A few weeks ago, a very good friend who works at a growing startup emailed me with the following question (in which I’ve masked just a few of the identifying details):
- What does it mean when almost all of a startup’s early employees have left the company?
By almost any measure, [our company] is doing phenomenally well. We’re coming up on our 5th birthday; we have ~250 employees with offices in New York, SF, and London; we have contracts with 70 large customers, including most of the biggest in our space; our investors are [three top Silicon Valley firms].But by the end of the month, we’ll have only 5 of our first 10 (including the two founders) employees and 10 of our first 20. We’ve been running at 20-30% attrition over the last 9 months. Our CEO is entirely dismissive that there could be any sort of attrition problem. No one has ever been promoted onto the management team, only hired in from outside.
I guess the “myth” of the startup is that companies that beat the odds and “make it” do so in such a way that those that entered on the ground floor leave, eventually, have accumulated a great deal more responsibility. In your experience, is this myth true? As an investor, how would you evaluate a company that has such high turnover but still manages to dominate its space?
My email response to his question was (with the bolding added to this blog post):
- You’re asking quite a bit in this email, both explicitly but implicitly underneath.
To the direct inquiry about attrition of early folks in startups generally, I think that’s very natural. People who are suited to building a ship aren’t always the best (or have the interest in) sailing the ship, and vice versa.The skillsets required for being effective in an organization with two dozen people or less are very different from those from being effective in one with a couple hundred. The roles transition from being broad ones with high impact to specialized ones with focused results. Additionally, the financial risk-reward profile of the company changes with this progress. So it doesn’t surprise me that the early employees who joined with you are leaving; the situation has changed. That being said, it sounds like there has been a spate of departures recently, which sounds like a different set of issues which may be affecting the company.
But I also think you’re asking a career question about tenure at a startup company, to which my answer (an opinion) is very binary: I am of the opinion the best route is go early and stay until a successful exit -or- stay until you vest your initial grant and not a day longer. Given the dynamics I mentioned, tenure at a startup should match an individual’s interests/skills, but also synch with financial/career milestones. As an early employee with the company taking off, staying through to an exit will be rewarding both financially and also from a leveraging career trajectory. But after you’ve initially vested (after three or four years?), there aren’t as many marginal benefits in either category (additional option grants are less significant and responsibility accumulation is incremental) until the company hits that very important exit scenario.
A lot has been written about a formal “VC Pitch” meeting with advice about how to handle those interactions with venture capitalists. But not all conversations with venture capitalists are formal pitches, nor are they expected to be. And sometimes it’s unclear if it’s a pitch meeting or not.
Of course it’s productive to follow the mantra of “always be selling” in business interactions no matter what your business is, entrepreneur or not. But it’s helpful to understand (with perhaps a bit of a cynical perspective) how a VC views your discussion with him so that you can match the tenor/tone/formality of the dialog appropriately.
The majority of meetings a VC attends are in his/her conference room. After all, his day is often packed full of meeting after meeting so the location is dictated by optimizing his convenience – despite it not always being the case VCs like to think of themselves as especially busy (as if entrepreneurs are not?), so they’d often prefer not to venture out of their own offices unless it isn’t perceived to be essential. Almost all formal pitches are in this context. If you’re meeting in a VC’s office conference room, and you’re an entrepreneur, then the default assumption is you’re pitching your startup. Especially if the administrative assistant asks if you’d like to project a presentation… you’re definitely in a pitch meeting.
Yet VC’s also seem to have this habit of inviting to people (entrepreneurs and others in their network) to their office for “coffee.” But the “coffee” designation is code that the conversation isn’t expected to be a pitch conversation, but rather a general networking one to connect more broadly. Very often there isn’t any coffee to be seen! Also, there are some days when a VC has so many numerous “coffees” on his schedule that he’d be well overly caffeinated if he actually literally drank that much. If you’re meeting a VC for “coffee” at her suggestion (regardless if there’s coffee or not), no formal pitch deck is expected.
Or Starbucks is sometimes an option. In some cases, VCs do actually want coffee (see above), abhor the coffee machine in their office, and suggest meeting at a proximate coffee shop instead. (Note that I’ve seen this issue solved by VCs purchasing a couple-thousand dollar coffee machine for their own office personal use – everything just shy of platinum plating.) As per above, the actual physical presence of coffee is irrelevant; it’s the tone of the context.
