If you aspire to be a successful startup leader, it helps to know how to solve the toughest challenges you’ll face.
When I was a graduate student at MIT, professors overloaded with me challenging weekly problem sets. So I figured an MIT professor would be able to handle the challenge of answering the 9 toughest challenges facing an entrepreneur.
On June 8, Bill Aulet, Managing Director of the Martin Trust Center for MIT Entrepreneurship, gave me his solutions and they should guide any aspiring leader.
1. What are the traits of a sprinter (a leader who can turn an idea into a company that gets acquired) or a marathoner (who can take a company public and keep it growing)?
The answer depends on the size of the entrepreneur’s idea. The time, money, risk, and team needed to fulfill the potential of that idea depends on whether it’s ” (1) a feature, (2) a product, or (3) a company.” said Aulet.
Option 1 is best for founders who “want to limit the amount of time and diversity of the teammates they need to recruit. Option 2 is what sprinters usually chose as they see a hole in the market and they feel they can fill it faster and more efficiently and effectively than bigger companies and once they do this, the bigger companies will want to buy them. Option 3 [is the most challenging –] requiring ”much more intestinal fortitude long range thinking, resources and focus with much higher rewards,” he said.
Aulet gave the example of how this would apply to Google. “Think of Larry and Sergey (founders of Google). If they chose option 1, they would have licensed their algorithm to Yahoo, Microsoft, AltaVista, AskJeeves and other and simply gotten a licensing revenue stream without all the headaches they got from building a company. Interestingly, these seem easier but are often is not as Google found out when they tried to license it and failed.”
At that point, Google could have responded by building its web site, making it successful, and selling it to Microsoft — but the decided to “double/triple down” with a push from their investors ”to go for broke and control their destiny.” They are worth billions thanks to their ”patience, time, ambition, confidence and a risk profile where [they were] willing to keep betting and stay in the casino rather than [taking] the money and [going] home,” he said.
2. How do top CEOs define the revenue tiers that their startup will reach as it scales?
Aulet thinks that revenue tiers for scaling — “$1 million, $10 million, and $100 million — as clip levels are arbitrary. In his view, the levels are related more to the number of employees – ”10, 30, 100, 1000.”
3. How should CEOs create and sustain a culture that helps their startup to scale?
The inability to sustain culture ”generally kills companies trying to scale.” As Aulet referred me to his article, ”Culture Eats Strategy for Breakfast,” which he summarized by saying, ”the founding team has to know [scaling the culture] is critical. It will become the silent supervisor in the room to keep the company’s values, quality and reason for existence. Otherwise it devolves into mediocrity.”
Experienced entrepreneurs know this better than most first time founders. To sustain the culture as a company grows, the CEO must explicitly define the company’s core values and “then make them visible through stories, the personnel appraisal process, public relations, incentives, real estate, hiring policies, and articulating clear reasons why the world is a better place because the organization exists.”
4. What growth trajectories are most likely to turn an idea into a large company?
Companies should “methodically build up a very loyal group of customers, refine their unique skillsets in this beachhead market and then move into additional markets” — which accelerates their growth rate.
5. What are the best sources of capital for each of a scaling startup’s revenue tiers and how do the most effective CEOs persuade these capital providers to invest?
Companies should start with angels and then VCs. After that, they should become cash flow positive or grow rapidly with a clear path to becoming cash flow positive.
To persuade Investors to write a check, CEOs should demonstrate that “technology risk, execution risk and market risk [are] essentially eliminated and [the company’s product targets] a huge market opportunity,” he said.
6. How do effective CEOs redefine their jobs as their startups scale?
Founders can remain effective CEOs as their company grows by redefining their role from ”doing things, to making sure things get done; to managing people and setting strategy; to setting strategy, communicating and enforcing culture and managing investors,” noted Aulet.
7. How do the best CEOs decide whom to hire, promote, and fire at each revenue tier?
The key to sustaining growth as the organization changes is to balance the tensions between changes agents and managers. As he said, “At first you need change agents and leaders to create new markets but then you have to add managers who know how to optimize, control risk and make more predictable results without losing the innovation brought by the change agents. The [change agents and managers] have to coexist and be respectful of each other. But as you get bigger, you have more to lose and the managers become more and more important but can’t dominate.”
8. How do effective CEOs set goals as a startup scales and hold everyone accountable for achieving those goals?
Though founders don’t like them — holding people accountable requires the CEO to create and manage planning processes without squelching the entrepreneurial spirit that enables the company to create new products and “innovate existing ones,” he said.
9. How do CEOs decide whether they should continue to lead their company as it scales?
A few prominent marathoners — such Jeff Bezos or Mark Zuckerberg — should not confuse founders into thinking that they are likely to prevail throughout the scaling process. As Aulet said, that “is more likely to not work because the very behavior that makes you successful to get a startup from zero to $10 million in revenue is very likely the same that will make you unsuccessful when the company gets to be $50 million or $100 million.”