Category Archives: Leadership

Ihmisten johtaminen on lastenleikkiä

Ei ihmisten johtaminen ole vaikeaa. Päinvastoin. Se on lastenleikkiä. Ainakin teoriassa. Pohdiskelin aihetta varsin syvällisesti n. kymmenen vuotta sitten. Olen myös lukenut yhden rekkalastillisen verran kirjoja strategioista ja johtamisesta. Roskaa suurin osa. Ei erityisen hyödyllisiä tietyn annosmäärän jälkeen ja viihteellisyydessäkin jäävät reippaasti Tex Willerille. Jos asiat yksinkertaistaa sellaiseksi kuin ne usein ovat, niistä on vaikea kirjoittaa pitkiä ja puuduttavia kirjoja. Saati sitten rakentaa yksinkertaisten ajatusten ympärille kokonaisia MBA-ohjelmia.

Tämä tekstinpätkä on erityisen relevantti startupkontekstissa, mutta pääosin ajatukset soveltuvat sellaisinaan myös kypsemmän ja isomman yrityksen johtamiskontekstiin. Startupeissa menestys lähtee joka ja ainut kerta liikkeelle porukasta. Siis ihmisistä. Jos perustaja(t) onnistuu hyvin kaikissa rekrytoinneissa ja/tai korjaa rekryvirheet tehokkaasti, on perusteet hyvällä johtamiselle ja menestykselle olemassa. Jos taas rekrytoinnit eivät osu nappiin, tulee ihmisiä, jotka eivät ole motivoituneita tai taitavia tai ovat muuten vaan liian epäyhteensopivia luonteidensa ja arvomaailmansa puolesta, niin mikään määrä hyvää tai erinomaistakaan johtamista ei todennäköisesti korjaa rekrytoinnissa tapahtuneita virheitä kuin marginaalisesti. Koska onnistunut rekrytointi on onnistumisen perusta, on ehkä vähän omituistakin että johtamista käsittelevät kirjat eivät lähde liikkeelle rekrytoinnista. Mitä parempi porukka, sitä vähemmän sitä tarvitsee johtaa.

Jos nyt oletetaan että rekrytoinneissa ollaan onnistuttu hyvin, niin mikä olisi hyvä tapa tätä jengiä sitten johtaa? Johtaminen on alueena laaja ja siitä on helppo kirjoittaa kirjasarjoja. Perustotuus lienee se että johtamaan oppii johtamalla, ja tekemällä ensin virheitä erilaisten persoonallisuuksien kanssa ja havaitsemalla mikä ei ainakaan toimi. Kymmenisen vuotta sitten halusin kuitenkin kiteyttää kolme peukalosääntöä liittyen johtamiseen. Ja näitä peukalosääntöjä olen sitten kymmeniä kertoja jakanut startuppien perustajille ja vähän kokeneemmillekin johtajille vähän anekdootin omaisesti. Ja aina erityisesti silloin kun joku on ottanut esille MBA -ohjelman (jota pääosin pidän hyödyttömänä yrittäjille, tai en ainakaan investoinnin arvoisena) tai halunsa lukea lisää johtajuudesta. Tässä ne kolme peukalosääntöä tulevat.

1. Kuuntele.

Ihmiset yleisesti ja kollegat ja alaiset erityisesti haluavat jakaa omia ajatuksiaan ja tulla kuulluksi. Johtajan oven ja mielen tulee aina olla avoinna. Ei siis niin että ovi fyysisesti ikäänkuin olisi auki, mutta tosiasiallisesti yksikään alainen ei halua tulla kertomaan omia ajatuksiaan, koska tietää keskustelusession melko nopeasti kääntyvän monologimaiseksi saarnaksi. Kuuntele.

Yksi johtajan keskeisiä tehtäviä on priorisoida asioita ja auttaa muita priorisoimaan ja saamaan kaikkein tärkeimpiä asioita valmiiksi oikea-aikaisesti. Tehtävä toisinaan muistuttaa vähän lennonjohtajana toimimista. Ei jokaiselle koneelle tule eikä pidä antaa laskeutumislupaa sitä pyydettäessä, mutta kutsuun on vastattava heti ja sovittava järjestysnumero milloin asiaan palataan, ja palattava silloin kun on sovittu.

