Last year, I almost started writing a book on “startup management”, and spent a good month fine-tuning a detailed outline and overarching thesis. I re-read that outline a few days ago, and decided to share a blog post version. (warning: it’s a bit long @ 2,900 words)
The tentative title for that book was “The Practice of Startup Management”, a riff on Peter Drucker’s 1954 classic, “The Practice of Management”. I was inspired by the story of how Peter Drucker discovered the practice of management, in 1938. After being rejected and ridiculed by the chairman of Westinghouse when he asked if he could make a formal study of his company, the chairman ordered his guards to never let Drucker back into the building. Soon after that episode, Peter Drucker got a call out of the blue from General Motors, inviting him to study the company. It was during this assignment that Peter Drucker discovered the practice of management, which we now take for granted.
In the world of tech startups, plenty of advice is given about bootstrapping, starting-up, raising money, and building products the lean way, but less is written on the practice of startup “management”, although that topic is peppered with piece-meal advice in the form of blog posts from VCs and entrepreneurs, in addition to the excellent book Startup CEO by Matt Blumberg. It’s a fairly new discipline that is often associated with anti-MBA thinking. While startups can’t blindly adopt traditional management philosophies, they can’t ignore some of them either. Ultimately, it depends on the stage of evolution the startup is in.
The thesis of my (unwritten) book is centered around three key themes that startups need to do well, and it is framed by the following three questions:
- How do you right-size your organizational structure for each successive stage of evolution, and when do you shuffle your functional areas so you can continue to hit on all cylinders, and not fail to grow?
- How do you compete vigorously across all elements of a sustainable competitive advantage spectrum?
- How do you manage your people and teams well, so they can perform effectively to help you reach your objectives?
Every day, the CEO must ask herself these 3 questions, and she must make sure her work contributes to their realization. If there is any doubt that something is not going in the right direction, then maybe you need to change something inside one of these areas.
Summed up, the 3 tenets are:
1) STRUCTURING right. “Do I have the right organizational structure?”
2) being COMPETITIVE. “Am I competing vigorously?”
3) MANAGING well. “Am I managing the people and company”?
So I’ll highlight some takeaways for each one of these 3 areas.
What kind of structure is needed for every stage of the evolution for a startup, and what factors come into play?
Because a startup undergoes several growth lives, each growth phase will be matched with the right structural underpinning to help it execute at that level, so it can reach the next subsequent level. Startups have a chance to not build a company the old-fashioned way, which was based on layers of management that were mostly information relays.
Up to approximately 12-15 employees, most startups look about the same, from an organizational perspective. Typically, there are 7-8 engineers, a product manager, a user experience/design expert, a CEO, 1 marketing person, 1 support or community facing manager, and 1 or 2 with administrative or accounting duties.
The number of employees seems to be the easiest factor to monitor, but it’s a relative parameter that needs to be weighed against the position you have achieved in the marketplace, your product maturity and revenue growth velocity.
The starting point for the right structure should be the need of the company, not the structure itself, i.e. don’t say I’d like to add a CMO to complete my C-suite list, but rather add that function when you really need one.
Since your startup will have several metamorphic stages on its journey, say from 15 to 480 employees, there will be different structural blueprints along the way. As a rule of thumb, when you double, you will probably re-structure. Sample phases: 15 to 30 – 30 to 60 – 60 to120 – 120 to 240 – 240 to 480.
On Structure and Growth
- Velocity of growth is different than growth. So, keep an eye on your growth rates progression.
- Not all growth is the same: there is growth (+100% Q/Q), hyper growth (+500% Q/Q), and steady growth (+20% Q/Q)
- Know when to build-up (doing more at a larger scale), blow-up (it’s not working), or break-up (it’s working but we need to manage it in smaller chunks).
On Activities, Decisions, Objectives
Structure is also a function of Activities needed to take Decisions, while keeping track of the Relationships to reach your Objectives.
And since your Objectives don’t cease to change, you continuously have to re-assess what people you need to have in place to make those decisions. Simply, it’s all about your performance objectives and the activities that are needed to accomplish these objectives.
On People’s Titles
There are some interesting new positions and titles that are emerging, such as Growth Hacker, Community General Manager, Chief of Staff, Manager of Happiness, etc. Make sure you separate the cuteness of a new title from its substance. You can only win with a great team, so focus your time on building one.
On Virtual Structures and VC Mentors
Always ask “who can help to get me there” and know “what you want from mentors”. A startup has to continuously bring an outside view into its thinking to help it get to the next level. And it’s OK to change horses during the race. Founders that haven’t been there may need more varied advice. Not everyone can figure out what they haven’t done before.
