It’s only fair to follow up the last post (about how to be a good investor) with a post about how to be a good founder.
I don’t know what it’s like to be a bad founder (every investor that has ever backed me just threw up in their coffee), but here’s some things to take into account if you don’t want be transitioned from CEO into a new position where you are put into a box thinking it’s your idea and the board and management team just blows smoke up your ass all day while trying their hardest to keep the lid closed as tightly as possible.
We’ve all seen this time and time again so hopefully this helps people change their crazy ways….
Great entrepreneurs know how to inspire, hire, retain, and lead while making sure the company never runs out of money. They know how to get a company capitalized and a product into market. Good founders are balanced, mature, modest, and capable of developing a smooth operating cadence because they do not chase shiny objects and can prioritize what is important. They are focused and operate against a short term and long term strategy that is aligned with a vision. Sometimes the vision is theirs. They pull themselves out of the business slowly by hiring functional area experts, until they no longer have to be there day to day if they do not want to be. It is their choice. They manage their board, who cultivates them and wants to invest in their next thing. People like them and they have a large network and a ton of friends. They are a great partners, give credit to others who help them succeed, and they give back and help their community and others who are trying to start businesses. They study a shit ton of Steve Blank and don’t have to be the CEO of the company they created if they do not have the ability to perform the job well.
- Have enormous egos: Every entrepreneur should read this post. Let me sum it up for you – check your ego at the door. You’re not that big a deal. Get rid of your inflated self worth because you’ve had some early success. If you refuse to attend conferences, take interviews with certain people, read or need your own press, or don’t give other people credit for your successes, you will be removed and put into that little Founder & Chief Whatever Officer box in the long run (maybe you will have cool little projects that seem important but really are just ways to keep you busy until a plan is hatched to move you onto the next thing). If you don’t stay in this box, you will be removed. People will make fun of you behind your back about what an arrogant douche you are (even the people that are nice to your face and want things from you).
- Can’t raise early capital and don’t ask for help: It’s okay if raising capital isn’t your thing, but it takes bad entrepreneurs years to realize it because they think they know everything. In the process, they blow huge amounts of money, miss huge windows of opportunity, lose a lot of time, and wind up giving much more of the equity value away to people early on who in the long run do not provide much of anything. They justify this by saying “we’ve been in business for a long time” when the reality is that the business didn’t really exist until someone showed up and raised capital for them. When raises do happen, they are generally so detrimental to the process given their ego, that they are completely removed from it or given a specific sound track. If you don’t realize early that you need help and other partners who can raise money and commercialize your big sexy world changing idea, then you aren’t really the founder of anything – you’re just some weak visionary with a mediocre idea that you couldn’t execute on who needed to give away most of the economics. So learn how to raise capital, or get someone in there early and often to help out – because you know your limitations and can accept your development points.
- Don’t inspire: Bad founders don’t inspire people. I’m not saying great founders are motivational speakers – some of the most amazing founders I know are extremely timid or introverted. They inspire intellectually, or with a vision, or with a new way of doing something that excites people. Good people join organizations because of an inspirational founder. They want to stay and work there because the entrepreneur inspires and leads them. When the founder leaves, the culture deteriorates and people start going as well. Bad founders – the team and board just truly wants them gone after the Series B for the most part so they can all execute without distraction.
- Are terrible partners: Bad founders are incapable of any type of partnerships – personal, professional, or financial. They have few true friends primarily because they are unbalanced egoists that cannot suffer the gives and takes of normal relationships – it is the world against them and they are always right.
- Are incapable of pulling themselves out of things they shouldn’t be involved in: This is a common one. Founders who fail or get fired/put in a box cannot pull themselves out of the day to day of the business and need to be involved in every little thing (even if they are forced to hire functional area experts by wise and patient boards). They parachute themselves into things that other parts of the organization try hard to keep them out of because “they know better” and are “smarter than everyone else”. They do this in a distasteful negative fashion while making everyone else around them feel like dirt. They create churn and friction for the team. They don’t trust others to get things done and they are incapable of inspiring people to do so. They say things like “I’m the only one who knows how to get things done so I’m just going to do it myself”.
