Why do we keep expecting – against all odds – that the professionals who invent groundbreaking technologies or manage established businesses have also the capacities needed to build startups into great companies? We don’t expect engineers to compose symphonies either. With 90% of startups failing, and given the dire need for sustainable growth, we should break the vicious cycle and take high impact potential startups more seriously. First-time founders should not be the only entrepreneurs of their company building effort. They need a new breed of professionals on their side. The bigger the startup’s opportunity, the greater co-entrepreneurs its founders deserve!
Paul Graham, Co-Founder of Y Combinator, recently called in-depth attention to what he coined as “founder mode” as the undiscovered key success factor behind Great Companies. He highlights how VCs in Silicon Valley have too simplistically assumed that switching startups to “manager mode” is enough for successful scaling. He finds this particular “founder mode” to be something more complicated than “manager mode” and concludes it’s something business schools don’t know exists.
I celebrate this landmark discovery, the reasoning behind it, and the direction it points at. It’s very much aligned with my own findings, having worked with hundreds of founder teams as a VC, professor, co-founder, and advisor. In Europe, we have too simplistically assumed that switching startups straight from “inventor mode” to “manager mode” is enough for successful scaling.
I have learned that, in company building, the responsibility of owners is undividable. The question I raise is: What capacities does successful company building require from a startup’s responsible owner-manager team – and how could founders bring in the missing capacities?
Wake-up call to better understand company building
I first realised how inventors and company builders are a world apart, when a university innovation specialist once asked me to explain to a world-renowned research team what it would take to raise VC and build a business around the deep tech device they had invented. I had just joined the faculty after founding and building companies for ten years. I explained the tricks of trade, the role of the owner-manager team, and the steps and capacities required. The response I got had a profound impact on my future: “Why do you make it sound so complicated? It’s not rocket science!”
The collision of the inventor’s world and the company builder’s world hit me big time. I collected my thoughts and responded with words I’ve often repeated: “You are right! It’s not rocket science – it’s something far more complicated than that. In rocket science, you connect compatible dots. You can drop the pen, take a day off, and pick it up again, when you like. In company building, you must connect incompatible dots: people, machines, time, money, a good day, and a bad day, 24/7.”
The call for competent company builder is more relevant today than ever before. Decision-makers in Europe are waking up to lack of growth and the need to find and remove the bottlenecks. It’s ever more important for everyone to understand that technology is never a business. For technology to be great, it’s enough that it works. If it’s useful and taken up, it elevates to innovation. For innovation to emerge into business, it must be productised and sold successfully for profit at a marketplace.
Building a business all the way to a Great Company – one that solves a big problem, grows sustainably, creates healthy jobs, profits, and tax income – raises the bar even higher. Incremental must yield to disruptive, evolution to revolution, and science to art. And the destiny of each startup depends totally on the company building competence of its responsible owner-manager team.
Lack of relevant professionals keeps startup mortality high
We’ve produced new breed professionals to solve big problems also before, e.g., to cure mortal diseases, put man on the moon, and automate bottlenecks of production. What can we learn from the previous successes? In short, we took the problem seriously, saw opportunity, and created all the ways and forms needed to bring about the necessary knowledge, solutions, and professionals systematically, via action, in real life. In result, when we need someone to perform a surgical operation, fly a rocket, or develop a robot, we know exactly which professionals can do the job.
For company building – apart from serial entrepreneurs – there are no properly identifiable professionals. Founders are often inventors of a groundbreaking technology or other deeply specialised people without any relevant company building experience. Which professionals can they turn to with their company building challenge?
Tragically, what we’ve for decades done to help founders often ends up working against them. When new startup teams emerge into local ecosystems, we steer them directly toward financiers and start to train them to pitch for funding. The teams learn what financiers need, not what all – and who all – they themselves would need to build a Great Company. Then we watch, from a safe distance, whether financiers put their thumb up or down, based on the founder’s performance on the pitching lane.
Afterwards, we too often wonder why again a startup with such a great technology failed – or was sold in a trade sale so soon after it was funded. We cannot break this vicious cycle unless we realise that we are knowingly sending good people to battles they are not equipped to win. That their failure is more our system’s fault than the founders’ fault.
We should help add company building competence, not pitching performance
In a market economy, supply follows demand. In a startup ecosystem, financing represents demand and startups represent supply. Financiers define minimum criteria for startups and various enablers (coaches, accelerators, and support programs) drive founders to fulfil them. It’s an unspoken reality that public financiers must burn their annuals budgets, and private financiers have only a few years to invest each new fund. Policymakers and institutional investors are responsible for this market logic.
The current market in a startup ecosystem is about getting startups funded, not building great companies. Since most startups end up failing, financiers need ever bigger crowds of founders sent to the pitching lane, to compete for their funding. Enabler persons and organisations keep training founders to draft and pitch go-to-market plans and projections to get them funded. The enablers have little room or reason to complain. Their current job description is clear, and business not dependent on whether startups ultimately succeed or fail. Financiers will manage as long as 1% of startups succeed to justify distribution of ever more funding down the line.
Upon a closer look, the economy level ROI of these activities is poor. From an individual founder’s perspective, this is challenging, not just professionally, but also mentally and emotionally. We can even see some forms of exploitation in this. Some see exploitation of founders, other of financiers. We should admit that the current approach is not working, and we need to revise both our mindset and instruments to create demand and supply for a new breed of company builders whose contribution is entrepreneurial, not managerial, and can only be gained invested, not hired.
Towards new breed professionals and a new company building industry
In an ideal world, dedicated company builders would be the main segment of enablers. The VC industry would give birth to a new “hands-on” industry, something VC itself once was, but has by today spiralled away from. The new breed company builder firms would pool and allocate the right combinations of co-entrepreneurs in high impact potential startups. Financiers would tailor funding based on the founders’ needs, instead of founders tailoring requests based on financiers’ needs.
We need to measure impact, not activities. And we need to take a more long-term approach. The VC industry is based on 10-year fund structures for a reason. For example, public funding should be channelled to startups via enabler organisations committed to demonstrate long-term impact on startup success as company builders who share with founders the responsibility of success and the risk of failure. KPIs need to gear around solutions sold, profits, and jobs created, not numbers of participants in events.
The good news is that there already are seeds for what’s missing: competent individuals and firms branded as venture builders and venture studios to build upon. We need to design smarter startup programs and channel funding in ways that further strengthen this type of enablers. They pool professionals to build companies with founders as co-entrepreneurs – not just evaluate or advise them from an arm’s length. Not even an army of consultants or hired managers could replace a startup’s well-rounded inhouse entrepreneurial capacity. And no new mega fund could replace the value of a pool of company builders available to provide to founders what they are missing.
