What is a leader? It is hard to define leadership and what a leader is, and it’s also quite dependent on the context. One definition we think covers all situations is: “a leader is someone who has followers”. Leaders should make high-level decisions and motivate and facilitate people working towards a common goal.
The required leadership in a startup changes in different phases of the company. In a five-person company, the leader is just one of the team who does hands-on work like anyone else. However, a company with ten people starts to have an inherent hierarchy, and a company with twenty people is so big that it requires good leadership. Not everyone can make strategic decisions all the time. The leader must be able to move from an operational to a purer strategic leadership role.
To generalize, there are four different types of leaders:
A people leader is a leader whose primary focus is on the team and their well-being
A product leader is driven by product development
A customer-centric leader is primarily interested in customer satisfaction
A traditional business leader is driven by key business figures, quarterly earnings and beating competitors
Every business leader is some sort of combination of all four categories, but each leader also emphasizes one category more than another.
An easy test to determine the type of leader is to ask what the leader does if the company is facing a challenge. The business leader cuts costs. The people leader invests in people and training. The product leader cuts the product line to the core and stakes everything on product development. And for the customer-centric leader, everything is about pleasing the customer.
Traditional business leadership is ultimately about managing and growing existing wealth. Startup leadership is more about solving problems, building new things and inspiring people – in other words, focusing on the customer, product and people. Of course these skills are, to a great extent, becoming more and more important to leaders regardless of their company’s size or history.
People, products, customers and business form a hierarchy or perhaps a kind of spiral structure. Without enthusiastic people, there will be no new product innovation. Without a new product, it's hard to please customers. And without satisfied customers, there is no business that can be used to recruit more people to develop new products.
If you decide to found a startup, it’s a good idea to identify which of the above motivators drives you the most. When you know whether you are a people, product, customer or business leader, you need people around you who care about those areas of the business that do not inspire you.
Building the company culture
The corporate culture of startups is often different from traditional workplaces. The general image is a relaxed work culture – people in startups wear hoodies, and some investors even claim they won't agree to work with a startup entrepreneur who shows up in a suit. Startups often have colorful offices and lounges with ping pong and pool tables.
The light-hearted atmosphere of startup culture is just the surface. Look deeper, and you’ll learn that the one factor that unites almost all startups is uncertainty. As startups strive to find new and radical products, services and business models, they need to have enough courage to try new things. Renewal is not usually achieved through a controlled innovation process, but requires organic development and continuous action to create new opportunities and "systematic luck" (also known as serendipity).
When starting out with two or three founders, work is usually pretty fun. It feels great to seize new opportunities, fly to the other side of the planet at a day's notice, or build a prototype product over the weekend with the help of long hours and a lot of pizzas. But as the amount of employees grows, so does the amount of uncertainty – often exponentially.
The founding team and the first employees will have defined the company culture, and as said in the team chapter, it’s hard to change that. When you’ve created a culture that suits your initial team, you should aim to maintain and develop that culture as you expand the company.
In order to maintain a good working culture, recruiting is a critical process for startups. The best way to keep the culture of a startup intact is to make sure that your employees understand – and connect with – the company culture. For example, if your current team enjoys doing two-week crunches, make sure your new recruit won’t fall apart after the first all-nighter.
An important aspect of hiring (and one that at first glance may seem contradictory with finding a good fit) is hiring for diversity. Diversity – of gender, nationality, orientation and especially area of expertise – has been repeatedly shown to correlate strongly with more innovation and better productivity, and even with the capacity to generate more profit. If a startup keeps on hiring the same types of people, they will accrue “diversity debt”, much like a technology project that doesn’t fix bugs will accrue technology debt. When your team has five people, fixing diversity issues can be solved with one or two hires. When your company has a hundred people who all talk and think the same way, you’ll have created an echo chamber that will be unlikely to create breakthroughs.
You should be mindful of diversity and your team makeup when you hire, while still ensuring that the overall goals and values of your startup are something your new hires share. At the end of the day, the best way to get diverse people working together in an atmosphere of mutual respect is when they can build something tremendously inspiring and valuable.
Building a recruiting process
Recruitment is a critically important process for any growth company. The right people make the business flourish. For startups, this (like many other things) becomes even more pronounced. With the first hires, the hiring process and where employees are found can vary. But while scaling a startup, there needs to be a more systematic approach to recruiting:
First of all, what a recruiter reads in a CV is of surprisingly little importance or relevance to a startup. While many startup pitches underline the veteran status of their team (especially with the more experienced entrepreneurs), the ability of employees to develop and refine their own skills is critical.