Joskus on tietysti menossa joku luova sessio tai työpaja, jolloin pomon on hetkellisesti kenties syytä rajoittaa puheille pääsyä lähes kokonaan.

2. Pidä aina lupauksesi. Lupaa paljon.

Kuulostaa yksinkertaiselta, mutta on oikeasti hiton vaikeaa. Toimitusjohtajalla on ainutlaatuinen mahdollisuus määrittää yhtiön tekemisen tahti esimerkkiä näyttämällä. Hänellä on mahdollisuus auttaa kollegoitaan, perustajia ja johtoryhmän jäseniä suoriutumaan paremmin heidän tehtävistään.

Tuskin missään muussa positiossa on yhtä helppoa keksiä mahdollisuuksia auttaa muita ihmisiä lähes päivittäin ja tekemisen ja oman esimerkin kautta rakentaa korkea työmoraali. Vitsi on siinä että pyrkii selkeästi aina lupaamaan selkeitä aikaan sidottuja tuloksia ja pitää lupauksensa aina. Se on hyvin vaikeaa.

3. Arvosta alaisiasi.

Yksikään kasa rahaa, optioita tai osakkeita ei liikuta ihmisiä tiettyyn suuntaan yhtä tehokkaasti ja yhtä edullisesti kuin ihmisten sisältä lähtevä halu seurata johtajaa. Tarvitaan luottamusta ja molemminpuolista arvostusta. Jos arvostat ihmisiä, jotka työskentelevät sinulle ja kanssasi, osoita se heille mahdollisimman usein, niin he kyllä hyppäävät kanssasi kuraojaan kun se hetki tulee.

Kolikon kääntöpuoli on se että jos et kykene arvostamaan alaistasi, niin anna hänelle välittömästi kenkää (pätee erityisesti startupeissa). Isommissa firmoissa lienee joskus mahdollista löytää joku sopivampi positio, startupeissa tätä mahdollisuutta ei juuri koskaan ole. Kun arvostus ja luottamus loppuu, tehokkaalta tekemiseltä on pohja pudonnut pois. Kannattaa minimoida vahingot.

Väitteeni siis oli että ihmisten johtaminen on verraten helppoa teoriassa. Kuuntele. Tee aina se mitä lupaat. Arvosta. Pelkästään näiden fundamentaalisten luottamusta rakentavien asioiden noudattaminen käytännössä konsistentisti on erittäin vaikeaa. Mutta aina kannattaa yrittää. 🙂

P.S.

Tämä on vielä raakatekstin tasolla, mutta venäytin peukaloni sunnuntaina ja sen parantuminen saattaa kestää kuukausia, joten ajattelin että pistetään pihalle nyt … vaikka sitten pahasti keskeneräisenä. Toivottavasti herättää ajatuksia.

Startup Chairman’s Requirement Specification

Any company must have a board of directors and a chairman who leads the board. It is quite common practice, at least in Finland, that especially an inexperienced team will select the chairman among their advisers and business angels. The selection of the board and especially its chairman has far reaching implications. Don’t take it lightly.

Running and leading a startup’s board is a whole different ball game as compared to the board work done in more mature companies with revenues and established business models. The work in a startup’s board should be much more intense and requires practical product-level detailed tactical understanding on what a startup is up to. This is rarely the case in larger companies. It is extremely difficult for even the most prominent professional managers (or board professionals) to successfully cross over from a large company to a startup setting. And be useful and acknowledge and apply the startup sensibility. This fact alone makes most big name prominent business leaders not only useless but downright dangerous implementing their large company experiences to a vastly different setting. There, however, are few exceptions who can handle both. In brief, beware of the so called board professionals and figure out if they understand what kind of a beast a fast growing tech startup is.

