Leadership in a start up

Here's another article I wrote for SHRM....


As I sat down to write this article, I was wondering where I should begin. The topic of leadership in a start up is so interesting and has so many facets that, for a moment, I was undecided about which aspect I should start with.
Then, I realised that, in some respects, the dilemma I was facing while thinking about commencing the article was the same that a leader faces in a start up. There is one critical question that needs to be answered: Where do I start?
However, if you were expecting me to give you an answer to this question, I am sorry I must disappoint you. The answer is that there is no single place to start. And that is what makes the job of starting up a new company or business unit such an exciting and challenging assignment. There is a whole bunch of moving parts that need to be dealt with and managed, and sequential processing is either not possible or undesirable. Let me explain why.
Most start ups, whether entrepreneurial in nature or as subsidiaries of a large (multinational or Indian) corporation have specific timelines within which the operation has to be established, a high quality team recruited, systems and processes put in place, strategies put together and executed, and, most important, revenues to be generated in order to meet a predefined profit or loss target. If these activities are undertaken on a sequential basis and managed piecemeal, two outcomes are possible.
First, at best, the start up will be delayed vis a vis plans and targets, which will be achieved much later than timelines normally set for such operations. Whether it is a venture capitalist or private equity fund or a large parent corporation that is funding the operation, the investing entity expects the start up to take off and begin generating revenues as soon as possible. A reasonable amount of time is normally accepted as a gestation period, during which critical activities such as recruitment and engagement of a team, implementing processes and putting together strategies can be done. However, my experience is that this gestation period is almost always desperately short of what should be the ideal situation. There is always time pressure. Which is understandable.
Second, at worst, the start up may fail to take off at all.
So, the biggest challenge for a leader in a start up is to confront these circumstances and make the best of them. There is no point complaining about time constraints. They will not go away. So how does one tackle them?
The critical competence that supports a leader in this situation is the ability to manage chaos and build a structure out of nothing. Being able to multi-task is very important, as is the ability to run multiple projects simultaneously without taking the eye off any one of them. And since the environment is dynamic and things are constantly developing, it is a bit like a hunter trying to focus simultaneously on several moving targets and trying to hit each one of them all the time.
Sounds impossible? Actually, it’s not. But if you’re accustomed to working in a large organisation, with established systems and processes and a comfortable support system to fall back on (in terms of HR, finance, operations and administration etc), then it becomes very difficult to adjust to a fluid environment where nothing is certain and anything can happen. I know. I’ve been through this when I worked in my first start up, straight out of a large multinational company where I had an assistant, a large operations team, an established sales team and a strong HR and finance support system at head office. From this comfortable and safe environment I jumped straight into a start up where there was nothing. No office, no assistant, no team. Even financial and HR systems were to be established.
It wasn’t easy. But it wasn’t impossible either, and since then I’ve done it many times over again. The key is to be adaptable and change your mindset. If you are able to let go of the cushy perquisites of working in an established organisational structure, it becomes rather simple. Actually, it is extremely enjoyable and very satisfying once you get down to putting the start up together. You may well ask why? Because, instead of inheriting something that you may or may not like (as most managers do, and I’ve done on occasions), you start with a clean slate in a start up. You can build the organisation the way you want to. You can recruit the people you want. There is no inherited baggage of any kind. Who could ask for more?
So much for the challenge of starting up. The other key competence a leader needs in a start up is the ability to lead people. Notice that I didn’t say manage people. True leadership, of the transformational kind, is required. To begin with, the team in a start up is so small that it is extremely critical that everyone works together and at the same pace. Due to cost constraints, it is often possible that the start up begins by recruiting less people than it actually needs to run at an optimal level. Which means that, like the leader, others in the team need to be willing and able to multi-task. There is no room for development of silos or reluctance to go beyond the official job description. In some sense, the job description only provides a guide to the primary responsibilities of the team member. It does not describe the boundaries or limits to what may be required of the team member.
What does this mean for leadership?
First, the leader cannot afford to stay aloof of the operations and expect to delegate everything. The leader must lead by example and be willing to roll up his/her sleeves and get down to brass tacks. Others will follow. Second, the ability to build strong relationships based on mutual trust and respect is extremely important. In a start up, more than instruction, leadership and guidance are required. If the relationships are strong, people will follow the leader. Third, communication is critical. The leader should be able to articulate and communicate the broad vision to the team, which they will then implement. If a single member of a small team is out of synch with the broad vision and strategy or does not understand or agree with a direction or the need for an action, it becomes extremely difficult to build the business with any degree of success. This does not mean that unanimity is a pre-requisite. It simply means that everyone has to be on the same page where strategic direction is concerned. Getting all team members on board irrespective of their personal opinions is the responsibility of the leader. And communication plays a crucial role in this process.
This competence has important implications for motivation and satisfaction. In many cases, especially in start ups funded by venture capitalists, employees are often hired at lower than market levels of remuneration and compensated through stock options or share of profits. Even if employees are hired at normal levels of remunerations, the time pressures and challenges of putting together a start up are so immense that it is easy for people to get frustrated and for motivation to suffer. This is especially true when the start up is a small part of a much larger organisation. There could be any number of challenges in dealing with the parent organisation. Bureaucracy in decision making and financial or other approvals, political issues in dealing with different hierarchies in the parent organisation, clashes of culture between the start up and the parent organisation (yes, this can happen, especially when the leader consciously cultivates a culture in the start up that is different, because he/she feels that culture is better suited to achieve the objectives of the start up); these are just some of the issues that can stymie the efforts of team members in the start up and lead to dissatisfaction and can affect employee morale.
In such situations, the leader has to be able to handle the issues with the parent organisation in a non antagonistic manner, while simultaneously managing the motivation levels of his/her own team to ensure that they are buffered against any negative signals that may emanate as a result of the issues with the parent organisation. This can be quite a tightrope to walk and the leader’s personal credibility and relationships with his/her team members play a very important role in keeping the team morale high.
There is more to leading in a startup, and one could write a book on this, but for the purposes of this article I hope I have been able to provide a glimpse of what leadership in a start up is all about. It is exciting, fulfilling and challenging to build a business from scratch, but the issues that I have highlighted need to be kept in mind in order to succeed.

