Develop Transformational Leadership

Select cultural co-founders

Reid Hoffman has said that the first 6 employees should be considered cultural co-founders. One of our portfolio company CEOs has elaborated:

“Your first round of employees will have a VERY heavy impact on the fingerprint of the culture. They help lock in mission and vision, decide core values, and help hire the next round. In this stage, you are looking for smart employees (of course), but maybe even more important, employees that you think you could model the culture after, because whether you like it or not, they will have an impact.” – Travis Terrell, Soundstripe Co-CEO

Another very important consideration at this point is visionary vs. integrator mentalities. Ensuring a healthy balance among the founding team will pay dividends. Scratch beneath the surface to understand which is which – it’s not uncommon for people to claim (or want) one but actually tend toward the other.

Learn what ‘great’ looks like

There is a common saying: our perspective is limited by the best we’ve ever seen (up close). Vocap Partner Mike Becker got a reminder of this concept on the golf practice range recently. He noticed the guy next to him hitting one beautiful swing after another, intentionally dropping balls into divots and still shaping each shot exactly the way he wanted. Mike thought: this guy is unbelievable; he must be on the PGA Tour. Turns out he’d been struggling on the Florida Sunshine Tour for years and was considering dropping out. His swing wasn’t holding up under tour conditions and he couldn’t hit key pressure putts. What appeared great to Mike based on his untrained eye was well below average for a touring professional.

If you’ve built a company to significant scale before, you’ve likely experienced this in your business career over time: candidate or employee X looks like a superstar to you initially. You think - this person must represent the pinnacle of their job title. Then, at some point down the line, you were exposed to more people in that role and became aware person X isn’t as great as you thought. It’s not that person X was bad or even mediocre, it’s just that more exposure opened your eyes to what truly world class looks like. You develop a new standard for an exceptional leader/manager in that role.

Founders should internalize this concept, especially those who have less experience growing companies to significant scale. Always check yourself on whether you really know what world class looks like. How does a world-class sales leader build and drive execution on her team? How do top product leaders stay on top of market needs and consistently deliver solutions that beat the competition? How do great COOs and CFOs integrate the functional areas and leverage metrics and data to help the overall company drive strong execution? In short, how do you know when you have ‘great’ talent on your team or in your candidate funnel?

First, start with your mentality. The most successful entrepreneurs assume the best they’ve seen is somewhere short of world class, true or not. This attitude does a few things:

The most successful entrepreneurs assume the best they’ve seen is somewhere short of world class, true or not.
  • It keeps you hungry for better and better players to coach your current players or to upgrade talent on your team.
  • It forces greater appreciation for what world class talent can bring. Think back to the golf example: if that player dominates the field locally, imagine what a PGA tour pro would do.
  • See more in the upgrading and upfilling section

A quick word of caution: don’t let this mentality shift become paralyzing. You have to hire the best person you can attract at that time.

Here are a few other practical suggestions for how to identify ‘great’ talent if you don’t have direct experience to guide you:

  • Look at your heros’ heros: think about the people you like and admire most. Who do they look up to and learn from? What do they do differently? Ask them!
  • Lean on advisors: you likely have advisors, investors or peers around you who have worked with some world-class executives in a given functional area. Seek their input as you define ‘greatness’ for the role. Whenever possible, include them in your screening and interview processes to help you separate the wheat from the chafe.
  • Dig into past experience: as you interview new candidates or consider current employees’ readiness for their next role, use their past experience as your best predictor of future success. Has this individual previously led or at least helped manage their functional area through the type of growth you are targeting? If not, do they have an insatiable curiosity and demonstrated track record of success in new initiatives they have taken on? For new candidates, dig into team structure and circumstances of past roles to get past the ‘we’ and into the ‘I’. What was the candidate’s specific contributions? Is it clear he/she was the talent driving the outcomes or were others propping them up?
  • Keep stage relevant: you are looking for ‘great at your stage’. Elissa Murphy may not leave Google and become your next VP of Engineering. She may not even be the right fit for where you are as a company. Seek talent with a track record and interest in driving results at your stage. Don’t worry too much if they are the right fit in 2-3 years when you’ve tripled in size. Can they drive great outcomes now?

