Deciding how big you want the company to be and change its strategy, organization, and processes while sustaining the culture.
by Peter Cohan
If you aspire to be a successful startup leader, it helps to know how to solve the toughest challenges you’ll face.
When I was a graduate student at MIT, professors overloaded me with challenging weekly problem sets. So I figured an MIT professor would be able to solve the problem of answering the 9 toughest challenges facing an entrepreneur.
On June 8, Bill Aulet, Managing Director of the Martin Trust Center for MIT Entrepreneurship, gave me his solutions and they should guide any aspiring leader.
1. What are the traits of a sprinter (a leader who can turn an idea into a company that gets acquired) or a marathoner (who can take a company public and keep it growing)?
The answer depends on the size of the entrepreneur’s idea. The time, money, risk, and team needed to fulfill the potential of that idea depends on whether it’s ” (1) a feature, (2) a product, or (3) a company.” said Aulet.
Option 1 is best for founders who “want to limit the amount of time and diversity of the teammates they need to recruit. Option 2 is what sprinters usually chose as they see a hole in the market and they feel they can fill it faster and more efficiently and effectively than bigger companies and once they do this, the bigger companies will want to buy them. Option 3 [is the most challenging –] requiring “much more intestinal fortitude long range thinking, resources and focus with much higher rewards,” he said.
Aulet gave the example of how this would apply to Google. “Think of Larry and Sergey (founders of Google). If they chose option 1, they would have licensed their algorithm to Yahoo, Microsoft, AltaVista, AskJeeves and other and simply gotten a licensing revenue stream without all the headaches they got from building a company. Interestingly, these seem easier but are often is not as Google found out when they tried to license it and failed.”
At that point, Google could have responded by building its web site, making it successful, and selling it to Microsoft — but the decided to “double/triple down” with a push from their investors “to go for broke and control their destiny.” They are worth billions thanks to their “patience, time, ambition, confidence and a risk profile where [they were] willing to keep betting and stay in the casino rather than [taking] the money and [going] home,” he said.
2. How do top CEOs define the revenue tiers that their startup will reach as it scales?
Aulet thinks that revenue tiers for scaling — “$1 million, $10 million, and $100 million — as clip levels are arbitrary. In his view, the levels are related more to the number of employees — “10, 30, 100, 1000.”
3. How should CEOs create and sustain a culture that helps their startup to scale?
The inability to sustain culture “generally kills companies trying to scale.” As Aulet referred me to his article, “Culture Eats Strategy for Breakfast,” which he summarized by saying, “the founding team has to know [scaling the culture] is critical. It will become the silent supervisor in the room to keep the company’s values, quality and reason for existence. Otherwise it devolves into mediocrity.”
Experienced entrepreneurs know this better than most first time founders. To sustain the culture as a company grows, the CEO must explicitly define the company’s core values and “then make them visible through stories, the personnel appraisal process, public relations, incentives, real estate, hiring policies, and articulating clear reasons why the world is a better place because the organization exists.”