed to you by the people who report to you. You’ll get sales information from your VP of Sales, marketing information from your VP Marketing, tech information from your CTO and so on. But as a CEO you can’t rely solely on this information. You need to “dip” down into your organization and learn directly from employees at all levels and with all skills.It’s not just a Reaganesque “trust, but verify” issue although that’s certainly part of it. As a leader you need to have an intuitive sense of your business that can only be formed by hearing directly from staff in every corner of your businesses. Think of it kind of like running a national chain of restaurants and occasionally stopping in to wait tables to have a more intuitive sense for your processes, work conditions and the quality of your products.
An obvious example would be in sales. As a CEO you never stop needing to go on sales calls (or to work the phones in telesales or customer support) and ceasing to do this as your company grows because you’re focusing on investors, recruiting, PR or whatever is a mistake. By going on sales calls you pick up directly the feedback of what customers want and also what they’re telling you about competition. You’re also learning directly about the skills of your sales staff by observing them in action. It might tell you that you need better sales training or to hone your key selling messages. They will tell you directly which features they think are necessary to win more deals (take this information as data points rather than conclusions).
I also liked to sit in on sales pipeline meetings. I didn’t lead the calls – our VP of Sales or country managers did – but I listened in to hear about deal specific dynamics so when it came time for forecasting between the VP of Sales and myself I had direct knowledge of the deals from having heard the sales reps talk about their individual pipelines.
Similarly I liked to keep myself apprised of the technical decisions we were making. I had long ago ceded the knowledge and responsibility for making the detailed technical recommendations about platforms, databases, hosting solutions, etc. But I knew that to be a good decision maker I needed first hand knowledge rather than just a summary from my CTO. So I would go to lunch with our senior architect and ask 50 questions about the differences between Postgres, MySQL and Oracle databases.
At my first company we went with Oracle because it had better handling of “clustering” at the time where we could have multiple instances of databases that we could keep synchronized. By the time of my second company MySQL was a much more robust solution and worked well when you had to read a lot of information but was less performant on “write” activities. As a content management system we had lots of write activities and went with Postgres.
I helped make this decision by “triangulating” between our DBA, lead technical architect and our VP of Engineering (who had a better grasp of the financial costs & development costs of each decision). I could never have been involved in this decision without “dipping” below my CTO to understand the details. If my CTO would have given me his update much detail would have been lost in translation.
I provide this level of technical detail because I want to remind CEO’s that you need to own these decisions. If your company is small then make sure you’re asking CTO’s of other companies how they made their decisions about whether to self host or go with Amazon AWS. How did they decide whether to use RightScale or to manage AWS themselves? You might be a business person rather than technical but for key decisions you need information to make the best decisions.
It’s why when I’m evaluating an investment I often ask the CEO lots of detailed questions about all parts of their business. Attention to detail matters.
2. Skipping
While some leaders make the mistake of not dipping into the organization to get a first-hand feel for work being produced at all levels, even more leaders are guilty of the opposite problem: skipping.Skipping is when you skip a level of management in directing decisions or employee’s work. It’s far too common and is more destructive than leaders realize. When you hire a VP of Marketing who has three direct reports and then tell the people reporting to your VP Marketing what to do, you usurp the power and authority of your VP. It’s both destructive to the more junior employee who doesn’t know whom to take direction from and also to the VP who feels they don’t have the authority to direct their own people.
It can be harder and take more time to coach your VP Marketing to get his staff doing what you think is right than just telling them yourself. But if you can’t get the results you want from your VP of Marketing or through coaching them then that is a different problem.
Skipping is insidious. The organization gets used to it and adjusts. But it sets the wrong culture. Senior management feels undermined. Staff never knows whom to listen to. Decisions get overturned at the last minute by the big boss. People avoid making the tough decisions because they know the CEO is going to step in at the last minute and change everything anyways. And you build an organization of under-empowered people.
Let information flow up but direct your staff and execute through hierarchy.
And Finally, a word about VC …
We VCs need to be as conscious of dipping & skipping as management teams are.A quick example. One of the first boards that I ever got involved with where I wasn’t the CEO was with a company in which I hadn’t invested but was brought on board to look deeper into operational issues. I spent a ton of time with the CEO and VP Finance understanding the businesses, its customers and its operational challenges.
Had I stopped there I would have felt great about things, which is what I think happened to the board members / investors who had been involved before me. Information flowed up within the organization and the CEO always packaged things nicely for the board and investors.
Investor decision-making was based almost exclusively on board packs and financial information produced by these two. When they heard from the VP of Sales it was during a board meeting where that person was presenting in front of her boss – not exactly the environment for you to get unfettered information.
In addition to attending board meetings I spent time with the CTO trying to understand the technical challenges he was trying to solve. I then spent time with the VP Product Management to understand his functional roadmap and his perception of what customers wanted. I then did a pipeline review with the VP of Sales. I went through the customer service processes with that VP and asked her what problems our customers were having. I developed a totally different understanding of the business and one that would NEVER have come up through a board meeting.
- our product wasn’t modularized so new features took too long to implement and regression test
- we didn’t have remote monitoring so when our product had problems in the field we didn’t even know we had outages. We certainly didn’t have a NOC
- our internal tools for managing the content in our system were under invested in so it took more people to make changes to our system than it should have. They didn’t have visualization tools so when they made changes they couldn’t easily see how they looked in the system. This led to a lot of human error
- On sales it turned out that our power was limited to below “C” level so where I was hearing forecasts of customer sales I knew instinctively we were further behind than the CEO thought we were
The bottom line is that the investors had never had these conversations. Management knew the issues, investors did not. So when I heard investors speak about what was going wrong with the company I felt like they were talking about a totally different businesses. They were self rationalizing things that weren’t accurate.
If VC’s don’t “dip” into their organization I don’t know how they can really be effective at the board level because there is no way of having an honest debate with the CEO. As a founder I believe you want investors to help and if you want them to help you need to empower them with direct knowledge rather than protect this information or these relationships. This obviously depends on having the right VCs.
I also make visits to senior level customers of portfolio companies with which I’m involved. I like to do this so I can be helpful to them because there are certain meetings I can have that are harder for the company to have (sometimes due to politics). But I also like these meetings in the same way I did when I was CEO. It gives me an intuitive feel for whether our products are resonating with customers or partners and how they perceive our management team. This is invaluable in helping the management team. Again, I can’t imagine being a VC and NOT doing this. Many VCs do reference calls before they invest and then stop customer contact altogether after they’ve made the investment. Strange.
But I work hard not to “skip” below the CEO or founders. I try not to direct staff even if I feel that they need to focus on something other than what they are doing. I try to bring that information to the CEO / founders and give them my observations. If I “skipped” then I would imagine that most CEO’s wouldn’t want me near their teams. No leader wants his/her investor directing staff what do to.
Dip. Don’t skip.
Share and Enjoy:
This is a *great* article on what to do (and what NOT to do) when interacting with various levels of a company. Not just good for investors, but for anyone attempting to successfully manage and lead in a medium-to-large organization.
Dipping is the worst. When you have someone who does this – say, a CEO – either everyone thrashes and drops what they’re doing without passing go or collecting $200 *or* they just start to tune out the CEO (or business owner, or whatever) altogether. I’ve seen both. Both are suboptimal.