With many start-ups, the entrepreneur has a very clear vision of how they believe the business should develop. For some, running a company can be reasonably plain sailing, but as growth continues, management processes become much more complex and time-consuming.
From the outset, there are numerous issues for entrepreneurs to consider – from sourcing potential funding to recruiting appropriate expertise. Yet behind these decisions, there often lies an overwhelming desire to maintain tight control of the ship. While this is understandable, it can create a barrier to building financial value.
In general terms, there are two types of entrepreneurs: those who make business decisions by design and those who make decisions by default. While both types bring passion, focus and discipline to their organisation, the former tends to have a better grasp of their limitations and how these may impact on development. These are the people who generally won't become a casualty of self-inflicted wounds in the potential battles that lie ahead.
Data from numerous studies of entrepreneurial startups suggests that bringing in professional management is something that should be considered early in the development of the company, particularly when seeking funding from external sources.
Yet founders can then be faced with a number of HR dilemmas:
1. What skills should be hired at the outset and what can be delayed until a later stage in the company’s development?
2. How much of the equity (if any) should be given away to attract appropriate talent?
3. Should early hires be compensated differently to later hires?
As with any management team, the skill sets should be diverse. The founder may want the position of CEO or MD so the balance of the executive team may need to address specific issues relating to people, processes (sales, marketing, finance) and technology. Responsibilities need to be clearly defined and agreed, with managers then left to run their departments accordingly. Having a part-time, non-executive chairman on board can also prove valuable, particularly when dealing with any management disputes that may arise.
Understanding the mechanics of building an experienced management team is key to an organisation’s successful growth. Founders need to be fully aware from the outset that the challenges they face will change as they grow, requiring them to make difficult decisions. Developing a Management Succession Plan that is reviewed annually and fine-tuned where necessary will ensure that everyone’s personal and career requirements are addressed.
Being a founder of a startup can be incredibly challenging, but making the transition to CEO can be even more difficult. Entrepreneurs are often innovative and creative thinkers, but while managing the day-to-day operations of the business, the passion, vision and discipline they brought to the organisation at the outset can be eroded. This is when they need to decide if their heart lies in innovation or running a company.
As for the future of any startup and its founders, much depends on the nature of the business. Founders are individuals who start a new organisation with the objective of capitalising on identified opportunities. Some are destined to become high-flyers (Facebook, Apple, Google to name a few), whereas others will remain small, owner-operated businesses. Regardless of size, one key to success is developing a strong management team with the skills to support and enhance the founder’s vision.
David Dumeresque is a partner at executive search consultants Tyzack