Lessons from Failed First-Time Founders

In my conversations with founders who failed the first time around when CEO was their first “real job,” I often ask about the key insights they took away from their experience.  Many founders don’t talk publicly about this, as they don’t want to denigrate their prior company and its employees, customers, and/or investors. But their insights are quite valuable to future young first-time founders and are worth summarizing and sharing.  I will focus more on operational decisions and learnings, as these tend to be most transferable, but obviously market selection matters a lot, as being in a market that is growing rapidly covers up a lot of operational sins that any founder will make.  Below are 5 takeaways that come up again and again in these discussions:

  1. Team Matters

An obvious point, but maybe not in the way you think. Who you hire is critical, but this first principle of building a company is often interpreted by young first time founders to mean that they need to hire “adult supervision” and people with the right resume.  This sounds great in concept, but in practice most founders end up hiring these “seasoned” veterans either too early, or not carefully enough, and end up with executives on their team who may have sounded great in terms of skills and experience, but have no idea how to operate in an early stage, rapidly evolving company.  

Further, bringing in a senior team too early – especially in product and customer facing positions – works to remove the founder from the front lines and slows the learning cycle.  This does not mean you should hire all your friends, as while that makes for a fun environment, it often does not put the right people in the right jobs and it’s really hard to tell your college roommate they just aren’t cutting it any more.  Instead, look for up and coming talent with skills and experience that are relevant to a portion of their new job, a history with start-ups, and prioritize above all else the cultural fit and passion for your mission. (David Cancel wrote a great post on this topic here that covers all of these points with much more expertise than I have). Remember, when you find this talent it does not mean you can check the box and move on to the next critical open position.  How you onboard your talent to make sure they are aligned with the vision, trained on key aspects of the business and integrated into the rest of the team will be critical to their effectiveness.  Finally, if you make a mistake, fix it quickly. In a small team it only takes one or two misaligned, cynical, negative assholes to screw up your company.

  1. Find your balance

A hard part for first time founders who have never worked in a company of any size is finding the right balance between being nimble, informal and on top of every detail on one hand, and putting in place rigorous formal processes and discipline on the other.  Too much process and structure too early and you slow down and are too removed from the front lines–stay informal and involved in every detail too long and you become a bottleneck and a micro-manager with a team that is not empowered.  Far easier said than done, but a few suggestions to help you find your balance:

  • Always ask yourself if you are slowing down critical decisions.
  • Decide what areas are most important to you personally, where you want to be the slowest to cede control, and be explicit about this with your team so they know your hot buttons.
  • Start with lightweight team meetings every week and then every quarter asking yourself and your key lieutenants if the cadence and process is working, or if there are ways to improve.
  • Seek out either a coach or other founders who are one step ahead of your company in terms of maturity and get their advice on how they changed their style at important junctures in the company’s life (important breakpoints are around a dozen employees, around 30 or 40 employees, and around 80-100 employees).
  1. Be on top of the metrics

Regardless of finding your balance point, one thing you can’t delegate as a founder is knowing the key metrics of your business inside and out and how they interrelate with each other.  While these change from company to company, in early stage businesses they can all be boiled down to cash, adoption, and customer success/engagement.  Know when you are running out of money to the day, and know how this changes if you grow more quickly (which often brings in the date much to the surprise of many first time founders), or more slowly.  Know how many customers/users you are adding every day/week/month and how this compares to the growth you need to achieve lift off.  Know whether you are delivering on your value to these customers/users and where you are falling short.  In addition to understanding the key metrics, set goals for how they are going to change and grow over time.  On this front, a common mistake of first time founders is setting unrealistic goals under the assumption that if you ask people for the stars you at least get the moon, but the best CEOs I know set goals that are a stretch, but most likely achievable, as this allows them to develop a culture of winning and a sense that they are on top of their business.

  1. Your Investor(s) & Board Matters

One of the issues I see over and over again with first time founders is that they got sideways with their board, and investors more generally.  This problem often starts when raising capital and the desire to take any money that’s on offer, rather than the right money.  It’s your company; so treat any investor you take on as you would any employee you take on, make sure there is alignment with your companys mission, thesis, and goals, and you should reference check them, again just as you would with a prospective employee.  Once they are involved you must maintain a healthy relationship, which starts with communicating regularly, having bad news travel as fast as good news, and not sweeping potential disagreements on direction or strategy under the rug, but rather addressing those issues head on.  A fear of many first time young founders is that the Board is looking to replace them as CEO as quickly as possible. With some investors this is indeed their pattern, so understand their biases (from talking with prior companies they have been involved with) and call out the issue explicitly as the lingering fear strains relationships and leads to less frequent communication, which only exacerbates the issue. It also helps in navigating your first set of board relationships to find a mentor or outside board member (that don’t have a significant stake in the company) to provide coaching and help resolve intercompany issues, and act as independent mediator if necessary.

  1. CUSTOMERS MATTER MORE THAN ANYTHING ELSE

And finally, another first principles comment, but remember to stay CUSTOMER FOCUSED above all else. It is way too easy to get distracted by hiring, leading, raising capital, and dealing with a Board, not to mention obsessing over competitors or what is going on in the broader market, and when you lose this focus on customer success, your company will lose its mission, and consequently, its chance to succeed.

3 thoughts on “Lessons from Failed First-Time Founders

  1. Sergey Ukustov May 6, 2016 / 9:59 pm

    Chip, could you tell, please, if “when CEO was their first “real job”” means being CEO for the first time while having some previous professional life, or having a real job for the first time ever?

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  2. ukstv May 6, 2016 / 10:00 pm

    Chip, could you please elaborate on what “CEO was their first “real job”” actually means? Does it mean the first job ever, or being CEO for the fist time while having some prior professional experience?

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    • Chip Hazard May 7, 2016 / 5:22 pm

      By that phrase I meant that being CEO was their first professional job ever

      Like

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