We’re in a crucible of change that will fashion a new cohort of leaders
Founders are used to managing through periods of uncertainty. But now, as we find ourselves driving headlong into truly uncharted territory, the road ahead seems to have dropped off the satnav. No one has been here before.
A global pandemic is fundamentally changing how we operate, forcing us to rethink our priorities. We believe the destination for our business is still out there somewhere in the distance, but the plan we started the year with can no longer be our roadmap – at least not for the foreseeable future.
As founder/CEOs shift into tactical overdrive - communicating with employees, customers and shareholders with much greater frequency, reworking financial plans, securing supply chains and the like - they will need others around them to backfill; leaders from their management teams that can quickly take on more responsibility and help steady the ship.
This is already happening in some of the companies we are currently working with. New leaders stepping forward to bring calm and direction; coordinating the transition to home working; adopting new practices for remote team collaboration; creating and driving new initiatives that will enable the company to emerge even stronger after the trauma.
Crucible of experience
The acclaimed HBR report, Crucibles of Leadership, provided some profound observations about how such leadership skills are developed. These are as true today as they were back in 2002 when the report was originally published - just as the dot-com bubble burst.
The skills required to conquer adversity and emerge stronger and more committed than ever are the same ones that make for extraordinary leaders.
HBR called these experiences that shape leaders “crucibles,” after the vessels medieval alchemists used in their attempts to turn base metals into gold.
“For the leaders we interviewed, the crucible experience was a trial and a test, a point of deep self-reflection that forced them to question who they were and what mattered to them. It required them to examine their values, question their assumptions, hone their judgment. And, invariably, they emerged from the crucible stronger and more sure of themselves and their purpose - changed in some fundamental way.”
As we manage our businesses through the impact of Coronavirus, we’re truly in such a crucible of change. The extraordinary leaders that will emerge will not just be the founders that came to the fore at this testing time but the leaders on their teams that really stepped up. This will be their moment too.
So, who are these leaders?
Let’s start at the top - your co-founder.
Basis Set Ventures published a seminal piece of research in December 2019 entitled: What makes a successful founder? This incorporated data on 60+ founders and their early stage investors. One of the biggest takeaways from this research was:
Having a complementary co-founder is correlated with success.
Feedback showed that 68% of co-founders with complementary traits were doing well, compared to 38% of co-founders without complementary traits. In other words, the best founders know their strengths and weaknesses and recruit a complementary team that maximizes the company’s chance of success.
There are also two adjacent insights here. The first is that it is often assumed that the success of a Tech startup is linked to the technical prowess of the founder/CEO. The research revealed that whether a founder/CEO is technical or not isn’t a factor in the company’s success. However, having a complementary cofounder, often a technical one, is correlated with success.
The second insight is that solo founders have a much harder journey. Investors are usually very wary of sole founders, even at the best of times.
The BSV report profiled three archetypes of founders who struggle for success:
The Passionate Outsider: Usually first-time founders, they are humble and hard-working. However, they don’t have good founder-market fit and don’t have a complementary co-founder to rectify this gap.
Overconfident Storyteller: Charismatic, compelling, and have high confidence. They are likely to be solo founders and they are often not humble.
Stubborn Individualist: Slow to adapt to learnings from the market and not empathetic to what the customers want. They are not good at articulating a convincing narrative.
This doesn’t mean to say that companies that have been formed around the vision of a single person are doomed! Far from it. In fact, where these visionaries have built a complementary core team around them, this is a sign of deep self-awareness and is positively acknowledged by investors.
The Chief of Staff role for the formative stages
One of the most striking developments in fast growth startups in the US over recent times is the emergence of a new role – the Chief of Staff. A title perhaps more often associated with big corporates or the offices of political leaders, this function is now appearing with more regularity in early stage businesses. It's now also starting to crop up in the UK.
The idea is to bring the day to day, internally focussed operational duties of the founder/CEO under the domain of an experienced executive, working in very close proximity. The objective is to free up the founder/CEO to focus on more strategic matters and the biggest priorities of the moment - in particular customer relationships and revenue generation.
