Do what you do best and hire for the rest. I have not and will not take a startup from its idea phase all the way to exit. That’s not who I am. I am an entrepreneur who is visionary and creative. I don’t fit in well in an operation that has reached twenty people or more, with all its many set procedures and routines.
How I do it
There are distinct phases to the startup cycle. I excel at the first of these: Idea, proof of concept, initial growth, prepare to scale. So, when I’ve conceived and launched a startup and the team reaches somewhere in the neighborhood of twenty to thirty people, I find someone to replace me—ideally someone who will take the young company all the way to the exit stage. To date, I’ve done this successfully with four different companies.
A CEO does the job far better
Spreadsheets, management reports, cultivating a team and so on—these are jobs for an operator, but not for me. They’re the field of a CEO type who loves to build on an existing, functioning team, push forward with product innovations and take the business to new heights. One should know his own strengths and weaknesses, and I’ve recognized and accepted mine. I know that once a new venture has reached the proven-business stage and is poised to scale upward, it’s time to turn it over to someone who is comfortable and competent in CEO shoes.
I sometimes hear this question: How can we, as VCs, motivate a team to build and expand if their founder isn’t there to lead them? First of all, I don’t entirely leave a company I’ve started; I remain on the board and stay in touch. I’m just not the right person to motivate teams or be heavily involved in day-to-day operations. Normally, I’m thinking and acting way ahead of routine operations. I don’t have enough time, attention and energy left to give individual team members the care and attention they need and deserve. The team ends up frustrated with me, and I end up impatient and frustrated with them as well, waiting for people to get things done.
To financially motivate a startup’s first employees, I always make sure people are either given shares or access to a warrant package. Most people, including me, are not as motivated by money as they are by the opportunity to excel: to face and overcome serious challenges and do the best possible job. That’s what I do. It’s what I’ve succeeded at doing for many years now.
What happens when the founder leaves an operation, you may ask? In my case, I replace myself long before I go off seeking investors for new ventures. I replace myself, and make sure the transition to new leadership is smooth, and the new boss is running the operation successfully.
It is important to understand that I have typically stayed with it for three to five years before I turn a company over to new leadership. That’s years of pouring my blood, sweat and tears into it. I am highly motivated to set the company up with the best possible growth conditions, and work hard to find the best way to accomplish that. I also invest personal capital in any company I start, so it’s not as if I have no serious stake in the game.
How does it work, from a practical view?
When it is time for VCs to enter the picture, I step out of operations, but remain a part of the board. I normally don’t invest further, as I have already taken the company to Series A.
I am normally willing to sell secondaries, but dilution can also be an option, depending on the circumstances.
So, should you go for the sort of traditional team setup you’ve seen so many times before, or try a new approach? One thing is certain: if you had never tried something new in the past, you probably wouldn’t be a successful VC today. Your challenge is to seek out and support the next big thing. And it all comes down to numbers. Your best bet is going to be someone who acknowledges his abilities (and limitations) and has a proven track record of establishing successful companies. Either that, or an entrepreneur who also happens to perform well as a CEO. The numbers tell the story: You are more likely to find one person who’s a great entrepreneur, and another who’s a top-performing CEO. And the great entrepreneur you’re looking for is me. Welcome to any one of my companies.