Great founding teams – a revisit

freebirds[An earlier version of this post was titled “Builders of the world, design and surf once in a while!”]

As 2018 draws to a close, we reflect on how we are always on the search for great founders and we often like teams with deep insights about their industry and customers while also being “builders” at heart (well, we look for “unfair advantages“).  The best way to make an impact is to successfully scale up your startup – we need good builders who keep zealously working to solve problems, to get to know how their customers think and feel, and to scale what works (this is kind of the basis of what we call “hyper-growth” and we also like this other name for it, “blitz-scaling”).

Oftentimes, enterprising founders see the opportunity to drive adoption of a new product based around a new technology that is reaching a cost level where the cost stops being a barrier to adoption.  Herein lies the potential for an industry to become transformed.

And so the founder sees a unique opportunity (some “inefficiencies” or “information asymmetries” in the market), starts building and keeps building.  He or she will fairly quickly become aware of the need to overcome “complexity”: bringing in the right people, creating the culture and “DNA” of your company that keeps these people performing well and aligned to the mission: good founders will learn soon enough to “build smart” and with good design.  Learning by doing (or “designing in a fog”) is the only way to go, and sometimes and over some things experience is not relevant.  We share below a few observations that we hope may provide some support (if not light relief) for some founders:

  1. Keep going, keep iterating: There is much “learning on the job” as by definition you are doing something new and sometimes creating a new industry.  One of the best things about entrepreneurship is the opportunity to grow (i.e. learn) as the company grows, offering up new challenges, and demanding more of their leaders.  The best founders love new challenges and accept that making mistakes is part of what makes for growth and learning.
  2. But look for signs when a gear-shift is needed: An easy example: we’ve seen a lot of founders who tried to scale up “too early”, and good founders are able to react quickly, recognize and accept the mistake, minimize the impact, cut the unnecessary “infrastructure” they shouldn’t have “acquired” in the first place, and stop burning through cash unnecessarily or continuously. Bringing on too many “experienced hands” too early (making your team too “top-heavy”) is just one variation on this theme – are you?  (Many investors who come to venture investing from the private equity and hedge fund worlds advise bringing in the systems and structure of larger companies into venture backed startups.  Most of the systems and structure however aren’t needed – at least not yet.  The voice of “experience” can subtract value; it is important to understand the relevance of certain experiences and at the minimum adapt them to the situation and sometimes it is best to not let the experience “crowd out” the specifics).  Equally, a gear-shift is sometimes undertaken too late: for example, putting some processes and “institutionalisation” in place as you grow actually helps you save time and ensure the team’s “alignment” around your mission, but founders busy juggling many things sometimes delay this for too long.  It’s so important to “let some fires burn”; at the same time, one must keep “upgrading” because the “operating system” of a company changes as it grows and good internal practices to have is different when team size is above 150 to when it was just a few people.
  3. Build smart with good design and a sounding board who can help with any (re-)designing: Learn through the mistakes of others – a less costly path.  Build a sounding board that can help you take a step back and reflect and fix the “design” issues – e.g. if strategies need to be rethought or if the organization needs to be re-configured, if something or someone need to be dumped, and so on.  Your sounding board is of value because these people are slightly less deeply “in the trenches” than you are (see also “Building strong and weather-proof companies”).
  4. Surfing skills can come in useful at times:
    • Great products don’t automatically lead to customers or sales; your most important task is to find the “product market fit” (most companies die before they get to this fit).  As that well-known entrepreneur-turned-venture-investor Marc Andreesen put it: “Do whatever is required to get to product/market fit.  Including changing out people, rewriting your product, moving into a different market, telling customers no when you don’t want to, telling customers yes when you don’t want to, raising that fourth round of highly dilutive venture capital – whatever is required.”  Yes, including moving to a different market – we have seen a lot of that.  Equally, we’ve seen a number of markets with real potential (often helped by the new technology reaching certain price points) where the customers and users effectively pull the product out of the young companies.
    • The additional benefit of having a great market (or “surfing” the right waves) is that everything becomes easier … upgrading a team becomes easier, small product issues are less of an issue for the customer, and so on.
  5. Be a systems-thinking builder: build with a broad, strategic and industry-creation mindset: Some “ecosystem infrastructure” is often required to support the new and emerging industry and so growing your company requires creating or supporting these too.  The new industry needs acceptance and public support – something that companies like Facebook and Twitter are coming to a slightly belated recognition with.
    • Industries “supported” or designated as “high priorities” by certain national governments can create an advantage for themselves as the founders are seen to be on a “national mission” (e.g. the successful emergence and arrival of the Taiwanese semiconductor industry onto the “world stage” in the 1980s and 1990s).
    • “Cleantech”, considered an industry that “does good”, was able to survive the opposition of very powerful giants like the coal and oil industries in its early years; there was a high degree of collaborative spirit in the industry’s early years, and maintaining public support became easier as the industry grew and scaled because it succeeded in creating jobs and thereby more supporters (with an economic interest).
    • The rise of e-commerce in the late 1990s and early 2000s provides at least one important lesson: immediate cost advantage makes it so much easier to maintain public support.  For the 20 years since the rise of Amazon, there has never been any material or sustainably negative perception of e-commerce.  The consumer is a powerful vested interest and helped the industry’s perception as a “good guy” (while actually enjoying the benefit of the argument that they should merit no sales tax) and the “David” who was worth supporting.

Good founders are builders, and good builders keep iterating, testing their designs with customers, upgrading their team and motivation key stakeholders towards the mission or goal.  They also know intuitively that sustainable growth comes not just from their company becoming successful but others as well, and they evangelise beyond their own company to ensure the rise of their industry is broadly perceived as a good thing for society as a whole.  As yet another variant on the “great market or great team” debate, good founders know how to read and ride the wave but equally how critical it is to explain that wave to the broader community and lead the debate so as to manage “the rough edges” as a new industry gets built (or they “in-source” that evangelising work from an Advisor or Board member).

Finally, building a business in its early start-up stages is different from delivering good results within a larger well-established company or even building a new business within one; points #2 and #5 above are especially pertinent whereas features #1, #3 and #4 while relevant in any scale-up tend to come at greater speed for young start-ups partly because the consequence of failure or running out of capital is greater.

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