Foster leadership cohesion

Patrick Lencioni tackles this topic masterfully in his book, The Advantage which we strongly recommend. Several concepts in this guidebook borrow from his writing.

In a nutshell, Patrick argues you must establish trust and unlock genuine vulnerability. In other words, leadership teams are most effective when each executive trusts that the other is i) fully bought in to the MVV, ii) committed to the common objectives, iii) competent and iv) transparent about their own shortcomings. These are the conditions for early issue raising, productive conflict, peer-to-peer accountability, and clarity around the path forward. Easier said than done.

Lencioni’s checklist below can act as a quick gut check, but keep in mind this is highly simplified. Just like real life has many shades of gray, there are many layers of nuance to each bullet. For a deeper understanding of this topic and practical tips, read ‘Discipline 1’ of the book – it’s well worth it.

Regarding the last bullet, try inverting the question using the ‘selfish fisherman test’: the selfish fisherman yells at the other side of boat, "your side is leaking!" Is anyone more focused on their department's success than the company's?

The simple grid from Radical Candor is another useful tool in the toolbox when considering leadership interplay.

Relatedly, personality tests and services like CloverLeaf can be useful in establishing trust and eliminating misunderstandings. For more on this, refer to the ‘Utilize Personality Tests’ section.

Upgrade and upfill

Upgrading upon loyal employees is one of the hardest parts of scaling a business. It is also one of the most critical. The popular adage, ‘what got you here won’t get you there’ not only applies to execution tactics but it can also apply to people. Since different stages require different skillsets and experience, full lifecycle leaders are exceedingly rare. As you scale, the absolute best person to be ‘Head of X’ is often someone other than the current person in the role. This is one of the more challenging aspects of being an early stage CEO: you need to honestly assess the capabilities gaps in each area of the business on a regular basis, then act compassionately but decisively when upgrades are required.

The same applies to the CEO role. The requirements of the CEO job will evolve from Doer to Manager/Doer to Manager to Manager of Managers. The skills required at each level are different. A CEO hiring her own replacement at the right time can be one of the smartest moves they make.

All of this becomes even more difficult when title inflation occurs too early. Offering a C-level or VP title can be a powerful recruiting tool early on but this often creates challenges later as you need to add senior, experienced leadership above current team members.

How to identify the deficits:

  • Look ahead: keep a close eye on the skills needed for your next stage of growth. For example, if your Head of Sales is great at jumping into deals with AEs and getting them closed, see how effective she is at hiring A-level talent and scaling sellers who take a deal full cycle without her involved. Co-selling with a small team of AEs may get you from $5 to $10M, but hiring and standing up a larger self-sufficient team will be critical in getting from $10-20M.
  • Think gaps vs. titles: it’s easy to get bogged down in the org chart specifics when planning leadership hires. Who will report to who? What’s the title? Who will feel infringed upon? These are not the first questions to answer and can actually lead you astray. Instead, start with a clean slate and focus on the experience, abilities, connections and knowledge the company needs to meet its core objectives. Once you’ve defined these, then think about roles, accountabilities and org chart specifics.
  • Consider timeline to perform: in many cases, the current person has all of the raw abilities to rise to the challenge, but it will take time. Coaching up doesn’t happen over night and sometimes the need to is too pressing to wait. Consider the urgency of the need.
  • Learn on advisors: experienced board members and external advisors can help you spot areas to level up before they become obvious. The more exposure your board has to your exec team (e.g. via presentations to the board or special projects), the more they can help. If you need advice in a particular area where you board can’t help, identify other top performing companies based in your city that have been through the growth cycle you are entering. Find out who is leading the functional area you need help in. Reach out and ask them what they would look for in a Head of X going into your next stage of growth. They will likely be flattered you asked and willing to share their perspective.
  • Be honest: deep friendships and loyalty can be a mental trap. Ultimately, if a member of your team is not right for the upcoming phase of growth, failing to address it becomes a disservice to the company and them.
  • Re-align titles if necessary: first, work internally to define roles and structure without titles (see competency gaps vs. titles). When everyone is clear on that, conversations about titles get easier. if you hire above an individual, consider whether a title adjustment is required. You might be surprised; this can come as a relief to all involved. While there is sure to be some initial consternation, growth-minded professionals will likely embrace a world class mentor coming in and leading the way.

