I often host groups of business school students conducting their annual obligatory tour of Sand Hill Road Venture Capital firms. My steady advice to all of them is very clear (and I wish someone had really drilled it into my head when I was going through my MBA tutelage) – The one class in business school that I paid the least attention to IS the one I use most in my profession – Human Resource Management. I have often said that the best of times in my career have been because of the people I interacted with, and the worst of times have been because of the people. As I sit on another long flight thinking about the ups and downs over the years, the decisions, good and bad made by entrepreneurs, made by me, I thought I would highlight some of them, as well as best practices that I have come across.
1. Culture: Many people think of this as a soft underbelly of a company and one that often gets ignored. Wrong. Culture defines a company, its employees and its ‘happiness quotient’. I recently had a Board meeting where the CEO takes the pulse of the entire organisation through a product from a company called Tinypulse. Think of it as an internal Net Promoter Score. It’s a simple weekly employee survey, based usually on one question that measures how happy the employees are. The key is to catch a downward trend as soon as possible and address it before it becomes irreversible. I happened to be speaking with the high energy founder of next gen LinkedIn called TheMuse where company culture is becoming a significant pre-requisite for prospective employees, and one that progressive companies are touting as a key differentiator.
2. Lead by example: This is absolutely true in situations when things go sideways (which they often do in the high risk world of startups) and employees have to be laid off or asked to take a salary cut. The key to motivating the team through a downturn is to show true leadership. By being the first to take the hit and take the biggest cut. Nothing gets the point across that ‘we are in this together’ than the executives leading by example. I remember a situation where the CEO, after a RIF, went without salary for almost a year, not because he was from a wealthy background, but he wanted to set an example by joining the troops, as well as show his commitment to making the company successful.
3. Transparency: Be transparent, with good news and bad. That transparency builds trust, loyalty, respect and a drive to give one’s all to the CEO’s ask. I remember a situation where one of the portfolio companies had to let go of roughly one-third of its employees. While a RIF is never easy, by communicating the rationale to the go-forward team, and highlighting the positives of the business, the CEO was able to use the event to energise the troops, rather than have them be demoralised by the cut. Often companies make the mistake of sending out a company wide email when there is bad news (because management doesn’t want ambiguity or rumors flying), but not doing the same when there is good news, significant milestones, customer wins, awards, etc. Transparency, in both bad time and good, should be the mantra.
4. Clarity in communication: This goes hand in hand with number 3. Employees dislike ambiguity, in terms of roles and responsibilities, and in terms of strategic direction of the company. Communication is key, not only as a liability if it is not done well, and a significant asset if it is. Companies where employees have clarity of direction and understand decision making, feel empowered, motivated and accountable. I have been part of companies with a global employee base, which makes this particular point even more complex. In a downside scenario, lack of clear communication can lead to rumors, confusion, morale degradation, flight risk and much worse.
5. Empower: CEOs often fall in the trap of micro-managing, and in the process being stretched so thin that they can’t actually do anything well. Hire well. One of the notions that falls into ‘easier said than done’ category is that a founder should hire senior management better than him/herself. This is a hard thing for many founders to do – to simply let go rather than getting deeply involved in every corporate function. If one hires well, employees can and should be empowered, and they should ‘own it’. If the CEO is in the weeds, that is often recipe for inefficiency and chaos.
6. Make decisions: There is a continuum that exists in decision making in general – on one end is a million dollar decision being made in a minute, and analysis paralysis leading to indecision on the other. Neither one is optimum. The challenge for entrepreneurs is that windows of opportunity are shrinking and decisions do need to be made, and often with a blend of data and intuition. Make decisions, communicate them and act swiftly. Indecision is death for the startup. And, especially when a RIF needs to be implemented, do it with one deep cut rather than multiple smaller ones.
7. Leader manager: This is perhaps one of most desirable yet one of the most difficult traits to find in an entrepreneur – one who is a visionary, can lead effectively, motivate, infect everyone within a maniacal passion to pursue a mission, but at the same time understand people management, organisational structure, culture, delegation and strategic management.
8. Think long term, not short term: This is a pet peeve of mine. Over the years I have had the displeasure of dealing with a fair number of negative situations. Whether it has to do with lightly sautéing or deep-frying the books, trying to create friction among the board, related party interactions, the decision-making is typically driven by short-term gains. Also, remember that entrepreneurship is a journey with multiple stops along the way. Once impropriety burns bridges with investors, and employees, it is impossible to get a second chance.
9. Focus: All too often, entrepreneurs try to do way too much. Trying to mimic the Tatas and Birlas may be fine aspirationally, but trying to do during the early stages of a startup, with a small team and limited bandwidth usually leads to disaster. The mantra of ‘do one thing and do it better than anyone else’ holds true, and customers will reward you for it.
10. Treat people well: Combination of ignorance and arrogance is the worst mixture one can have, IMHO. When things are going well, everyone will high five and celebrate. It’s when situation worsens does the real test begin. Treating employees well (and perhaps investors well) in a downside scenario reveals the real character of the person. That matters, not only in the situation at hand, but downstream, as the entrepreneur embarks on a new venture. I have backed entrepreneurs who might have failed their first time around due, in large part, to the positive way they handled the situation.
While the above list is anything but comprehensive, and while there are people far more experienced than I in matters of people management, I felt it was important to highlight the fact that for both investors and entrepreneurs, this is first and foremost a people business. And that is precisely why it is so challenging (and I speak from experience).
(Mohanjit Jolly is the managing director, Draper Fisher Jurvetson India. The views expressed are strictly personal. They do not represent the views of the organisation he represents.)
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