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The Corporate Disease

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It’s what every growing startup fears – becoming too corporate!  It’s not all bad – here’s a summary of what corporate habits to welcome into your company – and which to avoid!

“I am worried we are becoming too corporate,” a founder recently confided in me.    In Palo Alto, that’s considered equivalent to contracting a serious disease.    Everyone wants to keep that 3-person-in-a-room magic going forever!    But as a startup grows, it gradually needs to formalize relationships and processes .   Here’s an overview of corporate habits that will help a growing startup.    In a subsequent blog I’ll cover some habits that should be avoided.

Budgets – A Matter of Life and Death

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Corporations embrace the quarterly and annual budgeting process.    Every department manager receives regular reports on how their spending compares to budget, and at least once a year can provide input in setting up budgets for future quarters.   Budgets can cover headcount , expenses, and expected revenue.

Even early stage startups should have budgets – as soon as an outside investor gives you money – you need to set up a budget.   In the early stages, there is no hope for revenue, so a budget generally just covers expected expenses.   The key metric to measure is, “when will we be out of money?” since that signifies a dead (or at least comatose) startup.     By measuring your actual expenses in a given month you can compute a spending velocity, and when compared with the money you have in the bank, you can project a “dead date”.       This date serves as good motivation to initiate additional fundraising rounds (hopefully, at least 6 months in advance of this date) , work on raising revenue (crowd-funding campaign, anyone?), or the best strategy of all, reduce your expense velocity to make your saved money last longer!

During the seed stage, company financials can be self managed using Excel for forecasting and Quickbooks for accounting & tax purposes.   Once you raise a Series A round, it makes sense to hire a CFO type on at least a part time basis.

Routines – The Secret to Execution

Corporates are full of routines – the quarterly executive review, the weekly status meeting, regular planning cycles, quality reviews, etc.    In fact, it could be argued that corporates are so full of routines that employees can no longer see the forest (strategy) for the trees (action items). 

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But startups, even early ones, can use more routine – they save work and ensure steady forward progress.    Ok, stay with me on this, because it sounds really boring.   But…  would you prefer to have more uninterrupted time during your work day to work out that new product design or circuit board vs. being interrupted every 10-15 minutes with a request for status or worse, be asked to solve a new problem?    A routine can solve this problem by creating anchor points for the team during a given week.   For example:

  • Create a Monday general status meeting to review status from the prior week and set objectives for the coming week.   This is also a great time to kick around key strategy topics as well as look ahead to looming deadlines (i.e. product demo coming up in 2 weeks!).
  • Create weekly sub-team meetings to review status on specific topics, e.g. Engineering, Design, or Manufacturing operations.
  • Use a large, centrally located white board that shows the key objectives for a given week, including who owns what and by when.   Documentation is key, as it sets the pace for the next review meeting.   Google Docs is another great repository to record key meeting action items.

Once the team practices a routine, you will notice fewer day-to-day interruption distractions, since everyone learns that there is a time and place each week to have a given conversation.     You may still get interrupted, but now you can say, “that sounds very important, please put it on the agenda for our Monday status meeting!” and get back to the more interesting task at hand.

Roles – Signalling Who Does What

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When a startup consists of three persons in a room, you generally don’t need to worry about who’s working on what.   The list of outstanding tasks is overwhelming and you are glad for whoever is taking on a given assignment.    As a startup matures  into the Seed stage, it’s time to discuss overall responsibilities, even if the company consists of just the founding team.  There’s a psychological benefit to listing what you believe are your key roles and responsibilities – and then comparing them with your founding partners to make sure they agree – and appreciate – what you are doing!

At the corporation, titles and department names signal responsibility areas and levels.   For example, “Staff Engineer” and “Chief Financial Officer” instantly explain the nature of tasks and scope of responsibility of those title holders.  

The current fashion in some startups is to come up with either a goofy title (Head Cheese,  Digital Dynamo) or avoid titles altogether but just list departments, such as “Marketing”.       Strategies that employ goofy titles may seem fun and un-conventional and definitely “un-corporate” – but what are you signaling to the world?   Yes, you are signalling that you are a small startup with small sales, small ambitions, and as a result – a small valuation.    And if you don't give out titles at all?  That tells me you are uncomfortable creating a management hierarchy - this means you will have trouble scaling.

After a Series A event, you’ll be supplementing your initial team with more professional management team members, and it is time to get serious defining roles and titles that can scale along with the company:

  • CEO and CTO roles (typically held by the co-founders at this stage) assign the senior leadership – and you are sending a subtle signal that you expect the founders in these roles to grow as the company grows.
  • Next, find leaders for your given departments – typically that would be Engineering, Product Development, Marketing, Sales, and Manufacturing (if needed).   You can either hire VP or Director level people for these roles.     When in doubt, leave the VP level position vacant and hire a candidate as a Director level.    They can either grow into the VP role over time, or as your business scales, you can still fill the VP position later.
  • Assign your team to one of the department leaders above.     Construct an org chart so everyone can see where they belong.

Becoming Corporate

Congratulations, by instituting some processes, tracking budgets, and building out your team by establishing roles and titles, you have contracted the “corporate disease”.   But it’s not all bad – these three components send an important signal to your potential business partners, venture investors, and potential acquirers – you are serious about execution and scale.    Startups come and go – the serious ones that can execute tend to stick around!

But a little bit of apprehension about becoming a “corporate” is well advised.   In my next post, I will cover a few elements of the “corporate disease” that you should avoid at all costs!

 

 

Previously on the Hill88 Blog:

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