How to act on it:

Here’s the good news: you don’t have to treat a role shift, title change or departure like a funeral. Celebrate the individual’s accomplishments to date and speak openly about next steps for the person’s career. If the company has progressed during their tenure, then they have built a great set of experiences and a compelling professional story.

There are several options:

  • Upfill: bring in a seasoned, proven professional above your current leader to drive the next phase of growth and help mentor this individual
  • Re-allocate: find another area to apply the skills that have been built to date by your tenured manager
  • Replace: at Netflix, there used to be (still is?) a common phrase delivered to people being asked to move on: “go be from Netflix”. This encapsulates the spirit of this difficult process beautifully. If they helped the company get to where it is today, then you are in a position to be a strong advocate and reference as they seek their next role.

Utilize personality tests and/or player cards

Personality tests can be helpful for understanding, unifying, and supporting each member of your leadership team. They typically ask a series of questions that identify characteristic patterns or traits that are used to group people into “personality types.” Some commonly used tests:

Why it’s important:

These tests help teams get to know each other better by illuminating individual strengths, weaknesses, and tendencies. Understanding what each person values, how they problem-solve and how they communicate builds trust and respect within a team. In other words, it answers the important question: how do I best work with this person?

Personality tests can also reveal who might work well together and in what types of roles. Some people may be more comfortable working independently, for example, while others thrive in collaborative situations.

As Leah Fessler writes in “ Managers are missing out on the most important part of personality tests ,”:

“Reflecting together on the accuracies and inconsistencies we perceived between our test results and our own self-image revealed our insecurities about our jobs, insights about which communication tactics we liked and disliked, and our professional strengths—all of this before we knew one another’s neighborhoods, alma maters, or relationship statuses. [...]

The information gleaned in these discussions offered a different kind of intelligence on the people in our work environment, intelligence that’s typically tough to gain otherwise.”

DIY vs. software vs. using a coach:

  • DIY: sign up for the test(s) directly and follow the suggested curriculum. As with EOS or OKRs, follow through is everything. Share results across the team, design follow-up conversation and revisit periodically.
  • Software: certain tools are great at collecting, visualizing and/or helping to interpret results across a team. Our friends at Cloverleaf, for example, have created a nice team dashboard as part of their system (partial screenshot shown below).
  • Coach: there are many levels of possible engagements, from a one-time facilitated session to a multi-week deep dive. The latter is likely overkill for startup and early growth companies, but the former can produce a nice bang for the buck.

Player cards:

Individual player cards can quickly convey things like working style and personal background and interests. Some organizations take this to an extreme, such as Bridgewater Associates which is famous for its sophisticated, peer weighted system with many categories of attributes . Others keep it simpler. Claire Hughes Johnson, COO of Stripe advocates that leaders write a simple guide to working with them which covers things like:

  • Personality type [our addition] – reference personality tests if a common reference point
  • What do I want to be involved in?
  • When do I want to hear from you?
  • What are my preferred communication modes?
  • What makes me impatient?
  • Don’t surprise me with X
  • Personal interests [our addition]

Try starting simple. We’ve found this to be a useful tool.

Use with care:

While personality tests can be a helpful team-building tool, use them with caution. Some employees may feel like they are judged, placed in a box, or discriminated against because of their personality type. Be sure to reiterate that there are no wrong answers. Also watch out for tests with personality types that one might perceive as inconsistent with any core value. To use an extreme example, if ‘speak up’ is a core value, newly verified introverts may feel alienated. You can try to assuage the concerns by explaining the nuance but it’s best to avoid these clashes altogether where possible.