- Cannot stay focused: Every time a bad founder takes a dump, they come back with another 20 ideas for product features and functionality that must be worked on immediately. They constantly chime in with audibles from the top down and drive the tech and product teams crazy. They are incapable of setting goals for the sales force or marketing organization because shortly after setting goals, the strategy has changed or the goal posts are moved.
- Don’t realize they aren’t running the business: Bad founders are such arrogant egoists that they don’t realize that other people are running the business, raising the capital, hiring the team, managing the board, and setting the strategy. They are just so caught up with being the founder that they fail to look around to realize the board has taken away any of their real roles.
- Don’t care about developing a strategy: Bad entrepreneurs say “we don’t need to set a strategy, let’s just do this huge partnership” or let’s “hire these outside tech consultants to build this app because we are too busy and our tech team is too slow”.
- Cannot manage or use their board: Founders that fail do not know how to communicate with their board. They are incapable of managing up, socializing ideas, communicating effectively, or maintaining a positive balanced cadence. They always hate their investors and are often combative with board members and constantly worried about losing power – sometimes they turn the company’s general counsel into their own personal board structuring attorney. Their team members often talk to the board directly without their permission (normally because they want the founder gone). They do not know how to create a powerful board package and they are incapable of delivering it four to five days before a board meeting.
- Cannot communicate: Bad founders are incapable of communicating with other people in a positive and effective manner. They belong in a garage with a soldering iron versus running a company of any size. Their tone is often condescending and abrasive, incendiary, or short. They are extremely emotional and volatile about every little thing – so much so that it stresses out the rest of the team.
- Get distracted easily if something isn’t fun: Shitty founders chase shiny objects and don’t like to get bogged down in things that aren’t fun, even though the business hasn’t really done that much yet. They think their role is to go out to dinner, play with the product, fly to events, meet with CEOs of large organizations who are very important just like they think they are. They don’t need to do things like work on strategy, prepare for board meetings, set executive meeting agendas, develop quarterly budgets, or review monthly results. They’ve [had someone else] raise the capital. They did it. Let’s party and read our press.
- Do not understand dilution: Founders who fail are super caught up on valuation and dilution. Man, I hate sounding like a VC, but bad founders certainly get in over their skis on valuation or have a complete and total misunderstanding of what it takes to build a large business with calibrated valuations and raises. They take valuation over crappy structure every time and get overly focused with all the big stories they read about in Techcrunch.
- Do not understand equity compensation and aren’t transparent about it: Bad entrepreneurs don’t really understand what equity is for, how to use it, are overly secretive to employees about the meaningfulness of their stake, and often get caught up with amateurish ideals like “I believe everyone needs to be vesting over 6 years because of blah blah blah and that’s the culture we like to have here at hookedonsomethingsillyireadonce.com”. As a result, the team doesn’t understand what equity means to them and as a result the underlying motivational dynamic is lost and everyone suffers – especially these owners. CFOs have to fight with bad founders to top up key team members after every raise.
- Think accounting, reporting, spreadsheets and budgets are just for financial people: Founders who fail think that key financial indicators, balance sheets, P&Ls, forecasts, and projections are just things the accounting team and CFO put together that the investors need. They glance at them every month, but look at the cash balance every day. They are incapable of making decisions using analytics and maintain their own set of #s that only they look at in order to understand what is going on. However, they always have an opinion regarding what the company should be looking at (because they know better) and take a hatchet to any progress internally around developing a scalable system for reporting financial information. Company’s with bad founders always have horrible internal financial reporting – sometimes they do not know how many customers they have or how a customer is even defined.
- Use the word “i”: Bad founders write emails to other team members with only 5 sentences but have an uncanny ability to use the word “I” in it no less than 28 times.
- Waste money: Even though a bad founder has no idea how to raise capital on their own, they think it’s okay to use this precious resource on sponsoring silly events that add no real value to the company because the event it is super fun and close to a beach they like to surf. They fly to “fun” conferences to hear themselves speak and talk about their recent series A (note, everyone in the office is happy to pay this price to get rid of them). These founders spend money on their shiny objects but truly think it’s important company stuff.