And then there’s breakfast. Since VCs perceive themselves to be busy and take meetings all day, they don’t like to run around outside of the office for meals like lunch especially. But breakfast is well-positioned at the beginning of the day so that the location can be mutually-convenient along the way to work for both parties. The signal here is that this breakfast meeting is not a pitch meeting, but likely more important that a pseudo-coffee conversation in the VCs office. VCs love to eat breakfast with other VCs, with some partners at some firms having the reputation of actually eating breakfast twice in a morning to network.
You wouldn’t expect it, but the rarest of locations for a VC meeting are in a startup’s offices. Who knew startup investors would be so averse to actually visiting startups? There are only two reasons VCs typically visit a startup’s office. Either he’s in from out of town (e.g. the hoards of Boston VCs taking the Acela to Manhattan looking for investments) –or– he’s pitching the entrepreneur and not vice-versa. One of the best signals that a VC really wants to invest in a company is that he visits that startup’s office. And the earlier in the “process,” the better. Whereas if a VC is visiting a startup at the end of his diligence process, he’s really just checking boxes that he visited the site. But if he’s visiting on the first or second meeting, then he perceives the company to be “hot,” and wants to show his enthusiasm for selling his firm to the entrepreneur by coming to them. This situation rarely happens on a first meeting, but it certainly does happen.
So in the end, location matters for setting context to a VC discussion. And that location shares a lot about the expectations for the discussion before a single word is said. But that doesn’t mean that context cannot be changed…
As a VC, I end up meeting some amazing people of many different backgrounds and profiles. But there are two categories of people which are tightly correlated, but distinctly different. The difference between what I’d call an “Inventor,” someone who has many ideas for businesses to start, and a “Founder,” an entrepreneur who starts a company, is subtle. Many of the qualities of the former are necessary, but not sufficient attributes, for the latter. In my observation:
- An Inventor generates ideas; a Founder pursues them.
- An Inventor is always brainstorming; a Founder is brainstorming for his next company.
- An Inventor wants to see his concepts come to life; a Founder wants to bring them to life himself.
- An Inventor looks to others to turn ideas into reality; a Founder naturally attracts people who want to transform ideas into reality.
- An Inventor wants to see his vision eventually realized; a Founder wants to be there when his vision is realized.
- An Inventor relishes in concepts; a Founder relishes in the details.
- An Inventor wants fulfillment; a Founder wants to build.
- An Inventor is passionate to imagine; a Founder is passionate to create.
There isn’t a value judgment inherent in the above distinction, that one is somehow “better” than the other. But rather, it’s only true Founders who should be starting companies. And the self-awareness of the two profiles is certainly a quality which not everyone of either type necessarily possesses, though the most enlightened of both groups do.
According to Wikipedia, French economist Jean-Baptiste Say coined the term entrepreneur as “one who undertakes an enterprise… acting as intermediatory between capital and labour.” Now we could argue about the modern definition of the word, but I’d include in the notion of entrepreneur being a facilitator among capital, labor, AND ideas… but certainly not just ideas solely. Great Founders do so much more than conceive.
When was the last time all of your startup’s management team came together to take a step back from day-to-day minutiae and think big picture? I think it’s actually incredibly valuable for startups to occasionally, and regularly, have offsite planning sessions. Unlike at “big companies,” a startup offsite isn’t about a boondoggle, it’s not about fancy hotel rooms, nor is it about silly team-building exercises so dilberts in accounting can interact with dilberts in marketing. Instead, a startup’s offsite provides the leaders of a startup with the opportunity – and excused absence from one day’s operational details – to review where the company has been and point it in the right direction for the future given that context.
The benefits of an offsite for a startup include:
- Challenging assumptions. In a startup it’s always about executing. Part of the elegance of the startups machine is that there are explicit and implicit assumptions which under which people are empowered to make the right choices and judgment calls on everyday decisions. It’s helpful to challenge them sometimes, not to waiver in strategy, but ensure that they’re on right track and course-correct if need be.
- Shifting thinking & responsibility out of silos into where it’s more appropriate. It’s natural for people become heads down and worry about only what they’re supposed to do, even in small nimble organizations. That’s their job. But in a startup, things are fluid. Product is marketing is technology is operations is sales; they’re really not wholly separate functions. Bringing everyone together to talk about direction of the company places all these functions under a collective brain-trust.