Lastly, personality tests should likely be avoided in the hiring process:

“They’re best used as a tool to unify and support your team, rather than to make hiring decisions. Personality tests are inconsistent indicators of performance and intellectual ability. They introduce risks of legal defensibility when used in business settings. Competency and cognitive testing as well as case studies are empirically better ways of evaluating performance capability. Cultural fit is better assessed with structured interviews and in-depth reference checking”. - Keith Kefgen, AETHOS Consulting Group

Prioritize and cultivate diverse leadership

It all starts from the top: diversity needs to be embedded in the highest levels of your organization.

First, it’s important to understand the full scope of diversity, which includes the following, among others:

  • Gender
  • Ethnicity
  • Age
  • Disability status
  • Educational experience
  • Professional experience
  • Religion
  • Sexual orientation
  • Parent/family caregiver status
  • Socioeconomic background
  • Veteran status

Each leader that brings a new perspective based on their life experiences reduces blind spots and stimulates greater creativity. Quite simply, failing to prioritize diversity will set your organization behind.

Countless studies show that startups that prioritize diversity perform better than startups that do not. Plus, potential employees increasingly value transparency and diversity and choose to work at companies that champion these principles.

Watch out: Hiring and firing for values fit is good. Using ‘culture fit’ as an excuse to hire people just like you is not. Avoid this common trap.

Prioritize diversity - good practices:

  • Don’t delegate it
  • Search for talent from a wide range of diverse sources and candidate pools (if applicable, push your recruiter on this)
  • Revisit your hiring criteria and interview practices. Are there clear biases? Make sure interview teams are diverse. Don’t assume every person with a particular background can do the same job that people with similar backgrounds had done.
  • Ensure newcomers are seen as one with the whole
  • Encourage conversations about diversity. Embrace the potential discomfort and break through it. It’s important to cultivate a culture of open communication and empathy.

Make the most of your board

If assembled and managed correctly, a good board can deliver tremendous value. The role of a board evolves as a company matures so be cognizant you are getting the right help at each stage. See below an illustrative table from Brad Feld’s Startup Boards.

On governance

We would add governance to all three stages. The word “governance” makes some people anxious, but it’s a critical function of the board, even in the early stages. Ultimately, board members are the guardians of the company on behalf of shareholders. There should be a healthy distinction between management and non-management directors. For example, it’s a good practice to hold non-management ‘executive’ board sessions after each board meeting.

Companies can go awry for a host of reasons. Strong board governance can at least prevent the avoidable mistakes by shining light on management’s blind spots before they become real issues. Given a high level of trust and transparency, this is healthy and should be jointly celebrated. It will accelerate the development of company leadership and ultimately drive a better outcome for the company.

Board size and composition

Many companies get caught up in the number of board members: three, five, or god forbid seven. When Vocap Managing Director Vinny Olmsted was CEO of Bridgevine his board ranged from five to eight members, and his chief focus was whether the board members were helpful. As a quick example, when Ray Oglethorpe (fmr. President of AOL) recommended that Vinny put Ted Leonsis on the board, Vinny’s first response was “hell yes, this guy is a great digital visionary”. There was a quick question regarding the fact that there were already seven board members, but Vinny held strong and Ted joined the board and proved incredibly helpful.

Vinny’s other advice on board construct is to find a wide array of backgrounds. Vinny’s board at Bridgevine had complementary skillsets: industry expertise (Ted Leonsis, Michael Leitner), venture and capital raising experience (Greg Stanger, Tom Wasserman), deep operating/management chops (Ray Oglethorpe), balance sheet and accounting mastery (Paul Becker), and extraordinary exit/M&A knowhow (Pat Welsh).

For more advice on boards, see Vocap’s series on board best practices. A few key concepts covered in the series:

  • Establish expectations upfront with any new board member (e.g. investor); solidify alignment and commitments around the statement: “here’s what a working board means to me”
  • Hold the board accountable to reviewing materials, coming prepared; follow up one-on-one if you feel a board member is falling short
  • Sometimes its okay to just update the board with no grander objective, in fact this keeps everyone continuously engaged (See The Monthly Board Call)