Problems - which will kill you, and which will solve themselves?
Someone once told me there are only two kinds of problems in this world - one kind kills you, and the other solves itself. Needless to say, it is pretty important to be able to distinguish between the killing kind of problem and the disappearing kind of problem, but often it’s harder than it seems. Sometimes, a big problem turns out to be a small problem, and sometimes it’s the other way around. As an example of a problem that solves itself, I spoke to a startup in Q1 2023, which was introduced to me by a friend. He was considering investing and suggested that I check them out. I spoke to their CEO and co-founder, and even though I really liked the concept and saw the value, we couldn’t agree on the valuation or how they would spend the money. At that point, their single biggest problem was lack of funding, and there was a substantial concern that they couldn’t survive without a funding round. When I spoke to them again in Q4 2023, they had actually been able to close a seed round with a VC, but as their CEO said, “We’ve spent so much time fundraising that we have become cashflow positive in the meantime.” While their seed round will put them in a stronger financial situation and support a stronger growth trajectory, in this case, the problem literally solved itself. Problems that might kill you In another recent post, which you can find here we talk about 2023 being an “interesting” year, and not necessarily in a good way. Many startups and scaleups have woken up to a different reality, and I think the ones that have done well - or at least better than the market average - are the ones that reacted to those changed market conditions. Those who didn’t may experience unsolvable problems later on. Some of the problems that might kill you are: Not reacting fast enough. While the worst thing you can do as a leadership team (and as a leader) is to panic, reacting too slowly to changing market conditions can be life-threatening. One of the things I sometimes say as a leader is, “Within the scope of what we do, there’s almost nothing that I can’t help you with or can’t help you achieve, but the one thing I can’t do is time travel.” What I mean by that is that time moves forward, and you can only solve problems or deliver an output going forward, not backward in time. It sounds super simple and downright dumb, but the brutal truth is that if you didn’t deliver what you intended in the first half of the year or neglected to scale down your team, it would significantly impact the business that year. At the beginning of 2023, we sensed reluctance from some clients to scale down their team. Sometimes because of a notice period or severance pay, sometimes because they worked hard to build that team, and sometimes because they hoped Q2 would look better. Most of the employees they didn’t let go at the beginning of the year were laid off 6-9 months later. You could argue “better late than never,” but the fact remains that instead of seeing an impact on 2023 financials, they will now see an impact on 2024 financials. In sales, it’s a classic - we didn’t hit targets in January, but Q1 is looking good. When Q1 fails as well, we plan for a great Q2 etc., and suddenly it’s December, and we’re nowhere near hitting targets for the year. Reacting too slowly to changed market conditions is just incredibly dangerous. Prioritizing output over outcomes Investors may be super positive about the problem you’re solving, a positive climate impact, diversity, etc. (otherwise, they wouldn’t have invested in the first place), but in the end, VC’s have an obligation to the LP’s and GP’s who invested in their fund. So yes, regardless of the many good things you do as a startup, they are only interested in actual outcomes. Those outcomes started changing for most VC’s end of 2022, where priority for many shifted from growth to sustainable growth or “a strong path to profitability.” Unfortunately, those priorities started changing more or less overnight. For you as a leader and/or a founder, that means listening closely to what your investors are saying or what they’re not saying. The vast majority of investors are there to help and will do all they can to guide you and advise you on necessary changes to the business. We have seen a strong shift towards smaller, more senior teams with a strong focus on outcomes, and sometimes that means reducing a team from 10 junior/mid/senior profiles to 2-4 senior profiles. In engineering, it could be using a tool like Bucket.io to find out which features are actually being used and focus efforts where the impact is the biggest. In sales, it’s sometimes doubling down sales efforts on the markets and verticals where you see the most traction or securing renewals through great CS work. It’s doing all you can to deliver tangible results and outcomes. Now. Funding just buys you time - not the ability to execute. Anand Sanwal (who’s always a good read) recently wrote, “Funding just buys you time - not the ability to execute,” and there is something inherently true about that statement. I would argue that startups with no or limited funding sometimes have more freedom than startups with more funding, which normally wouldn’t make sense. We have seen some bootstrapped startups scale down a lot this year, sometimes just down to the founders. Some of them just got started and decided not to build a team yet, and as I have written about in the past, some startups actually became cash-flow positive while they were fundraising. Whether they live or die, they do have the luxury of making their own decisions - although most of them don’t have the luxury of time. As a funded startup, you (for a while at least) have the luxury of time, in the sense that money gives you more time to achieve something. But often, you don’t really have the luxury of making your own decisions (depending on your cap table) as investors also have a say and often have strong opinions. And while funding does buy you time, it most certainly does not give you the ability to execute, which is incredibly difficult for a startup. Hiring the wrong people Hiring the right people is always important, but it’s even more important when you either have a smaller team than you originally planned for or if you’re in a market situation where there’s really no room for error. Especially in the leadership team, you need to be aware of what you’re missing. Is it someone who’s able to finalize what you, as a founder, commence? Is it someone with a commercial mindset? Is it someone who appeals strongly to investors? Regardless of the profile, it’s crucial that the leadership team is able to react fast, prioritize outcomes over output, execute, and hire a great team. Problems that probably won’t kill you Reacting too fast. All in moderation - letting the entire sales team go because of one poor month is probably not the best idea. But as long as you’re not wildly overreacting, reacting too fast should not be a concern. Prioritizing outcomes over output Creating and promoting an extreme KPI focus can be damaging to an organization over time, and you don’t want to alienate the great talent in your organization, but as someone once said: “never let a good crisis go to waste.” It’s a great exercise as an organization to focus on the value you actually deliver and stop doing what doesn’t create value. Is there a tangible and measurable value? Awesome, let’s do more of it! If you can’t measure the value, and if you see yourself spending time and resources on something that doesn’t create tangible value, stop doing it immediately. It’s not an easy exercise. Large organizations often have a period of growth where they prefer a “topline CEO,” often followed by a period of less growth and consolidation where the CEO is replaced by a “bottom line CEO,” who, instead of prioritizing growth will close down unprofitable offices and business units and focusing on profit. They are in turn, often replaced by a “topline CEO” when market conditions are better. The two profiles are surprisingly different, and it is incredibly difficult to master both - but if you, as a leadership team, can readjust yourself, it’s incredibly powerful. Being too good at executing I spoke to an Apple executive recently, and for Apple, execution (or lack thereof) is the # 1 topic they discuss with their partners - across the board, within manufacturing, logistics, sales, support etc. It’s just that important. It’s not an easy discipline, and Apple does admittedly have some incredibly smart (and expensive) people in their organization. But if Apple, with around 160k employees or so, can build an execution machine, so can you, since your organization is probably a lot smaller. Execution is key, and practice makes - if not perfect - then at least better and better. Focusing on cost Again - all in moderation, but a slightly less expensive Christmas party, canceling SaaS subscriptions you don’t use, cutting down on travel costs, a few less perks for the team, and perhaps not upgrading your office space just yet goes a long way. Consider leasing equipment instead of buying (additional cost is negligible, and cost is spread out over a longer period). We have also seen some clients have massive amounts of unused Macbooks because they, by default, order new laptops for new employees. Marts.io is an example of a platform that helps you save on equipment and utilize existing equipment better. Focus on your number one asset - employees (and make sure that they have the right equipment), and that every dollar spent goes towards a better product and happier customers. Being too good at hiring …doesn’t exist. Spending too much time on hiring is a thing and is a concern - but then you should just call us.