Team Building: Ideas to Keep in Mind

“There is no I in TEAM.” – attribution unknown

The importance of a management team to the success of any venture is a well-known business fact. I have blogged about this in the past and it has been the key focal point of investors for years. So given the fact that no man is an island and one needs a team to succeed, a great question for an early stage entrepreneur is where do you start?

I have had the chance to build a number of successful teams in my career but more importantly, I have watched some truly accomplished entrepreneurs build them on a greater scale and with much better results. So when I reflect on what seemed to work for all of us, I kept coming back to five ideas I would suggest you keep in mind as you start the most important task you have as a leader – – building the right team:

1. Think leaders and creators. One of my favorite clients would often remark that an idea of mine was “counterintuitive” and that is what you might be thinking here. You may feel that you are the leader, so maybe these traits are not as important for team members. The point is most businesses successfully build to scale by having a series of teams who use their creative capabilities to solve problems. If you need any proof of that, just read about NASA and the race to land on the moon.

2. Look for the same culture but different skill sets. My advice is culture trumps economics every time. So if you want to build a real team, make sure your key members share a common culture – that comfortable work environment, transparency and a sense of what is right and what is wrong that can overcome the absence of short-term financial rewards.

3. Those who share your vision are good; those that share your passion are great. I have mentioned in the past my client who used the phrase “I always admired a man who can stand up and say, you said it chief.” Everyone will see through someone who is a blind supporter of your vision or worse yet, overly passionate about it. Do not force this; spend the time to make sure each key team member is on the same page. I would prefer serious and dedicated strong silent support over the shallow cheerleader any day.

4. Seek those who seek challenges. The shortest and easiest road is not always the best. The odds of having to pivot at least once along the way is high and that means change, and change is a challenge many do not like to face. While being supportive is important, it is better to have members on the team who have the inner strength to help correct the ship versus fight a required change in direction.

5. Share the pie. How you do this is up to you. Whether you choose to reward every team member (I call it the chicken in every pot approach) or those leaders and drivers having the most impact, make sure you think of and reward those most responsible for helping you on your journey.

So there they are – – hopefully, some helpful ideas you can use as you build your team. And please try to avoid that self-centered promoting type even if they have a skill set that you need. That person never gets the point that there is no I in team.

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Is There Such a Thing as Dumb Money?

“Dopus. I already had the money in my hand.” – Comicus quote from “History of the World” by Mel Brooks

At times, an entrepreneur is so focused on closing the deal for financing that they forget some of the long-term ramifications. In this scene from History of the World, Comicus is willing to say almost anything to get his weekly stipend. But is this approach dangerous for a business owner seeking financing? After all, money is money and it doesn’t come with a personality — or does it?

We have all heard the expression “smart money”. When one is discussing a successfully funded venture, it is common to hear the phrase “that’s where the smart money is.” Investment advice is often laced with terms such as “that is what the smart money is doing.” While I think you get the point, the question has to be raised: “Is there such a thing as dumb money?” I submit to you that there definitely is. The real question is how to avoid it.

Most owners seeking financing have this uniform image of an investor — serious, numbers-oriented, like Jack Webb (there’s a dated reference for you) they just want the facts. But smart owners do some diligence on their potential partners, and the wise ones know those traits that can come back to haunt you. So here are some warning flags.

Watch out for self-promoters. There is nothing wrong with having some pride in what you have accomplished, but the potential investor who goes on and on about their value proposition, including name dropping like they are some gossip columnist, has to be vetted with a cautious eye. When the next words you expect to hear are “enough of me talking about me; why don’t you talk about me for a while,” it is time to put your private eye glasses on.

The over-promiser is another type to take with a grain of salt. I have been in many meetings where investors are making their pitch and they mention connections they have that can really help the business grow. I can’t count the number of times these conversations resulted in companies accepting these investors, only to find that the two or three contacts they mentioned at that key meeting are in fact the only contacts they have. This is what I call the “big hat; no cattle” approach.

Finally, be careful when confronted by the smartest person in the room. This type tends to look down on the entrepreneur as if they are not worthy to be on the same planet. Without really analyzing the facts, they are quick to point out how something should be done differently and how they will add value by their vast knowledge.

