From The Archives: Turning Your Team
I’m on a short vacation in Utah for the next few days and so I’m going to pull an oldie but goodie out of the archives. I’ve been seeing a lot of “turning the team” in our portfolio as of late so I thought it would be good to give this a re-run.
A serial entrepreneur I know tells me “you will turn your team three times on the way from startup to a business of scale.” What he means is that the initial team will depart, replaced by another team, which in turn will be replaced by yet another team.
I have been closely involved with over 150 startups in my career and since roughly 1/3 of the startups we back get to real scale, that means I’ve seen the “startup to scale movie” over fifty times in my career and I can tell you this – my friend is right.
The people you need at your side when you are just getting started are generally not the people you will need at your side when you have five hundred or a thousand employees. Your technical co-founder who built much of your first product is not likely to be your VP Engineering when you have a couple hundred engineers. Your first salesperson who brings in your first customer is not likely to be your VP Sales. And your first community person is not likely to be your VP Marketing.
Likewise, the first VP Engineering who figured out how to manage the unwieldy team left by your technical co-founder is not likely your VP Engineering when you have five hundred engineers. Your first VP Sales who built your first sales team is not likely the person who can manage a couple hundred million dollar quota. Companies scale and the team needs to scale with it. That often means turning the team.
The “turning your team” thing probably makes sense to most people. But executing it is where things get tricky and hard. How are you going to push out the person who built the first product almost all by themselves? How are you going to push out the person who brought in the first customer? How are you going to tell the person who managed your first user community so deftly that their services are no longer needed by your company?
And when do you need to do this and in what order? It’s not like you tell your entire senior team to leave on the same day. So the execution of all of this is hard and getting the timing right is harder.
This is where serial entrepreneurs have a real leg up on first time entrepreneurs. They have seen the movie too and they played the starring role. So they know what the next scene is before it even starts. They know the tell tale signs of the company scaling faster than their team. And so they move more quickly to move the early leaders out and new leaders in. One of the signature faults of a first time founder is they are too loyal to their founding team and stick too long with them.
If it is any consolation, the founding team makes most of the money when a company becomes successful. That technical co-founder who built the first product will likely end up with tens of millions of dollars, if not a lot more, if a business they helped start gets to five hundred or a thousand people. The VP Engineering of a five hundred person company will not likely have an equity package that is worth anywhere near that much.
So I generally advise entrepreneurs to be open and honest about all of this. Tell your early team that they may not make it all the way to the finish line but they will be handsomely compensated with equity and if you are successful, they will be too. And when it is time for them to go, think about how much they brought to the company and consider vesting some or all of their unvested stock on the way out. Also think about compensating them to stick around during the transition. And always make sure they leave the company with their head high feeling like the hero that they are.
Here’s the thing. Turning a team is not the same as firing someone for weak performance. You are firing someone for doing their job too well. They killed it and in the process got your company off to a great start and growing to a scale that they themselves aren’t a great fit for. They may not be right for the job at hand, but they are a big part of the reason that the company is successful. That’s the narrative that you need to have in your mind when you turn your team.
All of this is very hard, particularly if you are doing it for the first time. So get some mentors, advisors, and board members who have lived through this before. And listen to them about this. You may not want to listen to them too much about product and market stuff. Maybe you understand that better than they do. But when it comes to scaling a management team, those who have had to do it before will generally be right about the issues you are facing with your team. So their advice and counsel is worth a lot and you should pay close attention to it.
Sometimes you outgrow the job; sometimes the job outgrows you.It is equally detrimental to rotate through senior positions too frequently as it is to stick with a founding management team that should move on.
The skills and experience needed for the build out and scale up stages are less about the specific domain (engineering, sales, product, marketing, finance,…) and more about creating the conditions of success for growing the productive capacity of an organization performing at scale. There’s a lot to that, but the first step is recognizing that most, but not all, startup team members aren’t the right people for the next stage. Fred’s way of handling their transition is spot on. And never forget (which we still forget too often) that the best developer (or marketer, or salesperson,…) is not often the best leader of that domain’s team.
The WAY a founder is fired is one of the things VCs screw up royally and frequently. Many of these founders have poured their hearts and souls into a business for years with no guarantee it would ever work out. They’ve worked for no salary or at salaries way below market value. They’ve sacrificed family and relationships. And it’s brutally hard and lonely and difficult to be a first time founder. So when these folks are let go, doing it with dignity and respect and appreciation is so important. But too often it is done in a shitty way. It may take years and years for those founding shares to ever be worth anything, if ever. Doing what’s right for the company shouldn’t be an excuse; these things work both ways. Plenty of notice, lots of appreciation and recognition, financial compensation (they have families too), and a transition plan. It’s common human decency and it’s the right thing to do. Sadly, many VCs are so focused on their financial exits, they forget to humanize the entire ordeal. They can easily do both.
