One Way VCs Really Can Help
As manager of the Netherlands at the 2014 World Cup, Van Gaal took the unusual step of substituting goalkeeper Jasper Cillessen...

One Way VCs Really Can Help

As CEO, the hardest call you have to make is firing an executive on your team. At one point, maybe not too long ago, you thought this person was going to be a catalyst for your company’s success. Maybe they were, but you don’t think they will be in the future. Perhaps you hired wrong and now you have to fix it. 

In either case, you are making an important decision with little to go on. This is clutch. You are probably not as good at the exec’s job as they are, but you have to judge their performance and the follow-on effects. If you’ve worked together for a while, you are bonded by the trials of the startup life. You have shared victories and scars. You’ve sat in airports, waited outside customer offices, pulled all nighters together. 

Now you have to fire someone who you like and respect. 

Professor Ghosh teaching the Yesware case at Harvard Business School

For years I've talked with the Harvard Business School students working on a case that details my struggle with this situation at Yesware. The students are whip smart as they tackle the business and leadership aspects of the case. But the next day, Professor Ghosh, an incredible entrepreneur-turned academic, takes them through an experiential exercise that he describes as “often the most meaningful part of the semester.” 

No spoilers here, except to say that just role playing this situation is excruciating. Successful startup CEOs have to go through the real thing about once a year.

"Just look at the results"

“Just look at the results” is the common answer when inexperienced people hear about this problem. Experienced CEOs know that results are rarely crystal clear. How many mistakes are learning opportunities and which one is the last straw? How do you attribute a team failure to just one leader, especially when you don’t know their field as well as they do? Warren Buffet famously said “I try to buy stock in businesses that are so wonderful that an idiot can run them.” What if your highly credentialed VP from Google was just one of those idiots?

Here’s a place that venture capitalists can actually help a startup CEO. 

“Let me know how I can be helpful”

VCs are famous for the phrase “Let me know how I can be helpful.” They say this so often it’s become the Twitter tagline for the ecommerce juggernaut “VC Starter Kit.” Some VCs actually mean it, so when I hear that phrase I ask for something very simple to deliver on… like a link to a post they mentioned. Their follow-through hovers around 30%.  

https://giphy.com/gifs/spacejam-space-jam-movie-l0ErK5H6exTmBN7ri

But here is one of the many areas where VCs can be helpful - evaluating your executive team. If every VC on your board is on 10 boards, they see 10x the range of executives that you do. Over a career, VCs will gather a much broader data set to thoughtfully answer questions like “Is my VP of Marketing really good or do they just seem that way to me?” “Is my VP Finance really a CFO?” “Will our VP of Sales be able to build the revenue organization for the next stage?”

VCs, famous for “Pattern matching”, should be a great sounding board for executive performance and potential.

Sadly, I missed the chance to leverage my amazing board (including luminaries like Brad Feld, Neeraj Agrawal, Rich Miner, Matt Golden, Pat Kenealy and Chris Moody) this way when I was CEO at Yesware. I spent too much time defending my team, our performance and our plans. I’m not great at asking for help, and I don’t love having a boss. Consequently, when I could have been asking for insights about my exec team’s performance, I usually told my investors “I got it. I’ll handle it.” and moved on. 

On Not Repeating Mistakes

I won’t make the same mistake at my new startup BodesWell. Here’s a screenshot of the spreadsheet I’ll use to survey my board about my executive team. 

No alt text provided for this image

Here’s a link to the sheet itself. Feel free to make a copy for yourself or leave a comment if you’ve got ideas for improving it.

I plan to survey the board roughly once a year in the meeting before the executive’s annual review. I'll consider this feedback along with everything else I learn as part of the review process. 

You could improve the objectivity of the exercise by handing out slips of paper and asking your board members to write their number down instead of calling it out. You can (and should) weigh the feedback differently depending on how good you think the board member’s judgement is. 

In the end, this is a very difficult decision. You are going to make a judgement call and live with the consequences. 

Does this make you uncomfortable? You are smart.

That said, VCs who are uncomfortable making these kinds of judgements with very little information definitely shouldn’t be investing in startups. CEOs who weigh investor opinions too heavily definitely shouldn't be leading startups.

But recognize that, although they don’t know nearly as much about your business as you do, your investors know many more startups and startup executives. 

Before rolling this out to my board, I will make it clear that I will make the final decision on all hiring and firing at my company. Again, I caution against over-indexing on investor opinions. But I do believe that, if they are willing to go out on a limb with you as you make one of the biggest decisions in your startup’s life, this is an area where VCs could genuinely be helpful to the startup CEO. 

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