Different companies will have a different spin on the role, but what it is not is a glorified PA. Whilst the title itself isn’t strictly important (some companies use the more conventional ‘Chief Operating Officer’), this is a very senior role. The result is the same; two experienced executives with complementary skills working in very close unison. The relationship must be founded on the highest level of mutual trust and respect. No room for any egos here.
Two of our current UK clients have strongly embraced this approach. They are both leading up to the scaling phase but not yet ready to hire a multitude of experienced functional managers across all areas. But all the core capabilities are already there in the ‘duo’.
Just watching how these two companies have come to terms with the COVID-19 challenges is particularly impressive. Both have rapidly transitioned their teams to a work from home model and at the same time have increased interaction with customers and partners.
Whilst both are gaining commercial traction despite current odds, they are taking nothing for granted. Both have adopted rigorous processes to continuously validate key business model assumptions as the landscape shifts around them.
As a result, these companies have not only been able to maintain operating tempo, they’ve also increased their resilience.
How much does experience matter as the company scales?
It matters, but not in the way you might think.
As businesses evolve, raise capital and take on more talent, the most successful seem to do so in quite an unconventional way.
Notion Capital recently undertook an important piece of research into the hiring patterns of the most successful companies. Called ‘The Unicorn Trajectory’, this was a data project that compared the leadership hiring patterns of B2B software Unicorns, and B2B software companies (the ‘Control Group’) that raised the same amount of VC money ($3m-$15m) at the same time as the Unicorns, but have never been valued at more than $100m.
They wanted to answer the question: In the first five years after taking venture capital, what’s the difference between the senior hires of the companies who become Unicorns and those who don’t?
Maddy Cross, Talent Director at Notion, has written several articles on the findings. There are many striking data points from this research, two of which link directly to the experience of the leadership team.
The first is perhaps not so unexpected: The number of years of experience of all leaders combined in an average Unicorn is significantly larger than the Control Group.
But the second is a real eye opener (please read slowly!): Unicorns have a ‘least experienced member of the leadership team’ that’s statistically less experienced than anyone in the Control Group, and during Year 3 to Year 5, the Unicorns have a ‘most experienced member of the leadership team’ that’s more experienced than anyone in the Control Group. This gap peaks at 23 years, when an average Unicorn has a least experienced leader with 6 years behind them, and a most experienced leader with 29 years behind them.
This is an incredible variance in ‘experience diversity’ as a company starts to scale. It would seem that hiring inexperienced but exceptionally high potential leaders, whilst complementing them with proven and experienced executives, is a strategy that works well as the company grows.
Making better decisions in a crisis
After adjusting to new working practices and taking prudent steps to improve the cash runway, early stage companies must now quickly reassess priorities for the coming months.
The most forward thinking are already re-examining the business drivers that until now have underpinned their business models. Many of these will have certainly changed and a few may have been swept away entirely in the past few weeks.
This sentiment is strongly reflected in our discussions with leadership teams in recent days. There is a palpable shift in emphasis towards revalidating critical business assumptions, especially for those in the lead up to the first scaling round.
This reassessment may take some time given how dynamically things are changing, but this also signals a change in priorities for our own team. We are rapidly shifting to the delivery of online tools, methods and facilitation for business model revalidation. Even for those teams that are on the cusp of launching funding campaigns, the priority is to first slow down before speeding up.
Ilya Fushman, a partner at Kleiner Perkins that recently announced they had closed a $700 million new fund, said that companies should hold off on deploying capital until they understand the business drivers that enable them to become category-owning companies offering a defensible product or service.
"It doesn't make sense to scale if you don't really know what you're scaling," Fushman said. "It's just good advice in a healthy market, and it's good advice during a downturn."
This article was also published on Medium in The Startup
About the author: John Hall is CEO and co-founder of Duet Partners. His 30-year tech career began with major US semiconductor and software companies. He was based in Silicon Valley during the '90's. Before Duet he was CEO of a VC-backed consumer electronics company, sold in 2009 following several rounds of capital raising. In the past 10 years since starting Duet he has advised dozens of founders on the startup to scaleup journey and is a retained Board advisor to a number of UK technology companies.