The one common element is: if an investor is really going to help you (besides funding you), they have to understand you. As Stephen Covey advises, “Seek first to understand; then to be understood.” The types noted above may be past the point of being able to listen and understand. And by the way, it is not so much that they are dumb as it is they are not capable of using their smarts effectively. So make sure when you seek investment, you do not get stuck with dumb money because, in the long run, it will be a very painful step in your journey.

Is That Dashboard Enough?

“You’ve got to be very careful if you don’t know where you are going because you might not get there.” – Yogi Berra

Over the years, I have been amazed as to the number of entrepreneurs I encounter that use shortcut methods to get a feel for how their business is doing financially. Many today explain they have a “dashboard”. I believe a well-designed dashboard can be an invaluable tool for an owner but it should not be an excuse for not having timely, complete and accurate information. Without that, you can end up like Yogi said. A quick story.

Years ago, I was auditing a small but well known public company. The chairman was a sharp businessman, but the market had gotten away from his company and for the first time in years, they lost money and were in debt. I had my typical closing meeting with him and was told in no uncertain terms, the numbers were wrong. He asked, “If we lost $1 million, why do we have cash in the bank?” Though taken aback, I quickly showed him the balance sheet with $2 million of debt. He looked at it, thanked me and gave his “blessing” to the numbers.

Recently, I had the same experience where an owner of a business I knew asked me to visit because his numbers did not seem right. He had cash but his CFO indicated he was losing money. I quickly looked at his financials and did a back of the envelope calculation showing how the changes in receivables, inventory and payables had actually generated cash though he was in fact losing money.

Both had used a version of dashboard reporting (in this case, cash on hand) to assess their financial results. These shortcuts have their drawbacks. The other issue is that in an early-stage company today, there are non-financial type measures that an owner must manage. Unique visitors to a site, return visitors and costs to acquire customers are not in the financial records but can be a solid indicator of the health or future health of an enterprise.

So some simple advice. You should work with your internal or external financial staff to determine what data works best for you to run your business. If you are a more mature business, you need a balance sheet and cash flow statement (they are easy to create) to go along with your income statement to better understand your financial workings. Just using cash balances or average order size (another client used this) is not enough and can be short sighted.

If you are emerging and pre- or early-revenue, develop those metrics that provide the right insight into your business. Those who are in this space can help you and while that data is important, keeping track of how your cash is used (your “burn rate”) is also a critical piece of information.

You may hear from colleagues that they do not waste time on such mundane matters and getting a “quick read” on your results is the path you should follow. While I agree that timely information is paramount, insufficient information is not acceptable. And if your competitor is doing a better job of obtaining and acting on solid information, you may lose in the end. So don’t just settle for dashboard reporting because it is fast and easy; make sure it really can tell you what road you are on.

You Have to Be Fiscally Responsible

“Friends don’t do this to friends.” – quote from a new client CEO when told his CFO was “taking” money.

For those of you who follow this blog regularly, you know my background as a long-time audit partner with EY. That experience has allowed me to be a trusted advisor to many business owners of all types and to see first-hand the issues I use as content here. I use few, if any, “geeky technical topics” and I usually leave the ugly side of the business out. But there is a disturbing trend I see with too many of this generation’s entrepreneurs that I feel is worthy of exploring. First, let me provide some background.

There is a popular acronym called KPI (Key Performance Indicators) that many owners today rely on to gauge the health of their business. KPIs may include average sales per day or employee, days of sales in receivables, unique users to a site, etc. Many come into favor as early-stage companies may not have revenue but need some objective data to monitor progress. All understood. But this tool is not so new. As a young manager (yes, before the internet but not quite when people used quill pens), I was always interested in what data owners of established businesses used to manage their company. Interestingly, while some referred to monthly financial statements, most used daily information on shipments, cash collections and weekly payroll. As to the last item, even the most unsophisticated owners always knew their weekly “nut” or payroll. They would leave the full accounting and finance function to the CFO but they always had a handle on KPIs. So why the trip through accounting history?

