The Real Reason Why Start-Ups Fail (Stop Blaming the Window of Opportunity)

It is often claimed that start-ups with amazing ideas have failed because of the short window of opportunity. However, it is not the time frame of the opportunity, but the lack of the founders’ “soft” skills that cause the delay in time to market and hence the loss of opportunity. Let me explain why.

The window of opportunity is the time period in which the start-up can realistically and successfully enter the market. Once the window opens, other players enter the market as well and they have a fair chance of success. Google, for example, was not the first search engine, they just executed it successfully.

Once the window closes, the opportunity may be lost forever. In competitive markets, such as those that start-ups operate within, the window of opportunity is often narrow. Yet, the reason for start-up failure is not the short period the window is open, but rather the lack of founders’ skills to execute in a timely manner.

Hence, I find it inexplicable that the focus of many programs is on teaching entrepreneurs how to identify an opportunity, while almost forgetting the role of execution in realising the opportunity for success. Identifying the opportunity is indeed very important, but without the ability to act and execute, it is worthless. Founders must have the right skills to act upon the opportunity and scale up. I refer to these skills as:

Execution = People + Culture + Leadership

These skills are an umbrella for many sub-skills, all related to leading and managing people.  To mention only a few:

  • Motivating and engaging teams
  • Driving performance
  • Building resilient high-performing teams
  • Building and leading a strong culture
  • Resolving conflicts
  • Managing personal and team members’ stress
  • Networking and building rapport with stakeholders, board members and customers

Why are these skills the most important? Well, entrepreneurship is focused on developing, organising and managing the resource-constrained start-up on its risks with the aims of scalability and profitability. Thomas Eisenmann (HBR, 2013) identifies the main entrepreneurial risks as related to market demand, technology, financing and execution. In other words, identifying problems and opportunities is only one part of the window of opportunities. Developing, organising and managing (= execution) is all about teams, culture and leadership.

It is important to remember that in every stage of the start-up’s lifecycle, founders need different skills for success. For example, the skills that are needed for developing business plans and pitching are very different than those that are required to successfully scale up. When you need these “soft” skills, it is too late to start developing them. They are much harder to acquire and take longer than developing the “hard” skills. This is when many founders (especially first-time founders) fail. It is not the window of opportunity, but the lack of skills that cause obstacles in scaling up and delays in delivering a high-quality product and service to the market.

So, what can founders do? The first step is awareness. Founders and potential founders should identify the people, culture and leadership skills that they need to develop and start developing them as soon as possible. Don’t wait until you raised the capital, as this may be too late. It is also important to look at the “soft” skills of the founders’ team and identify the gaps. I call it “Teampreneurs”, because it is not about the skills of the individual founder, but the qualities that the founder team has, where they complement each other and where the gaps are. There are a few ways that founders can work on developing these skills, including building a personal development plan, coaching and peer mentorship. The Victorian government (LaunchVic) identified the skills gap as a major obstacle. LaunchVic is currently sponsoring people, culture and leadership courses for founders and executives of start-ups and scale-ups to support them with skills development.

In summary, there are multiple windows of opportunities founders can identify and assess (such as markets, customers, technologies).  These opportunities are constantly shifting; time is crucial. Success is not just about identifying the time frame of the opportunity but mainly executing in a timely manner. And here is where the “soft” skills of founders kick in.

Rethinking Start-ups Success: New Venture Teams

Investors often look at the technology, idea and financial viability and make investment decisions based on these dimensions. Some also look at the founders as individuals. Do they have what it takes to build a successful business? By doing so, they overlook one of the core components for success- the New Venture Team (NVT). The NVT can be composed of talented individuals, but if they are not operating as a high-performing team, the investment is at risk.

We tend to think about teams as a normal way of work, in many cases even natural. We all participate in teams throughout our lives. However, NVTs are different from a small team in an established organisation. First, they have a much more significant impact on the organisational success. If a certain team in a corporate is not functioning well, the organisation will survive. However, if the NVT can’t work together, the company is at a huge risk.