Completely agree, and a great way to prep for termination conversations is to ask yourself three questions:*1 What do I want for the person who I am letting go?2 What do I want for my relationship with the person I am letting go?3 What do I want for myself and the company?If you take the time to do this thoughtfully in advance, your key messages will fall out of it, and you will have a great framework to navigate any twists and turns in the live conversation with grace. It’s a powerful model I’ve used in a lot of different contexts, not just terminations.*The three questions come from the book Crucial Conversations, by Patterson and Grenny.
“This is where serial entrepreneurs have a real leg up on first time entrepreneurs. They have seen the movie too and they played the starring role.” – I would add that the ceo could have seen that movie before as part of the senior team of another startup too. They don’t have to have been ceo previously themselves, but very close to it.
I wonder.Unless you have responsibility for making payroll one step removed is still that.
Yes. I would generalize your statement to if you had skin (i.e. money) in the game at your previous startup, then your experiences apply.
possiblymy point and it doesn’t obviates william is that you can be up there in responsibility and not be connected except through a functional budget to how the company really functions.
Agree. And I think it has a great deal to do with how self aware and idealistic you are as well and most importantly how you are able to read other people.  If you go around with your head in a hole and never think about what is going on around you (except your job) then you might be likely to not pick up on simple cue or clues and actions by others. There are always subtle messages in the way people act and what they do. Some are better than others at picking up on those clues. Do you trust and take them at their word or do you look beyond that for other behavioral cues that contradict their words.
i know this well from both sides.From the founding team perspective it should impact how you structure your equity package.
Arnold – can you elaborate?
i’m thinking (albeit very loosely)if most startups take 7 years to get somewhere and there are 2-3 management changes and most vesting schedules are a 1 year cliff with four year vesting why wouldn’t I or anyone coming in the team want a 3 year vesting or acceleration of some sorts?
Yes, I agree with that. I actually believe that whenever an employee is terminated for reasons other than for cause, their shares should automatically vest fully. Vesting should be used to protect the company from an employee jumping ship, and from making big hiring mistakes. Should not be used to claw back equity from good employees when it’s the company that has decided it’s time to go a different direction.
Full accelerated vesting is a big topic and must get board approval to happen.As the marketing lead coming in to many startups over the years and still doing it, writing contracts around these topics has become a sub expertise of mine.
Makes sense on so many levels. “They will be handsomely compensated with equity”? The design of the company’s stock option package has to be designed in a way that allows the employee to keep their equity with the least cost / tax consequences. Without it, the unintended consequence is that the employee has no choice to stay, as they won’t have the net worth to exercise options and pay the tax bill.
I’m now reading “The everything store” the story on Bezos and Amazon… its interesting that that’s exactly the path they went through before becoming what they are now today. (Fascinating book, BTW)
Can those who are pushed out be fit for “the role” in another company ? Surely people evolve and learn from their experience and mistakes… or as a manager should you think they are going to be stuck with the same shortcomings ?
I agree with the overall thought about turning the team here, but one of the great things about building a successful company is that there are, at least in my experience, many early company participants who do scale as the company does. A CEO/management team needs to be paying close attention to others on the team who have the right combination of IQ, hustle and leadership that need to be nurtured and grown. When these early employees succeed and scale, there are huge benefits for them and the founders who hired them.
Don’t forget that the founder is probably NOT the best person to be CEO and should probably be “turned” as the company grows as well. In my experience, the founder giving up the CEO spot should often be the first executive turned, but rarely is.It is also why I laugh when a company offers me an equity package with four year vesting. If I do my job, I could be pushed out in 12-24 months. If I’m still the VP of Biz Dev in four years, this company failed.
For later hire roles, I agree that a shorter vesting schedule makes more sense. And for roles where there’s an obvious start and end, equity does not make sense unless the company is that cash strapped.
As someone who coaches startup teams through this, I might offer a few suggestions:1) As you said Fred, don’t do this all at once and don’t do it haphazardly. The narrative of the company quickly changes from growth to panic.2) Founders love to use this turn as an excuse to let go of people they don’t like, rather than those are simply unable to continue scaling with the business. I’ve seen too many founders keep under-performers around because they agree with everything they say/do. You need to do a real analysis of what kind of challenges you may face as you grow and hire into those roadblocks.3) Be very clear why the new leaders are coming onboard. You don’t want to encourage either a “Mighty Mouse” Syndrome (“here I come to save the day!”) nor do you want these new leaders to think that their job is to recreate what they already had at a fully scaled company. I’ve seen startups ripped apart because the VC picked the second in command at various large firms to come onboard and that group never aligned on what they were actually building and they all had an eye on simply recreating where they were before. New leaders have to be committed to this new organization and open to whatever shape it must take to best serve its shareholders and users/customers.