So, what would then be a good high level list of competence requirements for a startup’s chairman of the board? Here is my list for the must have skills:

  • In-depth understanding and vast practical experience on how the entrepreneurial process works by transforming mere high tech ideas into commercial products. Deep understanding and experience across all operational functions of a company and how they play together.
  • Strategy and venture funding knowledge and practical experience are vital.
  • Willing and able to use enough time. The right attitude. Engaged from his heart.
  • Good understanding of corporate governance and legal in a startup context. Practical experience in managing change including hiring and firing employees, CEOs etc.
  • Understanding of the importance of a great startup culture and how to build it.
  • No fear attitude.
  • High integrity.

The following skills are nice to have:

  • Domain knowledge. A person with a fast brain and clock speed can learn any domain just by asking a set of questions and paying attention to the details. Chairman, as well as any other member of the board, must understand the domain but they can learn it on the job.
  • Networks. While a relevant network can help a lot, the chairman’s key value add should be elsewhere.
  • Celebrity status. Pick always competence over prominence. It, however, doesn’t do any harm if a chairman has a good reputation and is known as long as he is not a mere figurehead.

Being a startup’s chairman is a really tough and mostly underpaid job. A chairman must always optimize what is good for the company, not for an individual stakeholder be that an investor or founder.

The best thing about being a chairman in a startup is the fact that it will spice your life and bring a lot of excitement and takes away all your free-time problems if you so wish. 🙂

I would love to hear out your thoughts on this post. Please keep the comments coming. The best place to have the discussion is the Tough Love Angel’s Facebook page.

Nokia Startups Mistake #10 – Go-To-Market Strategy

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.

Selling an unknown product built by an unknown startup is not easy. Some Nokia-based startups do have marvelous go-to-market plans that could work but only if the startup had both the credibility and resources of a larger, more established company.

As they don’t have either, the plans will most likely fail miserably. Every startup desperately needs an entry point to its market, an entry point to close the first customer, then second, and so on. Problems with go-to-market strategies stem from not understanding customers and their needs well enough, and perhaps with Nokia background it is just a little bit easier to have an attitude problem and think that distribution and scaling up are not a big issues – as they never were while working at Nokia. Yeah, right.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #9 – The Arrogant A**hole

“Don’t be an *sshole.”  

This article originally appeared on ArcticStartup.

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. This is a somewhat difficult mistake for me to write about as I haven’t personally witnessed it in my interactions with Nokia-based startups. Some angels and VCs, however, have mentioned enough times that they think quite many ex Nokians suffer from being arrogant. This behavioral trait most likely is rooted in how things were done at Nokia Corporation.

Let me first define what is understood with arrogance here.

In authoritarian leadership style a Nokia executive while still at Nokia directed his subordinates and especially external vendors to make various things happen without providing any intrinsic or monetary motivation beyond punishment in case of non-compliance. This style may work in a large corporation where an executive holds undisputed authority over his subordinates, and vendors are at the mercy of the corporation and its dictators.

When a Nokia executive who has lost his beloved badge, and the authority and recognition that came with it, continues to command external people and service providers without offering any other motivation than his lost authority – that’s what we call as arrogance.

Why arrogance can be bad?

Most startups are broke. To get things done, entrepreneurs need to leverage their own network and the networks of their co-founders, investors and advisors. Sometimes you need to get service from previously unknown service providers at below market price or paying with equity only. People don’t move their asses and do favors just because you say so but instead they want to get something in return – like feel good in helping you out, or get a pole position to offer their services later on when you can pay with real money. A startup co-founder, and this applies especially to the CEO, has to know how to ask help, and how to get people do things for him while most of the time the only instant payback is his gratitude. But make no mistake, earning someone’s gratitude and trust, and thus being able to someday ask help yourself, that’s incredibly powerful.

What then motivates people help each other?

So far we have firmly established the following two things:

  1. To get things done fast on a timely manner, and to operate at low costs in the early days, a startup needs to tap into the network of its co-founders and advisors, and once and awhile source important services while not being able to pay any significant money.
  2. Being arrogant, i.e. trying to exercise authority on people you don’t have any authority, is not going to help you win people on your side.