NVTs have tremendous impact on the new venture. They set the venture for success or failure!

Being a team member at an NVT is a complex task that is very different from participating or leading a functional team. Team members of NVTs have a greater managerial discretion and their decisions need to take into consideration the bigger picture, not only their comfort area of expertise. They are challenged on a daily basis in unfamiliar ways.

The NVTs build the foundation of the organisation from scratch. Only a high-performing team that works very well together can build a sustainable start-up. Not only that, they need to lead the venture through the different life cycle stages. The assumption that the team evolve together with the start-up is wrong. It needs to lead the start-up! In other words, once the start-up reached a milestone- let’s say first major client- the team needs to then proactively change and lead the organisation to the next milestone (scaling up). It is a team that operates in a non-stop evolving, out of the comfortable zone. How many people do you know that are happy to keep on stepping out of their comfort zone? How many teams are good at keeping up the relationships together through the roller coaster?

Last but not least, every organisation has a culture. The culture allows people to know how to operate and what behaviours are expected of them. In start-ups, NVTs need to establish the culture. They must agree on the values and norms; otherwise, their behaviours will go in different directions. Before the culture is established, the team is not a team- certainly not high performing one. So, it is the opposite of what many people think. It is not that a high performing NVT creates a good culture, but that the culture the team builds helps it become a high performing team.

Nevertheless, there is evidence in the literature suggesting that sole entrepreneurs fail more often the NVTs in creating sustainable start-ups.

How come? Building strong NVTs (based on diversity of thinking and with the adequate team processes) provides great strategic and operational competitive advantages.

In my next posts, I will discuss how to create impactful NVTs:

  • The core components of NVTs- diversity of thinking and team processes- what they are and how to achieve them
  • What it means to be a high-performing NVT
  • How to build high performing NVTs

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Planning Matters: Rethinking Recruitment for Start-ups

I get to meet with start-ups on a daily basis and am amazed how they all describe the same symptoms as major challenges for growth: They can’t get the talent they are looking for, on time, to deliver promised deadlines! By the time they recruit new employees, it is often too late to start training and bringing them up to speed. The reasons stated are always the same: lack of talent in the market, tough competition, multinationals and heavily funded start-ups offer higher salaries than what they can afford to pay…

These reasons, while are all true, are not the core problem. The fundamental problem is that these start-ups are making over, again and again, the same mistake:

wasting money and time on transactional HR, rather than conducting workforce planning before they start recruiting.

In my previous post, I explained why and how the recruitment process starts from culture. In this post, I would like to explain the second core component of recruitment: workforce planning. Yes, this concept applies to start-ups, not only to big corporates. You don’t need to have a person dedicated to planning, but without engaging in this process, you will find yourself hiring the wrong people, at the wrong time and wasting your (limited) funds for nothing- often feeling as if you are throwing your money into the bin.

Starting to recruit (writing PDs, adverts and interviewing candidates)

without engaging in workforce planning first is a recipe for failure!

What is workforce planning?

Workforce planning is a short, essential process to ensure the start-up has:

  • The right people (skills, competencies, and culture)
  • In the right positions
  • At the right time
  • With the right price / cost
  • Ready to execute the business strategy

Sounds scarier than what it actually is, right?

Why should we spend time on workforce planning?

Only by conducting workforce planning prior to recruiting people, you are able to achieve the following:

  • Understand which roles you need to fulfill the strategy and how to structure them
  • Attract and hire the right people- with the skills needed to perform the role at the right time; those that are motivated to join the journey and will stay despite uncertainties and difficulties over the start-ups rollercoaster
  • Meeting deadlines- by understanding the capabilities of your current team, you are able to reallocate responsibilities and recruit those that have skills that are currently missing in the start-up and are crucial for future success. Having the right number of employees at the right time to deliver any given project.
  • Ensuring positive culture- when recruiting under time pressure (because the position was really meant to be filled two months before you started the recruitment process), the first intuitive decision we often take is to make some shortcuts and compromises. This is exactly how you end up bringing the wrong person culturally, which affects the entire team.
  • Clients and stakeholders love you- having no employees to service your clients or having a turnover of employees that deal with clients significantly reduces their satisfaction. Overstressed employees (due to overload or turnover of their colleagues) project their dissatisfaction outside the organisation (even when they don’t mean it).