You can even break free from your VC advice if they aren’t moving the needle for you at a certain phase. Sometimes, your Series A VC can’t help you as much in the scaling part or in sales / business development if their expertise was limited to early user growth and traction mechanics.
On Mentor Blind Spots
Anyone outside of your company risks encountering blind spots when they are trying to help you, because you’re not telling them everything. So don’t fool yourself if you take advice from someone after revealing only a part of the story. I see this over and over again. Entrepreneurs have a false sense of security that comes with having VCs on their board as a safety net. You can manage to screw-up even with the best VCs on your board.
There are 4 Phases of a startup culture’s evolution. First, it’s in your head, then it’s in a couple of slides, then it’s officially on a Web page, and then it turns into an e-Book or several slides. Remember, culture is not something you prescribe. You evolve towards it, and you live it. I wrote a comprehensive guide to startup culture, The Ultimate Guide to a Startup Company Culture.
Being competitive means doing a lot of things right, maybe a dozen of them. It doesn’t start when you believe you have a strong business model, but it begins when you start to realize its implementation to the point of total defensibility. Arguably, Business Model Realization is more important than the business model itself.
On Your Value Proposition
If your value proposition is not down packed, you may be running into future trouble. A lot of initial traction doesn’t necessarily mean a strong value proposition. Viral growth can be misleading, if your value proposition is not strong for users to come back and tell others about it. Your value proposition answers this: For WHOM are you providing credible BENEFITS, at what COST/PAIN/PRICE, and for what OUTCOME?
On Customer Value
Your customer determines your business, not your product on its own. It’s what the customer does with your product, and how it changes them. Remember this quote from Peter Drucker: “What the customer buys (or uses) and considers value is decisive, and it is never a product. It is what the product does for them.”
On Your Business Model
Business model realization is more important than product/market fit, if you want to sustain yourself. There is a time lag between the 3 phases of a) user growth, b) figuring out the revenue strategy, and c) a successful execution of it. Fred Wilson calls this progression: Product>Strategy>Model.
On Success and Growth
Is growth the result of success, or is success the result of growth? Growth is the result of doing something successfully, not the other way around. But success isn’t always the end result of user growth. Some companies go for growth and equate it to success, but that’s not always the case. Beware of that trap. Don’t confuse growth with success.
Always let them guess your strategy. Never reveal it. Let it unravel after the tactics are accomplished.
Know the difference between corporate marketing and demand marketing. You eventually need to do both, but everything folds into one of these 2 camps, no matter what novel new initiatives emerge in the world of marketing or its automation. Don’t get caught in the marketing automation tool du jour, just because someone else is using it. Make Marketing the 3rd leg to success, after product and engineering. And remember 5 things you should do really well in marketing: go-to-market approach, value proposition, communications, positioning, and branding.
Don’t confuse messaging with positioning. Positioning starts with your product, but it is not what you do to a product. Positioning is what you do to the mind of the prospect. This means that you position the product in the mind of the prospect. It’s like thinking in reverse. Instead of starting with yourself, you start with the mind of the prospect.
Brand power, done well, has infinite value, and it keeps growing almost forever. Whereas market share has a finite limit, mind share doesn’t. As a startup, if you begin to worry prematurely about your brand, you are really wasting time. But branding done well works like magic in solidifying your competitiveness in the marketplace.
On Messaging, Messaging, Messaging
When you infuse a discipline about your messaging and its intended segmentation, a lot of your marketing, media relations, sales approaches and website content flow naturally into place. Know your messaging segmentation, and keep refining it.
On Marketing Warfare
There are four classical marketing approaches that were originally outlined by Al Ries and Jack Trout in their famous book of the same title: Offensive, Defensive, Flanking, and Guerrilla. Most startups enter the market via flanking or guerilla approaches. Only the leader gets to play defensive, because everybody else wants to attack them. And only the #2 and #3 players can afford to play offensive against the leader, because it is expensive to attack. So, the sooner you emerge as a leader in your space, the better you’ll be.
On Go to Market
Many startups undershoot their go-to-market. Some overshoot it before the product is ready to live up to its hype. Only once you have nailed the MVP and achieved Product/Market fit that you need to decisively go to the market with force, and with the right strategy that takes into account how your business model assumptions contribute to realizing your revenue potential. A common mistake is to remain timid with limited marketing programs and influencer marketing, and rely solely on online marketing. Another mistake is to not use email marketing to build a relationship with your customers/users, and to keep them informed.
