Friday, April 8, 2011

Lesson #14: The Role of a Startup CEO

Chief Executive Officer?  Chief Visionary?  Chief Cheerleader?  Chief Salesman?  Chief Funding Officer?  Chief Communications Officer?  Chief Team Builder?  Chief Lightbulb Changer?  Chief Coffee Maker?  Yup, all of these titles apply to the role of a startup CEO.  It is perhaps one of the hardest job to do in the business world, given the wide range of skills required to excel.  This is one of the reasons only 5-10 startups in 100 actually succeed, as it takes a really special person that has the right combination of skills and startup DNA.  In many ways, a much harder job than a CEO of a Fortune 500 company, minus the big salary!!

When it comes down to the core skills required, a startup CEO needs: (i) a clear vision of where the ship is sailing; (ii) a finger on the pulse of the industry and competitive trends, to navigate the ship over time; (iii) solid team management skills to keep all employees sailing in the same direction; (iv) impeccable sales and motivational skills, while maintaining credibility with clients, investors and employees; and (v) to keep the business on plan, on budget and liquid.  I'll tackle each of these points below.

The first two points really go hand in hand.  In order to create the clear vision, you need to have a good sense to what is going on in the industry and with competition.  That is really the first step to building a winning business plan.  It is not enough to say, "we are building a great travel website", as there are tons of travel websites out there.  You must shape the vision in a way it is more unique and competitive than current solutions in the market.  My previous startup, iExplore, positioned itself as a niche killer for adventure travel (compared to the general online travel agencies like Expedia).  And, within the adventure travel sector, iExplore marketed "privately-guided, made to order" tours (compared to the traditional packaged group tours with set itineraries) at a price point 25% less than similar tours being offered (leveraging the cost efficiencies of the internet, compared to brick and mortar agents).  This vision for the business created a unique product in the market place, which consumers ultimately flocked to with over 1MM unique visitors per month coming to the website.

But, the CEO's job is not done setting the initial vision.  He or she must stay on top of those competitive trends to navigate the ship over time.  For example, after 9/11/01, iExplore needed to evolve from a travel agent of other tour operators' trips, into an iExplore branded tour operator of its own in an effort to get more margin to the bottom line during a difficult economic climate.  And, at the same time, iExplore opened up a whole new revenue stream from online advertising, to get the company to profitability.  It is the CEO's job to constantly watch these kinds of economic, industry or competitive movements over time, and to respond accordingly to keep the ship afloat.

Another job of the CEO is to make sure all employees are clear on the vision, and that all staff are sailing in the same direction.  In the iExplore example for adventure travel, you can't have your tech guy building a cruise seller, your operating guy building a hotel seller and your finance guy building an airfare seller.  Everyone is building an adventure travel seller, and the CEO's job is to make sure all staff have contributed in building that vision, so all players are on the same page as to what they are building.  Therefore, the CEO is not only the communicator of the vision, the CEO is the consensus builder for that vision.  You will never be successful if your team does not buy into the vision, or if they feel their good ideas for improving the vision are not being listened to.  Then once everyone is firmly on board, keep them clearly focused on the goal.

Once the vision is set and being maintained over time, now comes execution.  And, one of the key execution requirements for any startup CEO is to be its Chief Evangelist.  This includes cheerleading the staff, from top to bottom, and getting prospective business clients and investors excited about getting involved with the company.  Everyone has been around that infectious personality that lights up the room, and you can't help but be excited by that person.  That is who you need to be.  But, and this is a big but, everyone has also been around that person who you feel is trying to sell you the Brooklyn Bridge.  So, it is important that your sales and motivational skills, are tempered with equally important business judgment and intellect to come across as credible and backable to all parties involved.

Keeping the business on plan, on budget and liquid is a no brainer requirement for any startup CEO.  The CEO needs to set acheivable proof of concept points, and put key managers in place for hitting those goals.  That means building a management dashboard of the key drivers for your business, that are going to dictate its success or failure.  For iExplore, it was all about: (i) driving traffic to the website; (ii) getting those visitors to contact us; and (iii) getting those contacts to convert into a sale.  So, all energy went into driving those three datapoints, with one key manager in charge of each datapoint (e.g., head of marketing drove traffic, head of web design drove contacts, head of call center closed transactions).  Figure out your key drivers, and get the right team members to manage them accordingly.  But, more importantly, you need to be able to quickly identify when things are not going to plan, so you can put new initiatives in place to make up for any shortfall.  The longer you let cash-using problems go unfixed, the shorter your liquidity runway, and the higher odds you will run out of money and potentially go out of business.  So, plan accordingly.

The worst thing that can happen to any startup is running out of capital mid-launch or prior to full proof of concept, that would attract additional capital.  So, it is the CEO's job to make sure those proof of concept points are clear to the entire staff, a reasonable timeline has been created to achieve those points and the company has enough cash (including a cushion) to get to those goals.  The best people to solicit proof of concept input are your prospective investors.  Ask them, "what are you looking for before you would be willing to fund our business?", and firmly focus on hitting those targets.  And, when raising money, always raise more than you think you will need, to leave a material cushion for when things go wrong, as they always do with startups.

There is no single right answer for "who makes for the best startup CEO?", as everyone is different in terms of skills, style and personality, and every business is different in terms of economic, industry and competitive dynamics.  But, the above is a good summary of the types of people that have the best odds for success in becoming a successful startup CEO.

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