This article originally appeared in my latest eBook, “Board Composition.” Click here to download now!
Throughout my career, I have worked with a great number of high tech private companies, especially start-ups, based in the US, Canada and in Europe. In each situation I have interacted with their boards and CEOs, to help position or reposition the company through validation of their target market, doing due diligence on the technology and/or as a trusted advisor to the CEO and/or the board through major transitions.
I associate start-ups with realizing a dream, passion, excitement, financial sacrifice, financial independence and building the right team. I have always enjoyed the opportunity to support an entrepreneur and his/her start-up, their investors and executive team, and to be involved with the initial stages of what can become a great company. While starting a company can be very exciting, it is also extremely challenging. We hear a lot about the companies that realize great successes and achieve incredible growth, but we don’t hear as much about the many that just can’t get traction, that operate under a shoestring and are unable to raise capital, or those that never get the right leadership to take the business where it needs to go.
In line with this last point, most of the situations I have been involved with have been “highly stressed circumstances.” At times the investors on the board had invested a lot of money without seeing revenue realized in a realistic timeframe, so they brought me in to assess what they might have missed or weren’t able to uncover. In some instances, the CEO was bright but had not hired the right people and had not chosen the right leaders to initiate and focus on the right priorities. I’ve been brought to help initiate major changes within boards or leadership teams, and heated people dynamics benefited having a “business psy” who could relate to the whole situation: the technology potential, the intellectual talent and the importance and impatience around realizing growth. I have been trusted to help with the human dynamics between the CEO, the founder and the board, and all of these have been very sensitive situations, since the solution was sometimes that someone had to go and/or be demoted, and often it was the founder.
In every situation in which I was involved, I can attest that the challenges each start-up board had to overcome boiled down to a serious gap in the initial board composition and/or in the initial composition of its Pivotal Leadership Trio TM (PLT). Every situation deserved a thoughtful assessment, a sound resolution and minimal disruption during the process.
Building a business requires clarity about the people who will make up the initial PLT. Each has to be identified, selected and recruited extremely carefully. The start-up can’t afford to not have the right people to minimize disruption and ensure that the focus is on building, soundly, as quickly as possible.
I have worked with a number of founding CEOs, who were being demoted and ousted by their boards. In all situations, while I was introduced to support the founder of a company through this painful scenario, it was never my goal to tell my client what to do, but to show the scenarios available to him/her, and to ensure that there was an understanding of the pros and cons associated with each scenario. In assessing their decision to accept a demotion or to leave a company that he/she started, while having deep compassion and respect for their situation, when we took the time to reflect on the entire situation, I more often than not had to make the entrepreneur accountable for not having selected the right investor, for not having known how to humbly command their leadership as a founder and for not having known how to get the right support to set themselves up for success. As we played back what went wrong, the founder could see that she/he had ignored red flags about feeling misaligned in values or otherwise uncomfortable with the initial investors, recruiting a friend to the company or board who wasn’t an ideal fit or wasn’t well-liked by the investors, etc.
As an entrepreneur, the rush of getting a business off the ground can lead to the kind of impatience that undermines some decisions. Founders have repeatedly told me, “I needed the money, and this investor finally came through, and I couldn’t believe it, so I went for it.” The consequences of not carefully selecting the first investor to back you are much costlier than patiently taking the time you need to find the right one. And, in many cases, the first investor can be the source of other investors in the company, so if the initial relationship is not positive, the ripples can ultimately be detrimental to the success of the company and/or the founder.
I have worked with boards that had great investors and got blinded in keeping a founder who didn’t yet have what it takes to be CEO, ignored their gut feeling, and lost a critical opportunity. Investors who are wrongfully tolerant of a founder and/or new members of the executive team not being ready for the role end up contributing to limitations that could have been avoided.
If anything, throughout any of these situations, I have invited my clients to be more open in their communication, to be more disciplined about the roles and profiles that they had to initially recruit and when encountering issues and setbacks, to have the courage to be open and transparent. I bring them back to the reason they came together in the first place… not destruction, but excitement to build, to manifest a dream.
When working with companies in these situations, it has always been my goal to ensure that in the process, the focus would not be on placing blame, but on taking responsibility, developing maturity through introspection, forgiving all involved for not having been perfect, and being inspired to create and build again—and to make sure that no one’s sense of self-worth is destroyed along the way. It is also my role to ensure that the board and the founder can have an honorable process throughout so that everyone can recover with dignity.
I am not attempting to depict negative situations, as much as I’m attempting to increase awareness around the need to be strategic, thoughtful and conscious of every decision in building a start-up board, in knowing if and when the founder should be the CEO, and determining how to best build the initial executive team. The composition of the initial team, especially when the market opportunity is right, will accelerate or suppress the path to success partially or in totality.