Whether you have read this novel or not, you have probably heard the first line of Leo Tolstoy’s Anna Karenina: “All happy families are alike; Every unhappy family is unhappy in its own way.”
In other words, there is only one way to be glad, but there are an infinite number of the way to be unhappy. It’s an concept that reflects the truth about many relationships and many startups. Who would have thought that Tolstoy translated so well into technology.
Throughout my profession, I have invested in various industries, at various stages and in various geographical locations – from fintech to software infrastructure, incubators to initial public offering, from the United States to Latin America and Asia. With each change in context comes a recent set of considerations.
However, there are several basic aspects that influence a company’s performance. Let’s discuss two of those extremely necessary aspects of a “happy family.”
A co-founder relationship with clearly defined roles
For startups with two or more founders, the fundamental element of success is the co-founder relationship.
The biggest killer of startups are interpersonal conflicts. Research suggests that 65% of startups fail due to founder disputes. That’s why most seed investors say their job can seem eerily similar to that of a marriage counselor.
An immediate red flag for investors is detecting tension between co-founders during a pitch meeting. I used to be once in a meeting where, inside the first five minutes of conversation, one of the co-founders introduced himself as the CEO, and the other co-founder immediately interrupted to say they hadn’t decided on titles yet. This transient interaction had a greater impact on our investment decision than the remainder of the presentation.
Startups can collapse under the weight of founders’ egos.
The founders’ roles and responsibilities mustn’t be ambiguous so that the team can get on with the necessary work of building the business without disruption. The later in a company’s life such problems come to light, the tougher they are to solve.
An executive team that covers the founder’s weak spots
If, after a certain point, the founder knows every fact about their company higher than anyone else on the team, that is not flexibility – moderately, it means they’ve failed to hire and/or delegate. You cannot and shouldn’t wear every hat in your business because that is not a scalable way to operate.
FTX became a cautionary tale of what such a large-scale leadership failure could appear to be. At FTX, not only did senior leaders lack relevant experience in their roles (failure to hire), but also none of them had the authority to challenge the CEO (failure to delegate).
On a more positive note, if we glance back at the company’s history Google, we see a founding team that recognized the limitations of their skills and embraced them. As Google grows, technical founders Larry Page AND Sergei Brin saw the need for external leadership to manage the growing company and hired it Eric Schmidt as CEO in 2001. This decision was key to Google’s transformation from a start-up to a global technology leader.
In other words, the team that gets you to one stage is not necessarily the one that may take you to the next.
Ultimately, the story behind technological progress is very human. The co-founders’ relationship, resembling a marriage bond, requires trust, respect and a clear division of roles to develop.
The executive team, like a family unit, must complement each other, hide blind spots and use each other’s strengths.
This human element is the real crucible in which the fate of a startup is shaped.