What Workforce Planning for start-ups includes

  • Business Strategy- including future growth, deliverables, and revenues.
  • Skills Analysis- understand current talent skills and capabilities and determine skills gap (What skills will you need in order to achieve the company goals and by when?). This analysis includes both technical and soft skills (such as leadership).
  • Future Structure- establish a number of future open vacancies, who can take new roles and how the future structure will look like to ensure strategy execution on time.
  • Talent Retention- when you plan your workforce in advance and offer core team members promotions and / or new challenges in accordance with the plan (and not reactively), they are more likely to stay with the start-up, even in difficult times.
  • Recruitment plan- When should you be starting the recruitment for each position? What are your sourcing options? How are you going to attract the right talent? How are you going to support the new employees to become productive on time?

Conducting workforce planning should be done periodically, as you review the start-up strategy. Changes in direction and reaching special milestones need to be followed by this short and essential process.

To sum up, transactional HR, especially in start-ups, does not support growth! Without workforce planning, no transactional recruitment will deliver the right people with the right skills at the right time. You can continue paying for transactional HR services, but is this really where your money needs to go to? Start planning your workforce TODAY and you will get the results you are really looking for!

Don’t know how to start or having some questions about the process? Ask me!

My next post will focus on the providing tips how to manage the transactional part of recruitment in an effective way, to ensure it consumes only 5% of your attention and effort during the recruitment process.

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Want to know how to build a great start-up culture?  Here are my 6 steps for success

The start-up that gets their culture right enjoys success and growth. Why? Internally, they have motivated teams that are focused on the right goals, enjoy the challenge and act in integrity. Turnover is low and knowledge is retained. Externally, these companies have happy clients, great brand, ability to adapt to the changing environment and be competitive.

Building a great culture for the start-up, one that supports its growth is a matter of direction and self-awareness. It is not as difficult as people might think and it is certainly much easier to plant the seeds from the very beginning, rather than change a culture that went wrong.

6 steps to building your start-up culture

1. Establish the start-up values- yes, this is something that start-ups need to do basically in month 1 (if not day 1). Culture is based on values and values don’t just evolve with the company. When the start-up is run by the founders with no employees, the founders can trust on each other’s values; but before you recruit your first employees, you need to establish clear values. So, how to decide on the values?

  • The values should relate to the mission
  • The values create identity and define relationships (internal and external)
  • The values are there to support growth- think about the future steps of the start-up, clients, services, geographic areas of operation etc.

2. Recruit for a cultural match- Recruitment for start-ups is not just about the right skills, but about the right cultural match. While skills can be learnt, changing an employee with the wrong attitude and values, is mission impossible. This is correct for all sizes of organisations, but more so for start-ups. The smaller the team, the higher the reliant on each individual. Big organisations can (but shouldn’t) carry social loafing and other negative types of behaviours. Start-ups cannot be competitive and survive having a disengaged team that can’t work well together. Hence, the first rule in recruitment for start-ups is culture and values first, skills second.

3. Set the environment- Treat everyone with respect and dignity; allow freedom to fail (trial & error); celebrate effort, success, creativity, new initiatives; give credit when (and only when) it’s due; support the team; create a hardworking, yet fun environment where the team is working for the same goal… For more ideas, see my previous post about the cultural opportunities. The idea is, as Brad Feld wrote in 2012: “You can’t motivate people; you can only create a context in which people are motivated."

4. Communication and transparency- be transparent with the team and communicate the good / great, bad and ugly. Working in a start-up is a team effort that includes everyone, not only the founders. Keep them informed and encourage open and respectful communication (down-top, top-down, with clients, suppliers and stakeholders).