I notice more and more a bifurcation of tasks and responsibilities by today’s entrepreneurs. Once a financial manager of any type is hired, it seems everything finance related is delegated to that hire. Someone in an owners’ blog somewhere must have said this is the right thing to do; that administrative tasks just bog you down and you should abdicate your fiscal responsibility and only spend time on activities that bring value (product development, team and customer building, etc.) to make your venture a success. Not true.

So, the genesis of this quote. We recently landed a new early-stage client and as part of our process did some simple diagnostics. The CFO was a close friend of the CEO founder with complete charge for finance and a few other functions. Without going into details, the CFO was paying himself unauthorized bonuses. No accounting tricks; they were right there on the payroll register; the CFO just felt he deserved more money. We were astonished to find the founder never reviewed payroll; did not know what his nut was. He was devastated. In addition, the bond company is giving them a hard time about covering the shortfall citing inadequate supervision.

So, a simple lesson for owners of all businesses. It is perfectly fine to leave the core of the finance function to others but always have some minimum KPI type of checks and balances in place as your predecessors did. Take the advice from Chris Anderson as relayed in David Kidder’s “Startup Playbook” – “engage in the whole process.” Because in the end, it is a real challenge to be a success if you are not fiscally responsible.

Profit is Not an Ugly Word

Leo Bloom: “Heh, heh, heh, amazing. It’s absolutely amazing. But under the right circumstances, a producer could make more money with a flop than he could with a hit.” – quote from the movie The Producers by Mel Brooks.

Some of you may recall this memorable line which was the premise of this classical movie. The plan was to raise a significant amount of money, find a play that would “flop” on opening night and keep the unused funds. An ingenious ploy; save for the fact that the play was a hit, more than 100% of the equity had been sold and the main characters ended up in prison.

So, let me begin by apologizing for the somewhat dour tone of this blog. I think of this line as I see pitches that seek to raise more and more capital with an apparent disregard for the spend or “burn rate,” with entrepreneurs chalking up their expenses to the investment needed to grow. Every entrepreneur I ever met believed they could grow faster with more dry powder. But the successful ones realized that just like one’s personal finances, at some point, you must “pay the piper” (face the music, come to Jesus, yada, yada, yada).

I would have thought we learned our collective lesson from the dot com boom / bust. Back then, despite substantial losses, valuations were sky high and investors began to focus on other “metrics” which soon took the place of the old reliable P & L. Just like the Cabbage Patch Kids, one day someone decided that these companies were in fact ugly, and shortly thereafter, most were trashed and entrepreneurs were sent home to live with their parents.

I want to be clear here; if you are running any type of business, you need a clear path to profitability. I saw a recent article with an entrepreneur calling out investors for just asking when the company would turn a profit, which the author interpreted as just stifling growth. How dare they? Well I ask, how dare you build a business model without such a pathway and put your stakeholders (especially employees) at risk with the hope that someone will be smitten with your traction or stickiness and rescue you with an acquisition deal? That’s not building a viable business; that’s the equivalent of legalized gambling.

Please do not get me wrong. I am not implying that one must be profitable to attract investors. If I believed that, I would not be so respectful of angels and VCs that make the early-stage ecosystem work. Thank goodness for them. But if you think investors do not believe that a sustainable business is nirvana, you just have not asked the right questions. That path to profitability must not only be clear but in sight.

The great entrepreneurs I know are better than that. They realize that this not a Max Bialystock shell game. They need to seek profitability and realize the clearer the path to this goal, the more likely it is their journey will be successful.

Leadership; You Will Know It When You See It

“I always admired a subordinate who could stand up and say ‘you said it, chief.’” – quote from a long-time entrepreneurial client

We have all had experience with leaders, and I would be the first to admit that I openly copied the leadership traits of those I admired. The above quote came from a client years ago as I was asking how he instilled the “followship” that is an important part of leadership. His backhanded comment was a reminder of the fact that without some respect (admiration and even fear), the effectiveness of a leader can be somewhat diminished.

I thought about this when I recently attended a session / presentation on leadership. A panel of successful leaders responded to questions and provided some guidance on this topic to the audience. As enlightening as it was, I was somewhat taken aback by the commonality of the message on leadership. While each took their turn at eloquently explaining what they believed a leader was, none captured more than one or two elements of what I thought made a leader. It was at that point that I realized that no definition could capture the wide range of effective leaders I have known.