Secondly, it’s important to identify whether an employee will be able to survive in the pressure boiler that is a modern startup. This means that in job interviews and reference surveys, it’s worth finding out whether the candidate has ever been exposed to tough and stressful situations – and how they have dealt with them. While startups typically emphasize their relaxed environment with pool tables and a beer cabinet, every single startup is also at times a stressful environment. For many people, a startup can be the most stressful place they have ever worked.
In addition to learning ability and pressure resistance, it’s really important to try to make sure the employee fits into the existing team. Integrating an egotistical prima donna into a team that has been working together well can break the whole team dynamic.
Searching for candidates
The recruitment process begins with the search for candidates. There are several ways to do this. Often companies rely on the power of a job listing. The problem is that job listings rarely reach the best pool of talent – these people generally don't end up in a situation where they have to start browsing for vacancies.
If you've spent enough time in startup circles, the most effective way to find suitable candidates is through your own network. When you put the word out about an open position in your company to your acquaintances, they will probably be able to find far better candidates for you than the lottery of a job announcement. And even if you are just beginning your startup journey, startup events like Slush, TechCrunch Disrupt or Web Summit are great opportunities to find great candidates. Most startup events have their own networking platforms that you can use effectively. For top professionals, you probably need a headhunter. A headhunter is a professional recruiter who actively approaches promising candidates who are generally quite happy with their current gig.
One more word about the candidates: always make sure that there is a sufficient number of candidates for each position. Even if the first applicant charmed the entire recruitment staff, it’s still a good idea to interview at least three or four others, even if you’re just confirming your feelings about the first candidate. And many times you may find that maybe the first applicant wasn't the best after all.
References and tests
References are one of the most important recruitment tools. Ask the candidate to name two or three former employers and colleagues who you can call and ask about the candidate's experience. This will often help you avoid the biggest pitfalls associated with finding a great fit for the company.
Particularly for technical experts, it’s also worthwhile to do some kind of test work. If it turns out that a coder is not able to solve a simple task, for example programming with C #, then it is best to move on to the next applicant. For designers and writers, it's a good idea to ask for a sample portfolio from which you can infer a lot about an applicant's ability.
It’s also a good idea to include your own experts who work in the applicant's field in the recruiting process. If you're recruiting a coder or graphic designer, ask your team's coders or graphic designers for their opinion. Also, when a good candidate is found, it's a good idea to introduce them to the team they will be working with so that your current employees can evaluate whether they would be comfortable with the new candidate.
A trial period is an important (perhaps the most important) way of assessing a job seeker's ability. What matters, of course, is whether the employee can perform their duties. But just as important to your startup is their attitude, their willingness to update skills, and the ability to get along with others. Use the trial period to study and monitor the success of a new employee.
Look for learners
Startups should not just hire experts. Everybody working in a startup must first and foremost be a learner – a person who is interested in the continuous development of their own skills. Startups are usually best populated by multi-talented generalists who are able to jump from one role to another. Because startups are often dynamic environments, the job a person was hired to fill may disappear and they will have to move on to do something completely different – or leave the company. Growth companies need to find intrapreneurs who think and work like entrepreneurs.
In the past, it was enough to get a degree, get a job, climb the career ladder, retire and get a gold watch. Nowadays, such a path is becoming less common. In startups, this is virtually impossible. In the early stages of a startup, the company 's composition and size varies so continuously that it is pointless to assume that a linear career path can be built within it. Later, startups are affected by larger macro events – exit, stock market or financial difficulties, and in the worst case bankruptcy. All of these affect the jobs that a startup has to offer.
Planning and managing your company
While startups tend to have a much more dynamic corporate culture than large process-driven companies, startups also need to have strategic thinking and processes to succeed. The trick is to find the right balance between planning and doing. If all you do is fiddle with PowerPoint slides, you shouldn't expect your startup to last very long. On the other hand, if your company has no strategic understanding of its own operations, running around like a headless chicken will usually not be profitable.
Mission, vision, strategy and tactics
At the top of a startup's business is a vision: an idea or an ideal image of what a company is successful at. The importance of the company’s operations and product emerges from adding in the mission: why does the vision matter? In other words, mission is the reason you do something, vision is the consequence of what you do.
Once the company has a vision and mission, the next step is to define strategy and tactics. Strategy says what to do. Tactics says how to do it. Processes are a key part of tactical planning: how do strategically relevant things be accomplished in a predictable way so that the company follows its mission and makes its vision real?
Planning your business starts with four questions:
Why does the company exist? (mission)
What does success look like? (vision)
What things are done? (strategy)
How are things done? (tactics)
The higher up the list, the harder it is to answer questions. That's why many companies often only crystallize points 3 and 4. By exploring the answers to points 1 and 2 as well, you build a solid base for your company that can withstand ever-changing market changes.
1) The mission
The first question is about your business values and philosophy. Is it important for your business (and you) to serve your fellow human beings, exceed customer expectations, or create the finest computers in the world? What is the actual problem your company exists to solve, and why is it really important? The mission provides the basis for defining your business vision.
2) Your vision
This is the ideal picture of what the world will look like if things go well. If your mission is to make your customers as much money as possible, the vision is for them to have a healthy bank account. If, on the other hand, the mission is to influence children's schooling in Africa, the vision is to have a significantly improved level of education.
3) The strategy
Once your company's mission and vision have been crystallized, it's time to ask what is done in your company to bring the vision to life. Strategic issues include decisions on product development, company culture and company marketing.
Once you are able to crystallize what is done, it is time to look at how it is done. How are the different stages of product development concretized? Does your company have free working hours or does everyone work from nine to five? Do you use email and phone, Slack or smoke signs and telepathy to communicate? Are you marketing using mostly PR or are you using digital user acquisition channels? How is recruitment organized? Will you post an ad or use headhunters?
Once tactical decisions are made, you should try to crystallize your operations into processes as much as possible. This means, for example, that every time you need to recruit a new employee you don't have to start from the beginning to figure out the best cultural compatibility and expertise for your business. When tactical goals have clear processes, they free up brainpower for other important daily activities.
Cash and economics
As a startup entrepreneur, one of your most important tools is the budget. It helps you monitor the financial situation of your company. One of the most common phrases thrown around in the startup world is “cash is king”. Your most important economic indicator is how much money you have in the bank. The most important piece of information about your company's finances is on what day that number will be negative.
For startups, traditional business key figures such as revenue and operating profit are less important than cash availability. Sure, it's good to keep track of how much money your company makes. But especially in the early stages, when it may take up to a year or two before turnover is visible, cash monitoring is key.
Cash assets are calculated using a simple equation. First, how much money do you have right now? Second, how much revenue is there per month? And thirdly, what is your company's burn rate – that is, how fast is money used up? The end result is how much money is left after each month. When you repeat the equation for each month of the year, you'll see the amount of money left over that year. Your runway ends at the point where you have zero or less money left.
How much absolute money your company has is less important than what your cash-to-burn ratio is. Ten million in your bank account is not much if your startup burns three million a month – meaning the end of the road is just over three months away. Similarly, if you’ve raised, say, half a million in seed financing but your company burns only fifty thousand a month, the runway is 10 months long.
Insights from an entrepreneur – Mårten Mickos
When scaling, sometimes startups have to hire a non-founder CEO if the original founders don’t have the capabilities or simply the interest to manage a bigger company. Mårten Mickos is an experienced CEO. He successfully scaled MySQL and Eucalyptus Systems, which were both eventually acquired. Currently, he is the CEO of HackerOne – the world's leading vendor of hacker-powered security. He shares his experiences from scaling startups with us.
What is the job of a CEO?
"To me, there is only one thing a CEO should do: make sure that the company is successful. As a CEO, you have to make sure that hundreds and thousands of things are great. It’s not enough to just have a great product, sales, or a brand – you have to make everything work."
When should a startup consider hiring a non-founder CEO?
"Whether to hire a professional CEO or not is a hard decision. The vast majority of startup CEOs are in the CEO role for the first time. One could ask if you have never done it before, how can you be expected to do a good job? But the truth is, even though it is a very difficult job, it can be learned by doing. If you are a startup CEO and you decide that you are ready to learn and become better every day, then you’re already winning. You may very well be the best CEO for the company despite your lack of experience. Of course, you have to deliver the results.
"There are many great startups that don’t have anyone in the founding team that’s suitable to be CEO during the growth stage. Hiring a professional CEO may be the only way forward."
How did you end up as the CEO of MySQL?
“I had known the founders of MySQL for many years when they called me. At that time they were at the same time starting to build a professional board of directors. When I met John Wattin and learned that he may join as chairperson, I decided I was ready to join as CEO of MySQL“
What were the key factors you got right that made the rapid growth of MySQL possible?
“When I joined MySQL, the product had achieved product/market fit so I knew it was very much the task of building and scaling a business. There was a fertile ground to grow a real business. Of course, we had to expand and rebuild the product since the product/market fit needs to be actively maintained.”
“We spent a lot of time debating what MySQL was supposed to be: a developer tool, a database, an open-source project, a rebellious movement, or something else. These conversations allowed us to be clear on our priorities, which in turn made it easy for the world to understand our value proposition – a web database that’s very fast and costs nothing or not much to use. This hasn’t changed in 25 years.
“It all comes back to the value proposition: you won’t scale if you keep changing it, but if it doesn't work you have to change it. With our crystal clear positioning and value proposition, we were able to outcompete all the small DBMS vendors of the time. When that was done, we turned our attention to the big DBMS vendors.”
What were your channels to acquire customers, did they stay the same?
“Over the years we used and tried different channels to reach and acquire customers, such as webinars and a newsletter that gained a million subscribers in 5 years, but the value proposition remained the same.”
What operational changes did you make during the years? Why did you do them?
“When I joined MySQL in 2001, we had to establish the company because they were operating out of four separate legal entities. Getting the company in shape from a legal aspect was a huge project that cost us a lot of time and money.
“We also started to make operational changes. For example, we hired a head of sales in the US. We kept making changes year after year: some old systems needed to be thrown away and replaced by new ones.”
How do you see the role of company culture in the success of MySQL?
“We put a lot of time and effort into building the company culture. We believe that a strong company culture helps us avoid many problems, such as poor employee performance and poor internal collaboration that other companies were suffering from.”
Building Eucalyptus Systems
Why did you join Eucalyptus Systems?
“When I met the team at Eucalyptus Systems, I instantly felt that it was a great team to be part of. They had a clear need to have someone with my background as part of the team”
At what stage was the company when you joined?
“Eucalyptus Systems had a bigger team and business when I joined than what MySQL had had. But the product was entirely immature. I did not realize that until some time after having joined Eucalyptus Systems. So the job became much different: we had to get the product in shape and re-enter the market.“
Can you walk us through coming back after the initial failure?
“We had one chance at fulfilling the promise of hybrid cloud, and because we initially failed, it was very hard to come back. But we did. We never gave up. Where there’s a will, there’s a way. The business came back after years of painful existence in the valley of death. As it started to grow again, HP came around and wanted to buy the company. They did, and we ended up having a great outcome!“
How did you motivate people in the company to get back after the failed market-entry?
“It was hard, of course. We had around 90 employees at the peak and had to cut down to 45. Another 15 or so left because they didn’t believe in the company any longer. From that core group of 30 employees who just refused to give up we built the strongest team you’ve seen. We kept repeating to ourselves and each other: We are not giving up! To keep myself motivated and to regain energy, I read several books about explorers such as Amundsen and Shackleton. This helped me put things in perspective. Other people had gone through much worse, so I should just get back to work and get the company in shape. We hired more people and the company started growing again. It was hard and stressful, but it also built in us an unusual resolve and strength. The people who worked at Eucalyptus at that time now have nothing to fear. They know they can overcome any obstacle.“
How is HackerOne doing?
“HackerOne is in a growing phase now: we have 250 people in the company and the business roughly doubles every year – so there’s a lot of growth.”
How are you using the experiences from your past?
“Every company is different, times are different, and I’m different. I’ve gained a lot of experience and I’m more confident because I have seen these things before. I use my experience from the past. I also try not to think too much about past skills, because if you do that, you are not living in the present. I look at the present situation and ask what needs to be done, and then we do it.“
Things to keep in mind when scaling
Many skills are needed
Focus on the opportunities, not the problems
Solve the problems, quickly
Have a strong vision and mission
Sharpen the company culture
Be very careful with who is invited to be “on the bus”
Be proud and confident, but don’t lose sight of realities
Listen attentively to signals from the market and advice from those who want your best.
Demand results from everyone every day, and more results this month than last month
Do, test, learn, improve. Do it again
Have fun, celebrate every small victory, give people insightful praise and recognition
Do what’s best for the employees
Have mentors and coaches who can push you when you need to be pushed and support you when you lose your footing