So, how should you then deal with people?

What are the six weapons of influence?

Robert B. Cialdini is my hero. He is the author of one of the greatest business books ever written: Influence: The Psychology of Persuasion. This book is a must read for anyone who ever needs to deal with other people, yeah – it’s like a bible is for believers. The book is fun to read and reviews many of the most important theories on and experiments in social psychology.

I have just summarized here Cialdini’s thoughts for your convenience, but to truly grasp them you should read the book.

  1. Reciprocation. We humans are unique amongst all animals as we incur debt from services and gifts from other people, and then we feel a growing urge to pay back. Likewise if we say no to someone that tried to sell us something, we become more prone to buy something from the same guy later on.
  2. Commitment and consistency. Once people have made a choice or taken a stand, they are under both internal and external pressure to behave consistently with that commitment. When you get someone to commit verbally to an action, the chances go up sharply that they’ll actually honor that commitment.
  3. Social proof. This is a very powerful shortcut that many smart and dumb people take in the times of information overload. Most investors are sheep that follow one other, and thus getting a lead investor that serves as a credible social proof will get you the rest.
  4. Liking. People love to say ‘yes’ to requests from people they know and like. And people tend to like others who appear to have similar opinions, personality traits, background, or lifestyle. More people will say ‘yes’ to you if they like you, and the more similar to them you appear to be, the more likely they are to like you.
  5. Authority. Most kids are raised with a respect for authority. Authority plays internally little role – yet it has a role – in startups which are meritocracies, and to get external people do things for you just because you say so – yeah, that’s arrogance and probably doesn’t work.
  6. Scarcity. Opportunities seem more valuable when they are less available. This, again, is a very important principle e.g. when raising funding or recruiting new people.

To summarize:

Startups should be meritocracies and thus ruling by authority doesn’t work inside or outside the company. To get outside people do favors for you, besides paying money for their services, you need to offer them incentives grounded to social psychology. Asking for help, for instance, is a very powerful way to empower people. People, in general, like to help other people when nicely asked, as long as the effort required is decent, and you pay back with your gratitude.

And, read the Cialdini’s book – you will have lots of fun, and the probability that you will be able to raise funding from investors or buy services below market rate increases.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #8 – Product-Market Misfit

“Imaginary products based on pure guesswork won’t typically sell well.” 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.This post builds upon previous posts about being far from your customers and the minimum viable product.

The single point I want to highlight in this post is the fact that a channel partner is not your customer.  Therefore you should not pay too much attention to their requirements. This is a common mistake for all entrepreneurs but perhaps even more common to Nokia-based startups as both Nokia and its network part are known for designing their products to mobile operator requirements. While this approach back in time was a competitive advantage for Nokia, the same approach won’t work for a startup.

Your channel is not your customer

I have been thunderstruck that some Nokia-based startups are not laser-focused on end users and their needs. They rather have a technology-driven and channel-centric mindset where building a product starts with internal product specification shaped lightly by feedback from prospective channel partners. Unlike a fragile startup, mobile operators with fear of Google and Apple, have all the time in the world to specify imaginary products that would in their dreams help them to stay relevant and compete against Google/Apple juggernauts. Most of these imaginary products can’t be pushed to end users unless they really want them.

Focusing on an imaginary product without true end user pull means typically a bitter death for a startup. Some products, e.g. many telecom products, have relatively long product development cycle, which further increases the overall risk. And this because you burn all the cash and when the real end users reject your product, then the channel rejects your product too, and at the end of the day there simply is no more money left for a pivot.

If you build a product to your channel, you don’t know if there is any real end user driven demand, and therefore a sustainable market for your product or not. You are practically betting your startup’s future on guesswork by a middle man. How stupid is that?

It makes a lot of sense to pay most attention to end users as they will ultimately decide which products fly or die. This is not to say that channels wouldn’t be important – yes, they are – but do design your product with real end users’ needs in mind.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #7 – Minimum Viable Product

“A minimum viable product that is anything but minimum.” 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. This post is directly related to previous posts about the culture, the high burn rate, and being close to the customer.

For engineers with Nokia background, it seems customary to build gigantic minimum viable products (“MVP”). Nokia is not known for its agile software development practices. On the contrary, according to many Nokia alumni, it always took a hundred engineers to build anything at Nokia – no matter how small.

It takes a lot of product vision to define a meaningful MVP, and not being close to the customer makes it even more difficult.

How to keep the product minimum?

  1. Avoid excess funding,
  2. Slideware, paper prototypes, UI sketches are an excellent way to test market.
  3. Start with a small nimble software team comprising one to five people. If you need a bigger team, it is unlikely that you are building the minimum.
  4. Use agile and iterative software development practices.
  5. Get out of the room and establish a feedback loop with a few lead customers early on.

It is much easier to work with the problem definition and play with various paper prototypes etc. longer when there is only you and perhaps your co-founder. The whole situation changes mentally when you have even a small software team in place, and guess what they start to do?

Yeah, right – they start to code while it in many cases would be much wiser to keep working with the problem definition and cheap paper prototypes.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #6 – Not Being Close to The Customer

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction.

“It is hard to develop a world-class product in a lab far away from lead customers and key ecosystem players.”

Your success begins from understanding who your customers are, and what are their true needs. To be clear on this, your success does not begin from your lab.

In many cases, your lead customers, the ecosystem and its dominant players are not in your home country but on the other side of the ocean. The long distance makes it a challenge to understand the evolving customer requirements, intricate details of the ecosystem and its power structure, and what your competitors are up to.

It is very important to be visionary but it is downright stupid not to try your best to understand what the customer needs.

Why all locations are not equal?

In Finland, with the near end of existence of Nokia and its ecosystem, we are not particularly an epicenter of anything beyond the mobile gaming. The winners are typically born close to dominant ecosystems where all the action and latest knowledge is. Or close to the first few leading customers who are first to take into use a novel or just different approach to their problems due to their innovativeness, or unique external environment circumstances at the time.

Interesting geographies from ecosystem, market size and new tech adoptation point of view include naturally USA, China, and emerging markets in South East Asia and Africa.

How to do customer development from distance?

In some Nokia cases, I have been delighted to see this local customer development element in play from day one. In other cases, the customer development part is handled from Finland via Skype and email, by using a network of local agents, and once and awhile hopping on a plane to have face-to-face meetings with far away customers and business partners.

Outsourced business development or too lean business development from distance is not the way to go if and when your early success depends on closing the first customer out of a handful few whose purchase window is open now. If you want to close deals and accelerate to the product-market fit (or pivot), you better be close to your customers and get used to spending a lot of quality time in planes and hotels away from your family. Yes – time away from your family, until you have some traction and you can start doing things differently.

The Nokia alumni is a vast network that spans the whole world. People who you either know in person or at the minimum share the Nokia experience with. This is a great asset – use it!

To be close to your customers at minimal cost, I suggest the following approach:

  1. Recruit a local business developer, perhaps a Nokia alumni, as part of your founding team or early employee with a strong vested interest to help you understand your customers.
  2. Use external agents only to open doors, never rely on them do drive your sales and customer development.
  3. Don’t use any time drafting lengthy distribution agreements until you have a product/market fit established. And even then rather work with your agents and business partners, close the first joint deal, and formalize the relationship only then.

As the final remark: be lean but, more importantly, understand what the customer needs. 

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #5 – High Burn Rate

“High burn rate will kill Nokia-based startups in numbers.” says the Tough Love Angel. 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. I suggest you also read my previous post about the culture as the poor culture is the root cause for high burn rate, but it is the high burn rate that eats your cash and kills you, not the culture itself.

High burn rate in a startup equals increased requirements for external funding and shortened runway to reach either profitability or critical milestones for the next funding round. I have seen catastrophic burn rates in many Nokia-based startups.

This problem starts with people who are used to pay a lot even for mediocre services as they have had the money in the budget.  And people who also don’t have much clue on how to be frugal and run a lean startup. Other contributing factors are “easy” money from Nokia combined with easy public funding leverage from Tekes, and the share ignorance how detrimental high salaries and premature scaling can be for a startup and its culture.

Just to make sure everyone understands it. The key factors that cause high burn rate:

  1. Premature scaling. A seed stage startup is three to five persons, NOT 10 or 20. Hold your horses and don’t scale up until you have established the product/market fit.
  2. High salaries. In a pre-revenue startup, salaries should be low, preferably in the range between 2000-4000€/month for co-founders, with no relation whatsoever to previous salaries paid at Nokia.

My advice this time is dead simple.

Be lean, my friend!

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #4 – Culture Gone Wrong

“When the servers are down, it is the wife’s (or husband’s) job to wait.” says the Tough Love Angel. 

This article originally appeared on ArcticStartup.

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. It is a big challenge for anyone with a long work experience in a large corporation, including Nokia, to succeed in building the right kind of culture for their first startup. It is a huge challenge even if you have a lot of startup experience.

In many Nokia-based startups, the key cultural problems I have seen are the following:

  • A way too many people on the payroll
  • Sky high salaries in case they have been able to attract funding
  • Consensus-driven culture and lack of sense of urgency

And finally this 08:00 – 16:00 work mentality that just won’t work in any ambitious product startup. This rotten work mentality is a wider Finnish issue beyond Nokia-based startups, with its roots in our welfare state where life is so much more than work. It shows here, and it sucks.

Why culture eats strategy for breakfast?

Building startups is tough. There will be an unthinkable amount of challenges ahead, and to survive these challenges and keep the team together in rough waters the entrepreneur and his founding team needs to build and maintain a strong startup culture.

I believe a strong culture is a leadership tool with two main purposes:

  1. It makes people more productive while executing strategy towards a shared vision.
  2. It keeps the team together in times of change when vision falls apart (= pivot), strategies fail and the company is in the brink of bankruptcy.

Visions change, strategies alter but the glue that keeps everything together is – the culture combined with strong leadership. A great culture must be built upfront before facing a crisis. Crisis, however, is the only real acid test to see whether you have a strong culture or not. Complicated!

A culture is part of the bigger whole

A big vision of something worthwhile – something that is going to change the world – serves as the anchor point. A great vision ignites people and gives them a sense of direction in the ocean of uncertainty.

It is the CEO’s job to communicate a vision that both founders and early employees find as understandable and worthwhile pursuing. In an early-stage startup, a vision typically centers on the core problem to be solved and on the more detailed vision how to solve it, i.e. product vision. There has to be adequate mutual respect between the leader and the troops, for the leader to be able to lead his troops, and for the troops willing to follow their leader. Agreeing on the vision is not enough.

Among the troops there must likewise be an adequate compatibility and mutual respect too. Folks must like each other to the extent they appreciate each others’ work and working together is at least efficient and smooth if not always super fun. The troops, however, don’t need to be best friends. Culture is what takes a group of individuals with diverse backgrounds and values, and melds them into something greater.  Into a high performance team with common goals and winning attitude.

There are super talented individuals who can’t efficiently work together no matter what culture, but you can take that to the bank that without a great culture, there is no high performance team.

What are the key ingredients of a great startup culture?

  • Hard work. Everybody must work really hard. A co-founder’s typical continuous weekly load should be at 60 hours. Work less and achieve more is nonsense most of the time.
  • First priority. It is very important to create and maintain a sense of urgency in a startup. Startup must be the first priority at all times. If a server is down, it is more important at that time than a nagging (or crying) wife.
  • Wearing multiple hats. A team of five (or less) must do the job that in a large corporation would be assigned to a small army of, say, 50 people. Be flexible. If no one knows how to build a great UX, it is then everyone’s vested interest to contribute and come up with a solution. No silos!
  • Being frugal. Watch every penny, and create a frugal attitude towards everything. 2000-3500€/month is the right salary range in a small, non-profitable, underfunded startup.
  • Having fun. Very important! You are likely going to fail anyway, so try at least to enjoy the journey and have fun.
  • Openness and transparency. Share almost everything. Don’t create any information silos. It is the right of all co-founders and early employees know precisely what is going on in their company. Being transparent and open creates trust and fosters creativity.

