What do CEOs discuss at dinner? An insight

Every month or so we alternate between hosting CEO and CTO dinners. The aim of these is to bring together the leaders of our portfolio companies in an informal setting, where we hope everyone feels comfortable sharing issues, challenges, and tips. Over the years they’ve proven extremely productive and while one may be excused for thinking it’s just a chance for us all to have a convivial evening of good food and good wine, I sat next to one particular CEO on Monday who began restlessly asking when we were going to start broaching the subjects of the evening’s debate – testament, I think, to the value they expect out of the conversation.

I won’t go into huge detail on each point, but rather give a snapshot of the conclusions drawn from some of the discussions.

How to get better at delegating, and whether management or leadership coaching is something to consider.

For one of our extremely high growth portfolio companies, delegating has naturally become essential for the founding team. However, as many if not most founders can testify, giving up ownership of decisions can be hard.

After a lengthy discussion, a few valuable insights were drawn.

1. If you haven’t had executive coaching, think about it now. In fact, one of the CEOs said ‘if you’ve just started thinking about it, you’re probably too late’ –  of course, this was said somewhat facetiously but you really should consider using one. This is particularly relevant to younger CEOs, of which there are many in our portfolio. A valuable trait of a twenty-something-year-old CEO is having the introspection and humility to recognise that you may not be the full CEO package yet. This was a specific piece of advice that surrounded a larger conversation to do with being a vulnerable boss, and its benefits. Twenty sessions of excellent executive coaching can be bought for around £5,000 and this, according to one of the CEOs, was the best money they’ve spent so far.
2. Call it leadership, not management, and use the title Team Lead, not Manager. Although this isn’t appropriate in all cases, it’s certainly worth thinking about. Management can be a loaded word that has a bit of a stigma attached to it. Basically, there’s a tendency for people to hear ‘management’ and think of ‘micro-management’ and hierarchy.

There’s a valid argument that in actual fact, management and leadership are different, but for the sake of this post, it makes sense to use them interchangeably, as the point stands regardless of semantics.

I think a natural (and perhaps subconscious) belief is that ‘leaders’ will take an employee on a journey of learning, development, and opportunity, whereas ‘managers’ will demand work from you and possibly even hold you back from your full potential (let the debate begin…). In this case, employees are going to be more enthused and motivated from working with a leader than a manager and that’s what you want, right? So, don’t underestimate the nuanced impact of job titles.

Management/leadership in year one of a startup is very different to year 3/4/5. Employees won’t necessarily scale with the business.

One of the trickiest challenges a startup has is getting it’s early employees to grow with the company. A good leader/manager in year one, may well not be so effective in year three. In year one, everyone’s all hands on deck and roles may be poorly defined. However, as you scale, increasingly specific skills may be required of the employee. This is not to say that this early employee is a jack of all trades and a master of none, but it might be that she or he is not the master of the required trade.

All the above is pretty straightforward and most CEOs would agree that these are just inevitable growing pains – the hard bit is telling this person that they’re no longer suitable for their current role. This employee has stuck with you through thick and thin and might even be a friend, so it’s going to be difficult. However, you need to be pragmatic and thus, you have to choose from the following options:

1. 1. Place in a new role: this is the happiest result. There might already be another role within the company that would suit the employee better. If this is the case, great, but the likelihood is that there isn’t such an easy solution.
   2. Keep the status quo and maybe they’ll improve: There’s always a chance that this employee will grow into the needs of the bigger company but this is a tough call to make and you may not have time to wait. Doing nothing in difficult situations usually leads to management debt – a quick win now but you’ll pay for it later.
   3. Let them go: Deep down you might know this is the right option but you are trying to find another way. However, your focus has to be on doing what’s right for the business. Letting this person go is likely a case of being cruel to be kind. Often when someone’s not right for a role, they know (or at least feel) it and are probably not fulfilled in the role anyway. Letting them go might well turn out to be a blessing in disguise, forcing them to go out and re-evaluate what they want to be doing. Done respectfully, the relationship with your now ex-employee can be salvaged and your other employees will respect the tough decision you’ve made, provided you’ve been transparent and fair throughout the process.

Of course, every case is different and you can always seek guidance on these matters. At Episode 1, we try to create an honest relationship with our portfolio companies, so that we are approachable in cases like this. Often we’ll be able to help or at least act as a sounding board to help drive your own decision.

How much to focus on future revenues, to the detriment of current revenues, and vice versa.

This is a question almost every startup will face. You have some initial customers that you work closely with to build a product that they love. This often means tailoring your product for them in a not-very-scalable way. This diverts your team’s attention away from the grand vision.

Here’s the toss-up: tailoring the product to initial customers means more revenue today and perhaps a shot at quickly reaching the golden £100k MRR ready for Series A. However, the Series A investors don’t make huge returns investing in bespoke, niche software solutions. They want highly scalable businesses with product market fit.

So, what to do about it?

If you’re going to tailor your solution to initial customers, make sure you keep at least one eye on what features are attractive to other customers and are thus scalable. Say no to building niche functionality which steals too much of your team’s time and does not contribute to achieving PMF.

In the end, you might end up with fairly bespoke solutions for a few key clients. This shouldn’t necessarily be seen as a problem – it can provide important revenue allowing you to throw more resource at the grand vision.

It’s pretty clear that every case must be evaluated on its own merits, but the following should play an important role in your decision-making process:

• Runway and thus burn rate
• Series A KPIs
• Dev team capacity
• Scalability of the products you’re building ie. relevance to a broad spectrum of customers

All in all, we had an excellent dinner; it was convivial, we did eat good food and drink good wine, but as usual, highly productive conversations were had and the founders took home valuable insights from the evening. I look forward to the next one!