Leaders and Managers in Startups

leadersThe distinction between leaders and managers has been worn to the bone in popular press, though with little agreement on what leadership is and whether leaders can be managers or vice versa. Further, a cult of leadership seems to exalt the most sadistic behaviors of charismatic leaders while downplaying some of the key characteristics ascribed to leaders in many leader-manager dichotomies. But despite this imprecision and ambiguity, a coarse distinction between leadership and management sheds powerful light on the needs of startups, as well as giving some advice and cautions about the composition of founder teams in startups.

Common distinctions between managers and leaders include a mix of behaviors and traits, e.g.:

Managers

  • Process and execution-oriented
  • Risk averse
  • Allocates resources
  • Bottom-line focus
  • Command and control
  • Schedule-driven

 Leaders

  • Risk tolerant
  • Innovative
  • Visionary
  • Thinks long-term
  • Charismatic
  • Intuitive

The cult of leadership often also paints some leaders as dictatorial, authoritative and inflexible, seeing these characteristics as an acceptable price for innovative vision. Likewise, the startup culture often views management as being wholly irrelevant to startups. Warren Bennis, in Learning to Lead, gives neither concept priority, but holds that they are profoundly different. For Bennis, managers do things right and leaders do the right thing. Peter Drucker, from 1946 on, saw leadership mostly as another attribute of good management but acknowledged a difference. He characterized good managers as leaders and bad managers as functionaries. Drucker saw a common problem in large corporations; they’re over-managed and under-led. He defined leader simply as someone with followers. He thought trust was the only means by which people chose to follow a leader.

Accepting that the above distinctions are useful for discussion, it’s arguable that in early-stage startups leadership would trump management, simply because at that stage startups require innovation and risk tolerance to get off the ground. Any schedules or bottom-line considerations in the early days of a startup rely only on rough approximations. That said, for startups targeting more serious industry sectors – financial and healthcare, for example – the domain knowledge and organizational maturity of experienced managers could be paramount.

Over the past 15 years I’ve watched a handful of startups face the challenges and benefits of functional, experience, and cognitive diversity. Some of this was firsthand – once as a board director, once on an advisory board, and twice as an owner. I also have close friends with direct experience in founding teams composed partly of tech innovators and partly of early-retired managers from large firms. My thoughts below flow from observing these startups. 

Failure is an option. Perfect is a verb.

 Silicon Valley’s “fail early, fail often” mantra is misunderstood and misused. For some it is an excuse for recklessness with investors’ money. Others chant the mantra with bad counter-inductive logic; i.e., believing that exhausting all routes to failure will necessarily result in success. Despite the hype, the fail-early perspective has value that experienced managers often miss. A look at the experience profile of corporate managers shows why.

Managers are used to having things go according to plan. That doesn’t happen in startups. Managers in startups are vulnerable to committing to an initial plan. The leader/manager distinction has some power here. You cannot manage an army into battle; you can only lead one. Yes, startups are in battle.

For a manager, planning, scheduling, estimating and budgeting traditionally involve a great deal of historical data with low variability. This is more true in the design/manufacture world than for managers who oversee product development (see Donald Reinertsen’s works for more on this distinction). But startups are much more like product development or R&D than they are like manufacturing. In manufacturing, spreadsheets and projections tend to be mostly right. In startups they are today’s best guess, which must be continually revised. Discovery-driven planning, as promoted by MacMillan and McGrath, might be a good starting point. If “fail early” rubs you the wrong way, understand it to mean disproving erroneous assumptions early, before you cast them in stone, only to have the market point them out to you.

Managers, having joined a startup, may tend to treat wild guesses, once entered into a spreadsheet, as facts, or may be overly confident in predictions derived from them. This is particularly critical for startups with complex enterprise products – just the kind of startup where corporate experience is most likely to be attractive. Such startups are prone to high costs and long development cycles. The financing Valley of Death claims many victims who budget against an optimistic release schedule and revenue forecast. It’s a reckless move with few possible escape routes, often resulting in desperate attempts to create a veneer of success on which to base another seed round.

In startups, planning must be more about prioritizing than about scheduling. Startups must treat development plans as a hypotheses to be continually refined. As various generals have said, essential as battle plans are, none has ever survived contact with the enemy. The Lean Startup’s build-measure-learn concept – which is just an abbreviated statement of the hypothetico-deductive interpretation of scientific method – is a good guide; but one that may require a mindset shift for most managers.