What I also began to realize as I reflected on my role models was that it was an event or opportunity that allowed that person to become a leader in my eyes. It was action more than executive presence that defined them for me. While I had known most of my leaders and knew what they were capable of, it was an event that brought out their best. Two situations, both related to initial public offerings (IPO) come to mind.

If you have ever been involved in an IPO process, you know it is one of the most intense processes known to man. While not quite like sending someone to the moon, it relies on very timely coordination and execution from a diverse team to come to the right point in time where everyone can “sign off” and give the go signal. At times, that window is only open a day or two at best and if you miss it, you have to revisit the process. At the time of this decision, expectations are high as are the attendant professional fees.

In two separate cases, we were at that go or no-go point and each CEO stepped up and determined the time was not right and the deal was pulled. In one case, it was an experienced professional manager who had been through the process before, but in the other case, it was a business owner with a very unsophisticated business who saw certain parties in the process being pushed to the edge of the envelope. While he was not sure what was going on (and he had the most at risk) he sensed it was not right and stopped the presses.

Crisis, personal issues, conflicts, financial distress, loss of major customer – – I have seen various owners respond to these traumatic events, but it was the true leaders who did not let the situation control them but stepped up to show they were leaders. It was obvious to all present that they saw leadership.

So, as an owner, be prepared to show you a leader. You may in fact be a good mentor and coach to your team, but when the opportunity presents itself, be prepared to step up and do the right thing. The ultimate success of your company may depend on it.

Entrepreneurial Loneliness – Learning to Share

“It’s lonely at the top of Olympus” – quote from Emperor Nero (Dom DeLuise) – “History of the World” – by Mel Brooks

Some would say that today, we live in the age of the entrepreneur. As someone who has been in this space for over 40 years, I must say I tend to agree. When we first formed entrepreneurial services at EY, it was considered by most to be just small business. There was no Bill Gates, Jeff Bezos, Mark Zuckerberg or Steve Jobs back then. Each entrepreneur we met seemed to be possessed by this passion to set out to create something that big business wouldn’t (or couldn’t) do. They were the outliers; jousting at windmills and looking to accomplish the impossible. Looking back on all the innovation, financial success (can you say unicorn?) and social good, one can only say thank goodness for those early pioneers. It has been quite a ride and the juggernaut continues.

However, I see something a bit different in many of the entrepreneurs of today. While I still believe that deep down inside they want to change the world, they start out motivated by something a bit different; the ultimate vision of being their own boss. They raise questions like, “Why be creative for others?” and, “Why put up with all the office politics, infrastructure and chains which will keep me back?” Perhaps they just can’t find a job. But they love the image of that ultimate dream – – waking up in the morning and looking in the mirror and realizing you have nobody to answer to but yourself. Ah, nirvana.

So why the concern? To me there is an important part of the message of success that does not get delivered as forcefully as the image of the entrepreneur on a stage by himself or herself explaining their success to the world. Lost is the importance of the support cast. Where would Steve Jobs had been if Steve Wozniak had not been there? While every entrepreneur loves the fact that they answer to themselves, that same scenario conjures up visions of fear and uncertainty – – most feel personally responsible for the success or failure of their company. The immediate reaction is usually to do “whatever it takes” to make sure the business is successful. Learning to build a team and share some of that responsibility and “pain” with others does not come easy.

I am surprised that with all the business coaches and organizations that offer advice and the plethora (thank you “Three Amigos”) of guidance on team building that is prevalent in business media, I still get introduced (on more occasions than I care to admit) to successful business owners who believe they are on their own and who are feeling the strains of “being alone on Olympus.” My role with them sometimes morphs into a form of pseudo psychological therapy, but mainly it is just that of an objective observer offering advice that often reinforces what the entrepreneur believes but feels they cannot share with those close to them.

So please, as you build your business, find people to share your successes and your challenges – – key employees, advisory board members, advisors or peers. Many of those in your personal network are more than willing to help and support you on your journey. As the famous saying goes, “No man (woman) is an island,” and for an entrepreneur, no truer words were ever spoken.