The Entrepreneur’s Bosses
One of the best things about starting your own business is not having a boss. It is also a horribly inaccurate lie. The reality is, one gets much more freedom, but a disproportionately more amount of responsibility. While its true I don’t have a boss, I do have responsibilities to different groups of people.
The obvious one is the shareholders of the company. In fact, I have a fiduciary and legally binding responsibility to them. But, there are three other groups that I am responsible to as well: employees, customers, and the public (in the form of the brand)
So who is the boss? Well, there are several:
The closest thing to a boss that an entrepreneur has isn’t the shareholders or board or employees. The buck stops with the customer. When it comes down to it, all the gizmos and gadgets and patents and hard work won’t keep the competitors at bay. At the risk of sounding quaint and old fashioned, the only real competitive edge is getting loyal customers by providing value with integrity. In practice, here are the principles I’ve followed:
The first boss is the customer, not the shareholders. If you make your customers happy (and have a solid monetization plan) the shareholders will probably be happy. That doesn’t mean give away your product for free to please a customer. In fact, that would be a diservice, because you wouldn’t have longevity. You couldn’t continue to provide value.
What problem do you solve for your customer? When you have conversations about products you should be asking yourself two questions: Does this line up with our business goals? Does this help our customer? Certainly, you should find yourself asking about profitability and “What’s in it for me” But the question can’t be answered in a vacuum. “What’s in it for our customer?” is just as critical in the long term.
Drive customer loyalty, not customer imprisonment. The language and nature of the contracts you have with your customer are a good indicator of the value you provide. In the best case, retention is achieved by providing continuing value to your customer. In the worst case, retention is achieved by long contractual obligations. Imagine a cell phone company with has a “cancel at anytime” policy on the basis that they are going to make their service so good that nobody will want to cancel. Would that drive loyalty? I’d wager it would! (of course, I don’t have a billion dollars to make that wager, so that’s easy for me to say)
Staying relevant is a fine balance between innovation and focus. If you’ve got your feedback mechanism working efficiently, then you’ll have discovered plenty of opportunities for innovation. And sure, you can do them all… but not well.
Product Innovation. There are always more opportunities to make additional revenue with a new product. A lot modern thinking points to the importance of staying very focused. Make sure your product is the best at what it does. On the flip side, there always seems to be obvious opportunities that seem to be just a bit outside the current product. How do you balance? Each additional product offering or improvement should reinforce the existing product. It should provide additional value to your current customers, instead of exclusively focusing on attracting new ones.
Focus in Segmentation. All of your customers can be further engaged. But should you engage them all? At some point you need to figure out which segment of customers you want to help. Maybe you release new products and features to 80% of your customer base to increase satisfaction or revenue, or retention or some other important aspect. Maybe you just cater to the top 20% by revenue. Keep in mind that as you offer customized products to segmented customer bases, the cost of ongoing support and operations goes up very quickly.
So what about when you screw things up completely? The next post will be on resolving problems memorably.
Legally, the board and management have a fiduciary responsibility to the shareholders. But, in reality, the responsibility is wider than that, especially with regards to employees. A company where the shareholders interest and the employees interests are mutually exclusive has already failed both fiscally and morally. How does the entrepreneur serve their employees?
Ensuring stability. Startups are by their nature risky environments. Even so, an executive has the responsibility of providing as much stability and longevity as possible. Given the relative inexperience of most entrepreneurs, this means surrounding oneself with knowledgeable advisers. This advice allows an entrepreneur to intentionally balance growth and risk instead of being blindsided by emergencies.
Compensate fairly. Pay at a startup company is lower. That is perfectly fine as it attracts a set of self selecting coworkers that are looking for more than just the biggest paycheck at all costs. To balance out the lower short term compensation the ethical move is to share upside. Sharing upside needs to be done with integrity. The value of equity needs to be explained clearly along with all of the inherent risks. Sure the mechanics are complicated and the future is uncertain, but it would be the worst kind of management to use that uncertainty to cloud details in an option plan instead of ensuring the greatest chance for a positive outcome.
Challenge to growth. Compensation in today’s economy is a threshold issue. Folks don’t work 10% harder for 10% more salary. Instead employees are looking to make a fair wage and then gain skills and experiences that help them through jobs and challenges ahead. The greatest thing you can offer your employee is a better chance at their next great job.
Influence instead of Authority. I came to a shocking discovery early on in this “being the boss” adventure; a discovery I’ve learned repeatedly since. It is the great paradox of good management. Once one is in a position to command action by the authority of position alone, one must try to never use that power. Building consensus, getting buy-in, inspiring passion, aligning values… these are the ways to lead. Every time I’ve found myself resorting to the final lowest common denominator of “because I said so” I’ve recognized the event as a failure. Sure, it happens from time to time. But only when I’ve failed in my job as a leader.