How to build a great startup culture?

The early culture decisions set the trajectory and course of the company. The foundation for a startup’s culture is built in the early days – during the first few months to be precise. Here is a check list how to do it:

  • Cultures are not put together by an individual.
  • While a founder or a founding team can have a dominant voice in establishing the culture, it’s the founding employees who cement it.
  • Each person a company brings on board should not only be talented and work hard but also fit smoothly into the company’s core values and be compatible with the rest.
  • The CEO must interview every new hire up until a certain threshold.
  • Define what your company’s culture is, and what do you expect from each employee and co-founder until hiring, and make sure they understand and agree on expectations. Be specific.
  • If someone, no matter how important employee or co-founder, continuously violates your culture and thus sets a bad example – fire him immediately.

Did I miss something you believe to be an integral part of great startup culture?

A collection of related links can be found from Kippt here. Watch especially a video by Mårten Mickos, where he brilliantly explains why he thinks entrepreneurialism is a belief system. If you know a relevant link that you would like to share with others,  please feel free to send it via email to mika (at) marjalaakso (dot) com.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.

Nokia Startups Mistake #3 – The GODDAMN Pie

“It never makes sense to give anyone equity without vesting.” says the Tough Love Angel. 

This is part of my Nokia Startups Mistakes series. For a backgrounder, please read the introduction. My previous post discussed the free rider issue partly amplified by the Nokia Bridge program itself. The ownership problem results from the combination of inexperienced CEO, more than one founder, and the Nokia Bridge incentives.

What is the ownership problem?

The ownership structure illustrated in the cap table of a company is about fairness and control.

  • Fairness. The sense of fairness is a crucial factor to startup’s culture. The cap table should reflect the relative contributions and risk taken of each shareholder over time.
  • Control. Startups are not a democracy. There are many tough choices in a startup. It will increase the probability of success if there is a single party that can quickly call the shots when needed.

A cap table that shows a fair allocation of equity with someone clearly in charge is a good one. If the equity is not allocated fairly – you have a problem, if no one is in charge you have a different problem. Who then calls the shots in difficult situations? Having said this, perceived fairness is much more important than having someone in charge.

How to divide the founders’ pie?

It is always an interesting and mind-boggling exercise. First a few guiding principles summarized from Fred Wilson’s post on the topic:

  • Fairness, and the perception of fairness, is much more valuable than owning a large stake.
  • It never makes sense to give anyone equity without vesting.
  • Ideas are pretty much worthless.
  • Only people working full time count as founders.

I would like to add one more:

  • A co-founder’s opportunity cost or how much money he needs to feed his family are his problems.

If each co-founder invested an equal amount of time, this would lead to a social democratic split of the pie, each co-founder having a 25% share of the pie, right? The social democratic pie makes only sense and is actually fair if each co-founder delivers exactly the same value to the company – which is practically a fairy tale. So, we are looking at this pie thing through the company’s eyes, not from a co-founder’s perspective. This is the key thing to understand.

It is typically the CEO’s job to get the co-founders around the same table, and then have more or less intellectual discussion about who contributes and what (Frank Demmler explains here in more detail the philosophy behind.) To get this discussion going, here’s a rough idea how it works:

  1. You first define a few most relevant factors (attributes) that create value to your company.
  2. Then you add weight to these factors to indicate their relative importance in value creation.
  3. And finally you specify the relative contributions of each co-founder against these factors.

After this exercise, you read the resulting ownership figure from the bottom line to get the ball park.

Let me explain the process through two different simplified yet practical examples.

