The secrets to success
By Kevin Fitzgerald
In the past, startups were mainly seen within the technology sector, but they have since expanded to other industries that are facing unmet consumer and enterprise needs. Today’s startups have no singular formula for evolution and expansion. They can scale through acquisition or fundraising, with numerous financing options from private to public.
However, we have seen confirmation that the number of fundraising rounds and funds raised do not directly equate to success. For sustainable growth and success, three factors have consistently played a critical role: leadership, in-house talent, and management structure. Let’s take a look at the necessary steps founder-led startups should consider as they transition into their post-founder era.
American venture capital firm First Round Capital says that 80 percent of a startup’s culture will be determined by a founder’s personality, strengths, and weaknesses. The founder’s identity seeps into the startup, and it becomes a significant extension of the founder.
This means that advice about founders leading their startups will often vary. Many people argue against it, saying that startups cannot entirely rely on a founder’s identity if they want to scale and survive long-term (HBR).
However, in the early days, startups will see founders playing a critical role in their success, wearing many hats, and filling in organizational gaps to set up a strong momentum for growth. This also signals the need for founders to be versatile, adaptable, and agile to be in many places at the same time until resources permit otherwise.
Evolved role of founders in mature startups
As startups mature, founders could have turned themselves into well-known and highly regarded brands with a proper product-market fit.
Essentially, they have ceded control and have moved aside to allow experienced and specialized professionals to participate in expanding the business or perhaps taking over that task entirely. The founder’s former responsibilities would evolve either into in-house management or the board or through externally in roles such as venture capitalists (HBR). Significant examples include the most recent stepping down of Google founders Larry Page and Sergey Brin, as well as the resignation of Steve Jobs as chief executive of Apple and the stepping down of Bill Gates as founder and chief executive of Microsoft in 2000.
Some founders do stay on and concentrate on other business matters with the more strategic, long-term lens, without being tied to day-to-day management. This option ensures that the startup becomes a profitable, sustainable enterprise. Take a look at these examples:
Jack Ma took 20 years to build and transform his B2B marketplace startup Alibaba, with ten of those years spent preparing for his retirement (CNBC). Today, the Alibaba Group has a market value of US$460 billion and has branched out from e-commerce into areas such as cloud computing, online payments, artificial intelligence technology, and publishing (SCMP).
Ma, who stepped down as executive chairman in September, will remain a company director until 2020 and holds lifetime inclusion in the Alibaba Partnership, composed of management partners who embody and promote the group’s mission, vision, and values. It is a move that will help to keep the founder’s legacy secure as the company itself changes.
Beginning in 2003 as a “fork” of another blogging software company, WordPress has become the content management system (CMS) of choice, powering 35 percent of the internet. Entire businesses have also sprung up around its ecosystem of plug-ins, themes, and hosting services.
Its parent company, Automattic, has a US$3 billion valuation, and what all startups want – longevity, and a unique working style befitting its in-house talent.
WordPress, now 16 years old, is staffed by remote teams worldwide. It once had a large headquarters in San Francisco, but only five people used it.
Matt Mullenweg, co-creator of WordPress and founder of Automattic and the WordPress Foundation, also has a trait common among startup founders.
After more than a decade of calling the shots, he said in 2014 that he was ready to take on the CEO role, but also recognized the need for both right talent and a change in his tight management style to expand his company. WordPress remains founder-led today, but this statement from Mullenweg paves the way for a future talent- or the team-led setup.
Xero, the cloud accounting platform, has also transitioned from being led by Rod Drury, its founder, and former CEO, to an executive-led company with the same drive and enthusiasm as the professionals they serve.
Drury stepped down last year after 11 years in charge. But he continues to make appearances at Xerocon events worldwide and has a non-executive director designation on the company’s board.
He has also shifted his focus to making new products for Xero, spending more time with his family and pursuing this personal passions and interests.
Today, Xero is in the capable hands of CEO Steve Vamos, a tech industry veteran that has since brought the company past its 2 million subscribers, announced in November 2019.
How to make a post-founder era work
Once the founder’s role changes and the management structure has been set up, what happens next?
As the founder carries out succession planning before the eventual exit, startups should see this as an opportunity to establish stronger frameworks and long-term strategies that can take it to the next level.
The new corporate leaders – particularly those who come from other companies and industries – could be more objective when reviewing current policies and processes, and make more strategic decisions.
Steve Vamos, Xero’s CEO, said that startups that are transitioning should stay focused on ambition, a future-centric view, and most importantly, care for others.
This change in perspective must extend to the founder as well, whether or not they stay on with the company. From having one person making the final decision, the founder must become comfortable with reaching a consensus as a team.
Xero’s Founder Drury had also talked about “switching hats” during Xerocon Brisbane 2019. “From a career point of view, it’s thinking about ‘How am I supporting the Xero team?’,” he said.
Vamos touched on two other concerns facing post-founder startups: dealing with difficult issues and decreasing the overall reliance on one or several people. He highlighted the following questions that must be asked, regardless of company size or stage:
- Do you create an environment that’s safe for people to challenge?
- “Tell me if you think what we’re doing is rubbish,” Vamos said. “I want to know that, because I need 2,500 people leading this company, not just me.”
- Do you make tough choices?
- “Every organization on the planet would benefit by doing 25 percent [fewer] things than they are [doing] today.” Sometimes it is about picking the right battles or merely doing more by doing less, and asking tough questions along the way.
- Do you know what you want to happen, and how?
- “How clear are you about your purpose and your priorities? And if you’re not, then are you trying to be?”
- Do you review your company’s performance and pivot when needed?
- “The only way you’re going to attack effectively is if you’re looking out there and are honest about how you are doing today.”
A startup is ready to change and evolve with the times if it meets these criteria. “If not, you’re in trouble,” Vamos said.
Follow ‘inside-out’ philosophy
When people build online businesses, they are usually focused on scale, asking questions such as ‘When can we scale, and when can we grow?’.
The fact is when businesses take care of their employees – when employees believe they are doing the best work of their lives and know they are being taken care of – they are more likely to be productive compared to somebody who’s not energized. Productivity increases if employees are allowed to do what they do well, or do what they are genuinely interested in. Their work then takes on a greater, more personal meaning.
Making this culture shift systemic in post-founder startups relies on clear, two-way communication, and hiring people aligned with the company’s core values and purpose. If you can get that right on the inside, your employees are your brand.
If you have to talk about culture, it only means it’s gone. Culture is an output of purpose, values, and behaviors, it comes from within as a mindset. It’s not a department.