Entrepreneurs have responsibilities to a lot of groups of people. There are also some more abstract, but still critically important areas to be cultivated in a startup organization. Even while aligning and representing the interests of customers, employees and shareholders, an entrepreneur must maintain the quality and consistency of the brand. Not just the consumer facing brand, but the tone for communication throughout the entire organization.
Intentional Communication. Read: “Shut the hell up, Mike” At some point it became unacceptable for me to think out loud. “Holy crap, we spent $100 on coffee this month!” was a totally reasonable exclamation when I wasn’t anybody’s boss. Now, that comment might be the only feedback our office manager gets in a week. How demotivating! Even in brainstorming sessions, which have been specifically designed for this kind of exercise, I need to be careful not to make statements that curtail creativity. My statements have the weight of organizational authority. So I must be careful.
Consistency. It constantly amazes me how I can make a statement 1, 10, or 100 times, and still find out that someone in the organization is relating the exact opposite concept. Crazy! The problem gets exponentially worse as an organization gets larger. Ideas must be well thought out in advance, and then communicated concisely. Again. And Again. And yet again.
Responsible Transparency. There are a sickening number of blog posts and conversations around the idea of personal vs professional transparency. Basically, it comes down to a key principle: Be as transparent as possible without causing harm. I think of this in terms of concentric circles. In the most secure inner circle might be personal information and specific business strategy. In the most open outer circle might be company culture anecdotes and business principles.
The entrepreneur is bound by contract to represent the interests of the shareholders as represented by the board of directors. In most startups, where the entrepreneur is on the board, there is an additional legal and fiduciary responsibility to represent the shareholders interests. Ain’t nothing wrong with that. When it works well, this is capitalism at its best. Now, just to be clear, this does not mean that the shareholders are represented to the exclusion of employees and customers. In fact, if such an exclusion exists, the company is already a failure. Usually, this means a few things:
Increasing enterprise value. Increase share price or pay out dividends. I ain’t got no MBA, but I sure as heck can’t figure out what else a shareholder would actually want. If you’ve started a high tech entrepreneurial VC funded business, don’t try to pay out a dividend. Good way to lose your job. So, that pretty much leaves share price. Now, there are lots of externalities here, but the idea is to govern towards positive trends: higher revenue, lower expenses, a few key ratios that exhibit a healthy company
Minimize risks. The shareholders trust management to be close enough to the business to objectively perceive and report risks. I suppose there are lots of ways to minimize risk, but the most effective one I can identify is staying focused on a clear strategic direction. Another key way to manage risk is to understand the absolutely essential expenses in the business and manage them to be lower than the overall revenue. If things get tight, management shouldn’t be cutting into bone.
Align interests. I’ve said several times in this series that representing the interests of shareholders, customers and employees should never be mutually exclusive. This doesn’t happen by accident, but by setting intentional direction for the company. The mission of the business should clearly benefit all of these groups.
Be Trnasparent. Accurate reporting and auditing, accountability, and non tolerance of dishonesty. These are absolutely critical in today’s business environment. Hire only people you trust, and then setup controls that don’t depend on that trust.
The Internal Referee
In addition to being responsible to shareholders,employees,customers and the brand, the entrepreneur must be the internal referee to each of these groups. While I have a legal/fiduciary responsibility to the shareholders, that doesn’t exist in a vacuum. In fact, a lot of effort must be applied to aligning those interests. But every once in a while a conflict exists that must be arbitrated.
Short Term vs Long Term. The easiest way to arbitrate conflicts is short term vs long term. Most conflicts are resolved by this simple rule: Always act to the benefit of customers and employees in the short term and long term; Always act to the benefit of shareholders in the long term. In practice this means: don’t sacrifice your employees and customers for short term shareholder value. Of course, short vs long term is somewhat subjective. In VC backed companies, it is usually defined to some degree by deal terms as well as investor portfolio timelines.
When in doubt serve the customer. Good employees and good shareholders see the wisdom of this. In a global environment where the customer is treated so poorly by so many customers it makes sense they’ll be on board with small sacrifices for the benefit of customers. Simply because in the end, happy plentiful customers cover over a lot of problems, thereby obviating the need for further sacrifices!
When still in doubt serve the employee. If the conflict is between the employee and the shareholder, it pays to benefit the employee if possible. Sure, sometimes its not possible. Sometimes budget constraints really suck. But… in general, shareholders will agree that the best way to increase enterprise value is to get and retain great people