The Most Common Challenges Facing Startup CEOs: Part 1

June 15th, 2020

Written by Ron Close

Ron Close is a Senior Leadership Advisor at Sagard Holdings and Portag3 Ventures.

Much of my time over the past several decades has been spent working closely with dozens of startups. While every situation is unique, I have seen clear patterns of common challenges. If you are deeply immersed in a startup right now, I bet that you will recognize your own challenges within this list. Know that you are not alone. These things are all improvable and fixable. In fact, I would argue that is your job as leader.

While this list is not necessarily in any specific order, this article expands on four common challenges.

In this article, I cover:

Perfecting a focused and compelling story;
Building and using an operating (Excel) model for your business;
Embracing the need to balance the interests amongst customers, employees and investors; and
Becoming an excellent people-manager (the art and science).

Perfecting a focused and compelling story

The ability to crisply and convincingly explain what your business does, why it matters, and why you will succeed is essential. It enables you to raise money, attract talent, and marshal disparate internal and external resources towards a common goal. It takes a great deal of practice and refinement to do this well. Most leaders just “wing-it”.

A compelling story is crisp. In one sentence, what global problem does your business solve? In one sentence, explain your clever solution. In one sentence, explain why your business will win in the market. Can you do this?

A compelling story is specific. Claims are supported by data and fact. Credibility stems from direct sharing of honest evidence. What specific data proves your claim of market size, market need, competitive differentiation, or attractive economics? Data equals evidence equals credibility.

A compelling story is memorable, conveys emotion and has a point. What is so important about the work you do? Why should it matter to people?

Building and using an operating (Excel) model for your business

Almost every startup has a financial plan, a spreadsheet showing key financial metrics over time. But of the dozens of startups I’ve seen almost none had a detailed, integrated operating model used to run the business over time. It looks out two or three years in monthly buckets. It’s a detailed income statement that links to monthly cashflow. Behind the revenue forecasts are supporting schedules with clearly-marked key assumptions (inputs) that can be tweaked in sensitivity tests to truly understand the cash impact of pricing variances, volume variances, or channel mix variances. The expense line items are similarly supported with detailed schedules showing headcount, hiring date and salary assumptions, marketing program spending… all variables that can be tested for sensitivity and updated with “actuals” once you really know them. It presents capital expenditure timing, also linked to cashflow projection models.

Armed with this valuable “what-if” tool, with much more science and comfort you can understand the impact on your future plans for funding, hiring, marketing as well as smartly feather-in your product development releases and resulting revenue growth. It’s a critical strategic planning tool, an analysis aid and an operating imperative. Keeping it current (with actuals as available) is key to retaining its utility. Without this type of model leaders are simply flying blind.

Embracing the need to balance the interests amongst customers, employees and investors

The hard part of being CEO is balancing the sometimes mutually exclusive needs of customers, employees and investors. It’s relatively easy to satisfy any one of these three legs of the stool. You can meet your customers immediate needs by cancelling the weekend or vacation plans of your employees. You can relieve the stress of employees by simply hiring more, but then may need more cash investment to achieve the revenue levels originally promised to investors. The trick of leading an enterprise is finding a sustainable sweetspot in which you simultaneously delight ALL THREE of those constituent groups. This truism is a very useful construct for explaining your decisions and thereby achieving buy-in. It’s about fully sharing this context, especially with your employees so they know what you are trying to accomplish and have a real chance to help you.

Ideally, your original business hypothesis is strong, satisfying clear and real customer needs with solid economic margins yielding a good return. And ideally it can all be accomplished without the need for never-ending herculean efforts by your teammates. But from time to time every business will encounter periods of strain, in which one or more of these constituents suffers frighteningly high levels of stress. It’s at those times that effective communication and full context-sharing matters most. How did we get into this mess? How will we get out of it? Why should we make these personal sacrifices?

As a Founder/CEO you made a promise. You committed to successfully meeting the needs of an attractive chosen market segment. You said you knew how much investment was required to do so. And you attracted talent by promising people they would be an important part of something good. The real stress of leadership is delivering on all three promises at the same time.

One coping secret for leaders is learning how to share your concerns openly and honestly with your team, especially your leadership team but to some extent with all-hands. Put down your dukes and show your team that they are truly trusted insiders. Admit you don’t have all the answers. Ask for help. Accept the blame but deflect the credit, all the while being grounded in authenticity. You will be surprised how people will rise to a challenge when treated like the smart and experienced adults they are.

Becoming an excellent people-manager (the art and science)

Being an excellent “people-manager” can be as or more important to your success as product-market match, differentiation, or effective distribution. Yet most managers (new and experienced) have never really been trained on the art and the science of management. People wing-it. People emulate observed behaviours in past managers (good and bad). New managers especially can get stuck between “doing” and “managing others”.

The “science” of management can be studied and improved. Building alignment of priorities within and across functions. Driving continuous improvement on processes within and across functions. Assigning tasks effectively. Allocating resources. Establishing metrics and dashboards. Designing and running meetings well. Communicating effectively. Developing proper incentives and rewards. Monitoring progress. Planning corrective interventions. Become a student of these critical management responsibilities.

The “art” of management can be practiced and improved. Inspiring and motivating others. Caring about the pace of challenge, growth and career development of your team members. Fostering inclusion, membership and a feeling of being valued. Setting expectations reasonably and managing disappointments. Strengthening relationships. Creating an enjoyable and rewarding experience for all. Self-awareness, self-assessment, and unbiased feedback are valuable friends in this pursuit.

There are specific rights and responsibilities of an employee (e.g. carrying out assigned work, working cooperatively with others, supporting company values, keeping the manager informed). And there are rights and responsibilities of a manager (e.g. defining acceptable quality of output for team members, assigning work, continually improving processes, setting context through regular team meetings, coaching and appraising individual performances). There are even specific rights and responsibilities of a manager two levels up (succession planning, approving compensation bands and ensuring fair pay practices, assisting with cross-functional boundary relationships).

Good managers think about both the art and science of doing their jobs. They study, they try things and adjust, they seek feedback, they communicate well, they care about the development of each of their direct-reports, and they always provide full context so people better understand the direction, the priorities and the challenges and are better able to help.

I sincerely hope you find some of these insights helpful as you navigate the inevitable ups and down of leading a startup.

I look forward to sharing more with you in the coming weeks.

Future Articles:

Cleaning up early mistakes made on the cap table, on talent and on organization structure;
Getting Product right and establishing the Product Development Processes;
Market segmentation and developing an evidence-based Go-To-Market approach;
Building a Sales Funnel (people, metrics, tools, processes);
Dashboards and Management Reporting (metrics, barometers, processes);
Reporting to the Board and managing Board processes (with the Chair);
Organizing for scale (including dealing with co-Founders who have “Peter-Principled”);
The cadence of governance (setting up a rhythm of meetings processes);
Saying no effectively and focusing (telling the difference between opportunity and distraction); and
Communicating effectively as leader (with courage, data, clarity, and with both head and heart).

We empower and invest in visionary financial entrepreneurs. Learn more about Portag3 Ventures at p3vc.com.