Managing in a downturn: Strategies for Success Part II

The second area for CEOs to focus on to manage a downturn, is marketing and communication. Again, I have put down some thoughts in an earlier post, so will not go into too much detail now. But I would like to emphasise that a well planned marketing and communication campaign can be carried out at a reasonable cost with a high impact.

The third area relates to new initiatives. I have mentioned earlier that investments dry up and new initiatives are ignored in a downturn. So what is the solution?

Let me emphasise that, by no stretch of the imagination am I recommending that investments continue to be made in the same manner as during good times. Far from that. It is good to be circumspect about investment and new initiatives in a downturn. But the tap should not run dry.

Let me take the example of a manufacturing business. Until the downturn, the factories of this business would have been busily engaged in churning out products for a specific industry, which they had been set up to cater to in the first place. Nothing wrong with that. And the good times witnessed over the last few years would have ensured that the factories performed at 100% levels, delivering a solid return on investment and ensuring growth.

Then, came the bust. And the industry the business supplied to would have been severely affected by the downturn. As a result, output would have dropped, the load at the factories reduced and idle time would have increased.

What are the options in such a scenario? One is the list of mistakes I have outlined since I began this blog. What would those initiatives result in? Definitely not an increase in revenue, or a growth in profitability. All that would be achieved would be consolidation of some amount of revenue and profit or perhaps maintaining a steady loss that does not grow further. And the factories would continue to have idle capacity. Not a great situation to be in.

A second option could be to go for volumes. Take in any business that comes in or that can be grabbed, irrespective of the price or profit margins. After all, in a downturn, all companies are interested in increasing their margins or, at the very least, reducing costs. There would be plenty of takers, beginning with existing customers and going on to customers of competition, who would be happy to give additional business at lower prices. But what would this strategy result in? Sure, the factories would not be idle any more and fixed costs would be spread across a larger output. But what about profit margins? They would be unlikely to increase significantly. In fact, there would be greater chances of profit margins not just dipping, but also sinking into the red, chalking up losses. For the additional high volume low margin (or even loss making) business would not just counterbalance the existing business, but perhaps also cannibalise existing margins since current customers would clamour to shift all their business to the lower prices.

Is there a strategy that could help fuel growth? Perhaps even increase profitability? I am sure you can think of some and I’d like to hear them.

But let me suggest one for now. Suppose the organization were to remove its blinkers that blinded it to new opportunities. Suppose it went out into the market and proactively looked at new industries that it never looked at before, for lack of time and/or inclination. You may be surprised (or not!), but for businesses that have done this, there are innumerable new opportunities just waiting to be discovered. New industries that can be tapped, either with existing assets and resources or with a minor investment. But these new initiatives can result in exponential growth even in a downturn. I’ve seen this happen. I’ve spoken to CEOs who have growth their revenue and profitability by upto 30% over the last eight months, which have been the worst months of the downturn.

The fourth area pertains to efficiencies. In all areas of the organization. Just as managerial inadequacies get glossed over during the good times, inefficiencies within the organization are overlooked and sometimes even swept under the carpet during a boom. The organization can afford to turn a blind eye to these inefficiencies, since the peak of the business cycle provides opportunities for growth and profitability that more than compensate for any negative impact these inefficiencies may have. But when a downturn begins, there are no buffers, and the inefficiencies stand exposed, with their impact on the bottomline a damning indictment of the excesses of the good times.

The downturn, then, is a great opportunity to weed these inefficiencies out of the system and trim the flab. This will create a leaner and nimbler organization which will be well prepared to grow rapidly when the upturn begins.

And that brings me to the topic that is extremely relevant as the downturn bottoms out and the upturn beckons.

How should organizations prepare for the upturn?