5. Culture can be changed as the start-up grows- Start-ups go through a typical lifecycle and as they evolve, the culture needs to change and lead the growth. Let me explain what I mean. In a previous post, I described the different roles of culture. One of them is to act as the body immune system. While culture protects the organisation, it can also resist change. However, as start-ups grow and evolve, they need to change. Hence, sometimes there is a need to review the company values and make changes. For example, a start-up that is at the stage of building the software / solution is often highly focused on problem-solving with a lack of documentation. As more and more clients are acquired, there is a need to become client-focused, organised and documented. This requires a cultural change. You need to proactively lead a cultural change, otherwise, the original culture will act as an immune system against the change and will jeopardise the growth. In the example above: if the team will not shift the focus from internal problem solving to external “happy clients are top priority’, the start-up will not survive for the long term.

6. Consistently model the behaviours and values- last but certainly not least- when (and only when) the founders (and top management) model the behaviours and values, the team will follow them. When others are following your values- you created the culture!

Remember, it is much easier to create the right start-up culture from the beginning than to change it later on when things go wrong.

What to do when the culture goes wrong? is the topic of my next post.

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Is your CTO the right person for your StartUp ?

To have a great idea is a good start for every startup. However, for your startup to succeed, you must have the right people to build a strong base and go through this rollercoaster, called startup. Founders of startups come from different backgrounds and skill sets. Some have a strong technological background, others bring business knowledge. As I mentioned in my previous post, at the end of the day, the successful founders’ team must complement each other’s skills and create a team skill set with limited external dependencies.

When lacking the deep technology knowledge, one of the first tasks founders do is recruiting a CTO. I am often asked,

“how do I know that my CTO is good?”

Well, I explain, most talented people are good, hence, the question should be: how do I know that my CTO is right for the current stage of the company? After all, companies across their life cycle have different needs.

To answer this question, I would like to step above the technological skills and suggest looking at five skills and characteristics:

  1. The Strategy Owner- CTOs need both to own the product strategy and significantly contribute to the overall strategy of the company. There is not much to write about it- CTOs by their title that do not own the strategy, are functioning as Development Managers.
  2. A Positive Problem Solver- For established organizations, product design and development is complex with daily challenges and problems. Startups operate in an even more complex and dynamic environment. Your CTO needs to see the problems while focusing on the solutions. It is not enough to analyze the problems and raise them, you should expect your CTO to lead with a positive attitude and focus the team on rising above the challenges and coming up with innovative solutions.
  3. An Organised Builder- many founders are visionary and run ahead with their ideas while leaving a mess behind them. To build a strong startup based on technology, you need a CTO that can balance between the urgency for Time-To-Market and the ability to develop a product based on a robust architecture. CTOs should be able to organize and build the development function without too many processes nor too little. The level and nature of the processes depend on the startup stage. Unfortunately, this means changing management styles according to the startup development, a task that is easier said than done. And hence, in some cases, a CTO that was very good at the initial stage, is no longer the person who can lead the company in later growth stages.
  4. A Leader- often people describe the leadership role of the CTO in terms of leading the Road Map. This is an important task the CTO has to own. I would like to add leadership as a soft skill as well. After all, while exciting at the beginning, working for startups can be challenging with many ups and downs, crazy hours and sometimes job insecurity. Hence, your CTO must be a leader and focus on building and leading resilient teams. This is a pure leadership role. Looking at functionality and tasks is not enough.
  5. The Ethics Role Model- your employees are on a constant observation. They look at their management- they watch what you say and don’t say, what you do and don’t do, how you respond and how you make decisions. Hence, modelling ethical behaviors and decision making is the role of each of the top management in every company; in startups, it is not less essential. Startups don’t have much capacity to deal with ethical issues and bad judgement. With a small team, each employee has a wide variety of responsibilities. They need to make the right decisions. They will make them, only if you do the same.