This week on the startup to scaleup journey:

• Emotional Intelligence is now a critical founder skill
  
  

Emotional Intelligence is now a critical founder skill

Emotional Intelligence is considered to be one of the key traits of successful founders. Who would argue that the ability to understand and manage your own emotions, and those of others, is a crucial 'soft skill' for any leader?

But until recently emotional intelligence (EQ) was considered to play a relatively minor part in entrepreneurial success compared to cognitive intelligence (IQ). A study of more than 65,000 entrepreneurs has now found that their EQ was not just a factor but was the KEY to their success.

Lead researchers Regan Stevenson and Jared Allen claimed in their synopsis, "We found that both cognitive intelligence and emotional intelligence indeed both matter for success, but emotional intelligence was 8 times stronger of a predictor of entrepreneurial success relative to cognitive intelligence."

In a recent interview, Stevenson added: “Our research indicates that the extreme nature of the entrepreneurship setting makes EQ critically more important than IQ when it comes to predicting success. We expect this to be especially so during times of major disruption and crisis.”

For many years now, forward-thinking VCs have assessed founders on their people skills. This level of diligence was temporarily abandoned in the market frenzy of 2021/22. But now we know that EQ tops IQ in determining entrepreneurial success, it is set to become a much bigger priority for startups and their investors.

So, what is EQ and how can we further develop this vital capability?

What is EQ?

Definition: The ability to recognise, understand and manage your own emotions and recognise, understand and influence the emotions of others around you.

In simple terms, low-EQ people typically fail to listen well to the concerns of others and struggle to see things from other perspectives. High-EQ people are better at developing social networks and fostering constructive and harmonious relationships.

In the startup world we place high value on 'hard skills', e.g. your technical capability, your industry knowledge, your problem-solving ability, etc. These are all very tangible. But soft skills are just as critical. The problem is they are intangible and so are harder to measure and train. Because of this we rarely think about them, let alone focus on them.

But great leaders know that emotions drive behaviour. Learning how to manage emotions, and influence them in others, lies at the root of managing behaviour. In the startup, high-EQ founders align desired behaviours with the culture they so passionately seek to create. This becomes the secret engine of motivation and performance.

Strong EQ = Strong culture.

Time bomb

In the startup, low EQ is like a time bomb. The impact can remain hidden until it's too late:

• We often don’t notice it in the formative stages. Here, individual contributors are the primary drivers of progress. But as the organisation grows and founders and early team members transition to managing others, problems start to occur. Great individual contributors are often associated with high IQ.  But great people managers also need high EQ.
  
• The Founder/CEO position is by its nature a high-pressure role. When things go wrong, all eyes - especially those of investors - are on you. High EQ founders possess high levels of self-awareness. They build strong teams by understanding each person's strengths and weaknesses. Low EQ founders struggle to build this resilience. The high pressure then becomes their undoing.
  
• Startups constantly face existential threats until they become self-sustaining businesses. They must move fast to survive. But the danger in hard-driving startups is that low-EQ founders often just see people as 'assets to deploy'. In the frenzied push for progress, soft skills can be seen as peripheral. High-EQ founders surround themselves with other high-EQ people. They all perform better and are less likely to burn out.

There is also a generational factor to consider. Founders that learnt their people skills in the corporate world of the 1990's and early 2000's may foster more' traditional' attitudes towards the work environment. One of these is that people should only bring 'good' emotions into the workplace i.e. positivity and happiness. The rest should be left at the door.

Susan David, psychologist at Harvard Medical School and author of Emotional Agility, says that as soon as you say to people that they have to be positive, you are running the risk of: 1. Stifling innovation (because innovation 'holds hands' with potential failure), and, 2. Stopping collaboration (because collaboration holds hands with potential conflict).

In other words, you are stopping people from being agile and effective. This is the very essence of the startup.

VCs evaluating founder EQ

Assessing EQ is becoming a critical part of the VC due diligence process.

Fast Company interviewed 8 VCs and identified a range of questions investors ask to determine whether they’re being pitched by emotionally intelligent founders. The questions vary from investor to investor but the intent is the same.

One of the VCs, David Greenberg at JMI Equity, says "It starts with self-awareness, meaning they have a good handle on their own strengths and weaknesses...they’re not afraid to ask for help, are open to ideas, are good listeners, and empower other executives on their team.”

Janet Bannister, general partner at Real Ventures says that “A leader with strong EQ can hire people to complement their skill set and cover for areas where they are weak. However, someone low in EQ will never be able to attract, retain, and motivate high performers – and therefore will have huge difficulties in scaling a company.”

One of the reasons that due diligence cycles are extending right now is that VCs are spending more time on understanding team dynamics. Some will purposely meet the team without the founder present to get a sense for the 'vibe'. This is becoming common at early stage. At later stage, investors will potentially expand their analysis to other key leaders in the management team. In some cases this may even involve the use of formal methods, such as psychometric testing.

Improving your EQ

Emotional intelligence is to some extent shaped by genetics and experiences. Some founders are naturally imbued with a high level of EQ and others aren't. But EQ is something that all founders need to be more aware of, to practice, to improve upon. It is at the core of self-development, so the motivation for improvement must be intrinsic and personal.

For those seeking deeper insight, a great place to start is Daniel Goleman's book, Emotional Intelligence - Why it can matter more than IQ. A key observation, also shared by other experienced practitioners, is that unlike IQ there are no standardised tests in the world of EQ. The result is that most people overestimate their capability.

But the reality is that you are never going to be the best judge of your own EQ.

Founders who are motivated to take more concrete action should consider executive coaching. Phil Catterall is an executive coach that deeply understands the entrepreneurial journey. Over the past 8 years he has worked with many founders as well as high profile fund managers and other business leaders. His early career was in sales and marketing for a variety of US software companies. He had his first 'EQ epiphany' when building his fintech start-up.

From his own case study, he states: "Revenues had plateaued. I was working harder and harder but was not experiencing growth. Exhausted and confused I started to work with an executive coach on developing my self-awareness. It was a surreal awakening experience as some of my blind spots were exposed. I saw with new eyes that my management team was unbalanced and lacked some key operating skills. I had been leading largely based on my own business development outlook and my cognitive thinking abilities."

He adds: "With greater clarity on what the business needed, I recruited new leadership talent and led with more effectiveness. My business started to fly and attracted several interested buyers, resulting in a highly successful sale and exit." Now, with his executive coaching practice, Catterall often meets entrepreneurs that have the passion but feel uncertain about how their natural abilities align with the role they find themselves in. Having lived the journey himself he has a special vantage point from which to help.

In summary

Emotional Intelligence is now known to be more important than IQ when it comes to predicting startup success. That's why investors are becoming increasingly proactive in evaluating EQ in both founders and their teams.

Great leaders know that emotions drive behaviour. Learning how to manage emotions, and influence them in others, lies at the root of optimising the performance of the entire organisation. Strong EQ = strong culture.

EQ can be developed and strengthened. The reality is that you are never going to be the best judge of your own EQ. To expect progress, a founder's motivation must be intrinsic and personal.

Start with reading around the subject. Those committed to making deep and lasting improvements should consider executive coaching.

Let's talk!