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Lessons from Italy

Lessons from Italy

August 21, 2018

Once a year, I meet with the entrepreneurs of Neal’s Running Start for an in-depth check-in. Last year, everyone came to the US for a long weekend in Aspen, Colorado. This year, I decided to meet the gang in Europe. We took a few days to relax and reflect in the Chianti region of Italy. Good wine and good food always inspires good conversation.

Like all entrepreneurs, each of the Neal’s Running Start founders were experiencing both good and difficult times in their businesses. I thought everyone could learn from their experiences, so in this post, I will share some of the issues we discussed and the advice I offered.

Expanding to new Regions

Your company may be tempted to expand to new regions for big customers, partners or investors. Expanding to a new location, especially a new country, takes money and time. The question is, what’s the ROI for that expansion? As a start-up, it’s difficult to manage a growing staff in two or more remote locations.

One company I worked with hired a manager in the US, recommended by his VCs. The new manager’s style, spending priorities and cultural direction completely clashed with founders, creating a disastrous situation. Eventually, the company had to shut the operations down. You don’t want to make a bad start in region that is key to the company’s future.

Another valuable lesson in this scenario is that the VCs don’t run your company. The CEO should have listened to his gut and said no, but he didn’t. That decision cost him millions and may cost him the company in the end. I’ll expand on that in a minute.

On the other hand, another company I worked with moved their headquarters from Germany to Silicon Valley. In this case, most of their customers and investors were in Silicon Valley, and they moved the entire management team and most of the company. Some of the engineers stayed behind in Germany, but other than that, it was a full headquarter move.

If you’re going to commit to a new location, go all-in and make sure it’s worth the strain in resources and the cultural shift. And the bottom line is, it’s your decision, not your investors’.

Managing a Board of Directors

Once you get investors, you have a board of directors. Some boards are very opinionated and involved. Some are hands-off, possibly even too hands off. Managing a board becomes an important part of a founder’s job. Do your best to choose your board of directors if you can. Rarely, but in some cases, an investor will put in money and then step away and not be involved. An disaffected investor is almost as difficult for the CEO as an overly-involved investor. All investors will hold you to certain performance metrics for future investment rounds. But if you can’t reach them to discuss the challenges you’re having or seek advice when you need it, they can hinder progress and withhold future investments.

Like raising funds, board management continues throughout the life of a company. As you bring on more investors, new board members will join and other board members may leave. But always remember, as the founder, you must call the shots on management and direction of the company. Engage your board members, but you know the business better than anyone else. Follow your gut.  For more information, you can review my other posts on managing a board of directors.

Culture

Company culture is one of the most underrated, yet also one of the most influential success factors for a company. The example you set as a CEO will determine the values your employees exhibit. If you’re a hot-head and demean people, your employees will do the same. If you pay below market value, you will probably attract people who are under-skilled. If you don’t value them, they won’t value the work they do. Eventually, you have to take the risk and financially bet on people, knowing you may run out of money. But you won’t deliver good products and services if your people are under-payed and unmotivated.

Managing culture through rapid growth is exceptionally challenging. New people join the organization and pick up cues from the others employees, creating a potential ripple effect of bad behaviors. Think about the kind of culture you want and set that trajectory early on. Set up hiring practices that support the cultural values. Set up company standards and rules that reflect the culture you want to see. As you hire more people, they will carry those values for you. If you make a hiring mistake, be quick to course correct. Because if you let a bad actor succeed or fester, even if they are a money-maker, you sacrifice the heart of your company.

Funding

Funding rounds never end. Whether it’s your seed round, or an E round, bringing in funds is an ongoing process. When to accept funding, how much and from whom is always

a struggle for founders. Reaching an agreement on funding in the beginning may be easy if you are the lone founder. But in most cases, there are at least two founders. And then there’s a management team. And then there’s a board. Each successive round gets more complicated and requires more agreement between shareholders.

There may be disagreements on when it’s time for the next round and how much to take, but here is my advice: most founders wait too late and take too little. If you get an investment offer and it’s from a reputable angel or VC who has good experience and advice to offer, take it. You’ll need the capital to expand or you risk being left behind in the market. Of course, you never want to take funding from a sketchy source or an investor that could give wrong counsel, but generally speaking, the time to take funding is always as soon as you possibly can.

The Neal’s Running Start entrepreneurs are continuing to grow and learn as founders and business executives. It’s so gratifying for me to be their mentor and watch them take on the tough challenges and keep moving forward. I’m so proud of all of them. They all exhibit the 3 ingredients of a successful entrepreneur – passion, perseverance and personality. They are also experiencing common growing pains for start-ups. Their lessons can benefit us all. I expect we’ll have even more great news and valuable lessons to report at our next meeting in 2019.  In the meantime, I’ll keep guiding them and being there for them whenever they need me. And if you have questions and need some guidance, just reach out and send a message. I’ll be happy to help you too.