Zero defects

 For Philip Crosby, Zero Defects was not a motivational program. It was to be taken literally. It meant everyone should do things right the first time. That mindset, better embodied in William Deming’s statistical process control methodology, is great for manufacturing, as is obvious from results of his work with Japanese industries in the 1950s. Whether that mindset was useful to white collar workers in America, in the form of the Deming System and later Six Sigma, (e.g., Motorola, GE, and Ford) is hotly debated. Qualpro, which authored a competing quality program, reported a while back that 91% of large firms with Six Sigma programs have trailed the S&P 500 after implementing them. Some say the program was effective for its initial purpose, but doesn’t scale to today’s needs.

Whatever its efficacy, most experienced managers have been schooled in it or something similar. Its focus on process excellence emphasizing precision, consistency, and detailed analysis seems at odds with the innovation, adaptability, and accommodation of failure we see in successful startups.

An attitude of doing it right the first time in a startup will lead to excessively detailed plans containing unreliable estimates and a tendency toward unwarranted confidence in those estimates.

Motivation and hierarchy

Corporate managers are used to having clearly defined goals and plenty of resources. Startups have neither. This impacts team dynamics.

Successful startup members, biographers tell us, are self-motivated. They share a vision and are closely aligned; their personal goals match the startup’s goals. In most corporations, managers control, direct, and supervise employees whose interests are not closely aligned with those of the corporation. Corporate motivational tools, applied to startups, reek of insincerity and demotivate teams. Uncritical enthusiasm is dangerous in a startup, especially for the enthusiasts. It can blind crusaders to fatal flaws in a product, business model, marketing plan or strategy. Aspirational faith is essential, but hope is not a strategy.

An ex-manager in a CEO leadership role might also unduly don the cloak of management by viewing a small startup team of investing founders as employees. It leads to factions, resentment, and distraction from the shared objective.

Startup teamwork requires clear communications and transparency. Clinkle’s Lucas Duplan notwithstanding, I think former corporate managers are far more likely to try to filter and control communications in a startup than those without that experience. Managing communications and information flow maintains order in a corporation; it creates distrust in a startup. Leading requires followers who trust you, says Drucker.

High degrees of autonomy and responsibility in startups invariably lead to disagreements. Some organizational psychologists say conflict is a tool. While that may be pushing it, most would agree that conflict is an indication of an opportunity to work swiftly toward a more common understanding of problem definition and solutions. In the traditional manager/leader distinction, leaders put conflict front and center, seeing it as a valuable indicator of an unmet organizational need. Managers, using a corporate approach, may try to take care of things behind the scene or one-on-one, thereby preventing loss of productivity in those least engaged in the conflict. Neutralizing dissenting voices in the name of alignment likely suppresses exactly the conversation that needs to occur. Make conflict constructive rather than suppressing it.

Strategy

I’m wary of ascribing wisdom to hoodie-wearing Ferrari drivers, nevertheless I’ve cringed to see mature businessmen make strategic blunders that no hipster CEO would make. This says nothing about intellect or maturity, but much about experience and skills acquired through immersion in startupland. I’ll give a few examples.

Believing that seed funding increases your chance of an A round: Most young leaders of startups know that while the amount of seed funding has steadily and dramatically in recent years, the number of A rounds has not. By some measures it has decreased.

Accepting VC money in a seed round: This is a risky move with almost no upside. It broadcasts a message of lukewarm interest by a high-profile investor. When it’s time for an A round, every other potential investor will be asking why the VC who gave you seed money has not invested further. Even if the VC who supplied seed funding entertains an A round, this will likely result in a lower valuation than would result from a competitive process.

Looking like a manager, not a leader: Especially when seeking funding, touting your Six Sigma or process improvement training, a focus on organizational design, or your supervisory skills will raise a big red flag.

Overspending too early: Managers are used to having resources. They often spend too early and give away too much equity for minor early contributions.

Lack of focus/no target customer: Thinking you can be all things to all customers in all markets if you just add more features and relationships is a mistake few hackers would make. Again, former executives are used to having resources and living in a world where cost overruns aren’t fatal.

“Selling” to investors: VCs are highly skilled at detecting hype. Good ones bet more on the jockey than the horse. You want them as a partner, not a customer; so don’t treat them like one.

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