- Helping identify what’s missing. As an individual in an organization, it’s harder to see what isn’t being done than it is to see what is being done (sometimes incorrectly). Again, collective minds together can overcome what one person (often even the CEO) can’t perceive.
- Empowering leaders to set real stretch but achievable goals. When everyone is on the same page about what constitutes success for the overall company, it’s easier to set lofty but achievable functional goals because there is context to them.
- Re-energizing excitement. Even in a startup, daily activity can cloud what everyone together is building towards. An offsite reminds people of bigger picture and helps with intrinsic motivation. And yes, it can build a team atmosphere even without water-baloon toss.
The challenge with startup offsites is all of the demands of a company of this nature don’t stop that day. I think especially because of that fact, it’s important to physically get out of the office, even if it’s to the conference room of an investor or that of another friendly local startup. It is called an offsite for a reason, after all. (While we’re atypical ourselves at NextView Ventures as a “startup VC,” we think offsites are essential and conduct them consistently quarterly - always somewhere outsite the office.)
Also, I believe that it’s necessary to having someone planning and drive an agenda to lead sessions, otherwise there’s real risk of wasting productive time. Leadership buy-in into an offsite is key, and not just from founders/CEO, but everyone evolved investing in the day’s process. (As an investor and board member, I’ve participated in startup offsites for portfolio companies, which can be helpful in adding an additional partially-outside perspective, but nowhere near essential and sometimes perhaps distracting.) I’ve seen many portfolio companies hold offsites of various sizes and shapes (in terms of people involved & structure), all tailored to the unique situation of their company. In the end, what is put into a startup offsite directly corresponds into what comes out of it, which if done effectively, is quite a bit.
VCs rarely go into an entrepreneur’s pitch meeting with a completely open mind. Of course they have biases given their past experiences, like with any human interaction. More importantly, though, they have biases about whether or not they are going to find the opportunity attractive even before a word of the dialog has been spoken. VCs have a fond saying about “wanting to like it” when they’re introduced to a new investment opportunity where many conditions of their so-called pattern recognition are satisfied prior to hearing the story. On the negative side, many VCs often take meetings (out of “courtesy,” for education purposes, etc.) when they know a priori they have no intention of investing.
There’s been a lot of spilled ink in the blogosphere about getting the right introduction to a VC, and the signal value that’s associated with the right person facilitating that connection. Yes, there’s a real message in who makes a specific introduction, but I personally think that attribute is over-valued. Either an intro is from an extremely trusted source and a VC will pay specific attention, or it’s from a respectable source and a VC will take the opportunity at face value… I don’t think there’s much signal in the greys in between.
More subtly, however, there are a myriad of smaller items which affect how a VC feels about a potential investment before even going into the meeting:
- Interactions over email (and with an assistant).
- First glance at the website (or lack thereof).
- Quick flip-though whatever materials are included in introduction (or again, lack thereof).
- Internal point-of-view on a specific space/category. For example, I know some firms which systematically won’t do anything travel or dating-related, but will still take meetings. Or, some firms have very specific theses about particular spaces and are actively seeking companies which fit into those maps.
- “Profile” of the entrepreneur or company – first-time or experienced, background, graduating(/ed) from a particular accelerator, etc.
- Whether he’s “heard” of the company prior to getting together. This includes both his perception that it’s “hot” through PR or VC scuttlebutt, as well as if he believes the investment opportunity has been “shopped around.”
- Where the company would “fit” well into the firm’s existing portfolio, filling in gaps from a stage or sector standpoint.
- Knowledge about the (existing or future) syndicate composition or other deal dynamics which are favorable or unfavorable.
- How much board-level capacity the individual partner has remaining – is he overloaded with board commitments or is he in investment-seeking mode?
The above list is illustrative but in no way intended to be exhaustive. The point is that some of the above factors are within an entrepreneur’s locus of control and some of them are certainly not. (At NextView, we deliberately aspire to go into each entrepreneur conversation with a “blank canvas” perspective, one of the stated aspects of our firm’s ethos.) The takeaway is for entrepreneurs to recognize that before an opening slide is even shown, a VC has begun to form a point-of-view of whether it’s an attractive investment; and by attuning to any intangible initial signals in the opening dialog, modify the pitch accordingly.