On Building your Ecosystem
Having a strong ecosystem around your product and company is the ultimate reward and final step in building a sustainable business for the long term. It’s a sign that your startup has become a fortress. Start by making your product also a platform that others depend on. The stronger your partners will be, the stronger they’ll make you.
There is life beyond reaching product/market fit, because Product/Market Fit is a continuum. The first aha may be the start, but you need to keep evolving and maturing that fit. Product/Market enables to do a number of things you couldn’t do before in the areas of sales, marketing, user engagement, cost structures, customer relations, channels and your people. So go do them. Don’t be a one-trick product pony if your market is asking for more. Start diversify and extending your initial product as early as you can.
Three things to remember about customers (or users): 1) support your customers, 2) understand your customers, and 3) use your customers. Most companies do #1 and #2 well, but fall short on #3. “Use” your customers for referrals, case studies, reference calls, testimonials, and become well versed in the art of Advocate Marketing.
If it’s time to crank-up revenues, and you don’t have a sales culture, you’re dead. A young founder/CEO who has never worked in a sales driven organization will most probably underestimate the importance of having a highly charged sales department. No, your product will not sell itself. Or maybe it might at the beginning. A great product makes it easier to sell, but it doesn’t replace sales.
Of the 3 sections, this section may be the one where traditional management approaches will apply more. After a certain growth stage, how you manage your people will be a critical part of your success.
Break Free from Lean
Lean startup is great for starting-up, but is not an operating model for growth companies. Being lean and having lean processes are good things, but insisting on being in customer development mode forever is a crutch that startups need to break free from. Otherwise, you risk being lead by what’s under your nose, and you’ll be stuck with the incremental mentality of small gains. Hopefully, you’ll realize that you need to do more than growth hacking to grow your company. You need to Leap forward with some bold moves. No one will remember your iterations, but when they write about your success, they will remember your shots.
Understand well your levers of company growth, and use marketing to its full potential. Marketing is for growth. But growth isn’t always incremental or linear. You need to take some giant leaps sometimes, and that can make a huge difference in how you emerge as a market leader. Remember Dick Costolo’s advice: “Failing to make bold choices. That’s how you fail. You start to focus only on incrementalism, instead of making bold choices.” Growth hacking is a bridge to (full blown) marketing. Growth is the lifeblood of startups. There are 4 ways to grow: viral, paid, pull and push.
What are you Managing?
Related to the point above, another trap occurs then the CEO can’t stop managing the product, and sees the product as a solution to everything, instead of looking to diagnose other parts of the company, e.g. sales effectiveness, strength of the value proposition, marketing, etc. Don’t fall in love with your product. Stop managing the product, and start creating a company. And review this comprehensive Startup Founder-to-CEO Transition checklist.
On Planning and Objectives
Initially, your long term planning is minimal, and you’re managing day to day, week to week, and month to month at best. Startup cycles are measured in dog years: 3-4 months are equivalent to a year. But eventually, the dog years get longer, and you’ll need longer planning cycles. The best way to achieve results is to Manage by Objectives. That hasn’t changed for years, and probably won’t change for a while.
Understand budgets vs. burn rates- they aren’t always the same. Becoming cash flow positive is great, but if that can’t finance your future growth, you still need to raise more money. Don’t forget to factor sales and marketing costs; that’s the price you have to pay for success. Once you reach 50+ employees, get yourself a real-time financial reporting system so you know at anytime your financial position, including the % of target vs. budget, but don’t manage by spreadsheet.
On Thought Leadership
Your leadership can start with thought leadership. But thought Leadership is not product messaging or a list of product features. Thought leadership has to be an original juxtaposition of new ideas that are authentically yours. Done well, thought leadership cannot be copied, or it will backfire in the face of the copier. Great thought leadership will be quoted and referenced elsewhere, and it’s important for your brand and for your demand generation. The magic happens when your story and narrative start to have pull on their own.
On Recruiting, Fundraising and Selling
3 things that a CEO should never stop doing are: Recruiting, Fundraising and Selling. You’re always scouting for new talent that can join your startup. You’re always fundraising to put money in the bank and continue operating as long as it’s needed. And you’re always selling. If you don’t sell, you will be outsold.
On Self-Awareness and Mental Preparedness
Jerry Colonna is the expert voice on the topic of helping yourself to be mentally strong, knowing your strengths and weaknesses, and listening to your inner self. As a startup CEO, it’s lonely at the top, but only if you keep yourself lonely. I’m not an expert on this topic, but I believe in how Jerry explains it, because it can make a big difference to CEOs that need that extra edge. Peer to peer groups can help the CEO to some extent, but that may not be enough.
That’s it. This was the book I was going to write last year, and is currently on the back burner, until I finish the book on startup marketing.