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.
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:
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:
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.
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:
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:
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:
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:
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
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:
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:
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.
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: