The commercial impact of HFO founder-coaching on technology companies
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Analyzing the performance of 28 tech-companies where HFO (Human Factor Optimization) coaching interventions occurred, we found that HFO led to a
·?????59.8% reduction in failures/living-dead companies
·?????205% increase in probability of a high value exit
·?????496% increase in both LP and GP return (in the form of carry)
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Supporting outcomes:
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·?????Deal-flow curation/selection was the most important factor in the success of a VC fund. HFO coaching was the 2nd most important factor
·?????67.3% of tech-company failure was due to avoidable human-centric failure (similar to Noam Wasserman’s finding of 65%)
·?????HFO was 92% success-rate in removing sources of human-centric failure
·?????HFO increases the probability of a high-value exit from 9.68% to 29.52%.
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Methodology:
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We then conducted a longitudinal study of 28 technology companies where we performed HFO interventions (7 of whom have since exited or had acquisition offers). We measured likelihood of exit pre and post intervention using an exit probability-weighting system based on existing Sales Pipeline Analysis Systems.
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Our pre-post intervention analysis suggested that tech-companies who had early HFO interventions were 3.01 times more likely to have a high value exit.
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Because pipeline analysis relies on milestone-based probabilities, we cross-validated results against the seven companies who had actually exited or had acquisition offers after HFO-interventions. We found of companies who had actually exited, our HFO-interventions had made this outcome 3.05 times more likely. HFO successfully mitigated human sources of failure 92% of the time.
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We then applied this multiplier to a back-trace of actual VC company data to evaluate the commercial impact of an average performing VC Company using vs. not using HFO interventions. We then did the same for low and high performing VC Companies with the following results:
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The Predecessor to the Study and the Origin of HFO:
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Surveying 52 tech-companies, we found 23 areas where Human Centric Factors caused tech companies to fail or underperform. We developed HFO to try to remove or reduce human-centric failure.
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After testing forms of learning & development, we selected coaches who’d foundered successful tech-companies and also scored highly in areas correlated to coaching aptitude. We then put them through extensive training program as coaches, facilitators and trainers to technology entrepreneurs.
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In total 67.3% of failure was human-centric causes that could be addressed by HFO, but not by mentoring, advise or governance alone. Nor is "filling out your team" a substitute.
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This finding depended on founder-survey and self-assessment, which could be subjective. So we cross-validated this finding against the actual number of companies where HFO-based pitch-coaching had resulted in successful cap-raises within 6 months (“raising capital” being both a binary and incontrovertible outcome). 91.3% companies were successful (industry benchmark: 10.4% - Icehouse data), which provided support that the 92% finding was likely accurate.
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We theorized that if 92% of the 67.3% of human failure (61.9%) could be reduced by HFO, then we should have (1/(1-0.619) = 2.62x fewer failures. Our results in practice (3.01x higher exit multiplier) confirmed this potential.
Turns out knowing how to grow people and culture in the tech sector is not only good for founder wellbeing - it's very profitable.
Appendix
2. General Coaching in soft skills, mental health, leadership is not HFO Coaching
Not all founder-development skills you can impart are equally important:
We went through a decade-long data-based process of identifying the specific skills, habits and mindsets that were highly correlated to tech company failure when absent or incomplete. We also screened out factors that were not correlated, or were only weakly correlated to the commercial traction of technology companies.
HFO requires a unique, and statistically rare, type of coach
Realizing that neither a former tech-entrepreneur/mentor, nor a general coach was sufficient to build those missing capabilities in tech-founders. We ended up using founders who'd aggressively grown a tech-company as our starting point, then put them through a 2 year training in how to coach others using all 5 modalities of knowledge transfer (advisor, mentor, trainer, coach, facilitator)
Statistically, we found it was a rare breed who could both grow a tech-company, then coach others to do it in different contexts. Bill Campbell was one of the few. But there are others who can do it to a high level of attainment - although they work with founders at an early stage, and typically under the radar.
3. Specific instances of Human Failure that are addressed by HFO Coaching
4. Breakdown: Breakdown on productivity strategies that influence founder-success
What this chart shows:
How HFO Coaching is able to improve commercial gains and mental health gains together for tech-founders.
Most entrepreneurs try to become successful by raising personal productivity (right strategy). But they then try to raise personal productivity by working long hours (wrong tactics).
We have found that time (long-hours) is not only the least effective productivity strategy as shown in this chart, it is also the only productivity strategy that negatively impacts wellbeing and quality of life outside work.
5. Impact of HFO Coaching on Venture Capital Fund Performance