Case A assumptions: “A high performance team built around the product guy”

  • A CEO with a strong capability to sell and lead the product, credible in the eyes of other co-founders and investors, knows how to raise funding, can lead the team
  • A credible CTO who can code hands-on, and can recruit top-notch talent form US and Finland
  • A world-class UX designer
  • A bunch of top-notch coders
  • A bunch of top-notch business developers
Attributes Weight Parties / Relative Contributions
 CEO  CTO UX Others
Idea & IPR 5 % 60 % 30 % 10 % 0 %
Product Contribution 35 % 50 % 10 % 30 % 10 %
Domain Expertise 10 % 80 % 20 % 0 % 0 %
Time 20 % 25 % 25 % 25 % 25 %
Responsibilities & Risk 30 % 50 % 30 % 15 % 5 %
Idea & IPR 3 % 2 % 1 % 0 %
Product Contribution 18 % 4 % 11 % 4 %
Domain Expertise 8 % 2 % 0 % 0 %
Time 5 % 5 % 5 % 5 %
Responsibilities & Risk 15 % 9 % 5 % 2 %
Targeted Ownerships   48,50 % 21,00 % 20,50 % 10,00 %

The CEO is clearly in charge here, though doesn’t own a controlling stake. The CEO and the CTO jointly own close to 70%.

Case B assumptions: “A less high performance team with free riders”

  • A CEO with no startup experience, may have been even General Manager at Nokia, no clue how to design a (killer) product, can lead a large division, nice guy
  • A CTO who doesn’t code, can define great architectures and evaluate top-notch tech guys, may, however, not be able to recruit killer hackers
  • A business development person who develops business
  • An excel guy, with either a degree in law or financial administration, doesn’t sell or contribute to the product, works full time but there are no daily tasks to match his skills
Attributes Weight Parties / Relative Contributions
 CEO  CTO BizDev Excel guy
Idea & IPR 5 % 15 % 70 % 15 % 0 %
Product Contribution 30 % 40 % 60 % 10 % 0 %
Domain Expertise 10 % 70 % 10 % 10 % 10 %
Time 30 % 25 % 25 % 25 % 25 %
Responsibilities & Risk 25 % 40 % 35 % 20 % 5 %
Idea & IPR 1 % 4 % 1 % 0 %
Product Contribution 12 % 18 % 3 % 0 %
Domain Expertise 7 % 1 % 1 % 1 %
Time 8 % 8 % 8 % 8 %
Responsibilities & Risk 10 % 9 % 5 % 1 %
Targeted Ownerships   37,25 % 38,75 % 17,25 % 9,75 %

In this case, the CTO is the product guy, and the excel guy is an adviser disguised into a founder, and gets most of his stake through contributing time while his real contribution to the company remains unclear.

Remarks & Recommendations

Here are a few remarks:

  • The number of co-founders is the biggest driver of how many shares you get in the beginning.
  • Each case is different and have to be worked in detail.
  • You can start with yourself or take at most one or two co-founders, define the business you are in, and recruit the rest of the gang with much higher valuation later on (here is a related article from Venture Hacks).
  • Work out first how to split the equity among the co-founders, when done with that you can simulate what happens to your equity share through dilution because of new equity issued for investors and future employees.

I would like to recommend the following:

  • Start with less co-founders. Don’t take additional co-founders if you really don’t need them.
  • Do the founders’ pie discussion openly before incorporating with your co-founders.
  • Always sign a Shareholders’ Agreement with stock vesting before incorporation. If you don’t do this, you are an idiot.

A collection of related links can be found from Kippt here. if you know a relevant link that you would like to share with others,  please feel free to send it via email to mika (at) marjalaakso (dot) com.

I hope you will enjoy this series, the thoughts it provokes, and the discussion it triggers. Please do participate to the discussion by sharing your own angle and experiences on this topic, or commenting on something, anything on this post. The preferred place for discussion is the Facebook page at https://www.facebook.com/ToughLoveAngel.

If you would like to get notified of a new post, please follow me on Twitter, and subscribe to the blog and its Facebook page.