So I generally advise entrepreneurs to be open and honest about all of this. Tell your early team that they may not make it all the way to the finish line but they will be handsomely compensated with equity and if you are successful, they will be too. And when it is time for them to go, think about how much they brought to the companyLook I’d be the first person to tell you that money is important but obviously it’s not all that matters. It’s also about pride in what you do and the thought that you are good at what you do and possibly the best. And liked and admired. After all I think you aren’t doing what you do to simply make more money.Then again it’s business. And laying it out all out front (as you correctly suggest) should provide at least some insurance for hurt feelings of inadequacy. But the truth is nobody is going to be happy with this even if they have a pile of money. But since it’s business that doesn’t matter. I guess my question is how when investing do you determine the people that you dealing with can make that hard decision? This is one reason that it’s easier for a new leader hired or an acquiring company to cut heads. No personal relationships that have to be overcome.Separately, people get criticized and pilloried in relationships for doing exactly the same thing (except that is not stated upfront..)Last thought. My father had a partnership with his brother for many years in a wholesale import business. He taught my cousin all he knew about both that business and the real estate that they bought on the side. The my uncle decided he didn’t need my father anymore (when he saw what his son could do) and moved to split up the partnership. Oddly to me at the time my father wasn’t that upset and didn’t think it was as much of a betrayal as I did when I was younger. I can think of ways that I would.
Here’s the thing though – it’s not binary. Original team members can transition into different roles in the organization. For example, your founding CTO may move into an architect or scientist/head of R&D role down the road. Your first VP sales may move into a role running business development. If it’s mapped out well and built into the DNA of the company, your entire founder and founding exec team can have long, rewarding careers as the company scales and grows.This seems to be one of the first things that people forget: roles are dynamic and people are dynamic. They both evolve over time. Don’t make the assumption that your head of product today wants solely that role and will be interested in the same things she’s interested in today in 5 years time. Keeping that institutional knowledge in-house though is incredibly valuable over time. Creating an environment where people can learn and develop along with the company is probably the biggest competitive advantage and moat that you can build.
Institutional knowledge is often incredibly valuable when a company moves into new geography and needs to replicate the playbook there. Move somebody with institutional knowledge into the new geography and see how they cut thru the clutter to focus on whats important.
Yes – especially when coupled with a regional market entry expert or consultant who can be in-market. Powerful combo.
Intelligent is the founder who CREATES roles for people to grow and evolve as the company does.
Totally agree with Ana. Some of the most successful tech companies are the ones where the founders are not only still actively involved but where founders still run the show (control the board, serve on key positions etc). For example, I’d consider it a negative sign if Larry/Sergey left Alphabet or if one of the Collison brothers left Stripe.I also think that this categorization of a “technical co-founder” who built the first version of a product is getting slightly outdated. Most interesting new areas like blockchains, AI, VR/AR, quantum computing require the founding team to have a deep technical understanding (regardless of what role they play day-to-day). There is no Zcash without Zooko, there is no Ethereum without Vitalik, and there is no Rigetti Computing without Chad. No outside professional can come in and fill the role of the technical founder(s) in these examples.
Consider this also from the perspective of succession planning & long-term company success: while not an easy topic to contemplate or plan for, a marker of good corporate governance is to have a succession plan in place in case something happens to a key stakeholder. I find that notion of noone is irreplaceable quite liberating when working with scaling companies: it helps shift the perspective from ‘we need Jane’ to ‘we need someone w/ Jane’s set of skills and those are ___, ___, ___, etc’. So while I certainly hope and prefer for founding technologists to stick around (at the very least in senior advisory/non-operational roles), it’s prudent to plan that they may not.
Totally agree on succession planning as a safety net. But I don’t buy this theory of bringing in outside executives to replace founders as some “natural cycle”. This was a general belief in the Valley for bringing in “professional CEOs” which got corrected over time when most successful outcomes came when founders stayed in control.If you need to replace a founder after reaching the next stage then you didn’t start off with the right founders to begin with. In which case, sure, correct the mistake.
I agree – I’d like to think that this forced ‘professional CEO’ succession dates back to the times when there were fewer operators among growth & later stage investors and more money was needed upfront to get to P/M fit but that’s just a hunch.
In situations where there’s genuine technical innovation, e.g. Google, the technical/product founders are INVALUABLE & IRREPLACEABLE.Their domain expertise is such that no other person can think or do it.
Things were ok at Craiglist with Craig Newmark as a customer service rep for many years
Founding team ROIs:https://uploads.disquscdn.c…
The women are killing it today!!!Top three comments say it better than I ever could.Yes people will move one and change places.But Ana, Twain, and Haggie’s comments sum it up.This shows why you need diversity.Well done all.
Exactly.But I see founders/CEOs struggle with transitioning people into other roles. They are moving fast and hard, and by the time they realize that they need someone new in the role, it has already become a problem. Also, transitioning can be hard for the person involved, like going from being the Head of Product with 3 years experience to now being a PM reporting to a VP or CPO.One of the issues I see is that someone has technical skill, but limited leadership or managerial ability, and there is no one to learn from and no time really — and sometimes that person is the Founder/CEO. ;)I think that one of the best things I’ve ever done as a recruiter to better understand my clients is to hire people myself. It is so much harder to actually lead and manage a team than it is to recruit one.Hey Ana — this is another topic for your series. (from LinkedIn comment)
To call out and repeat my question from my comment below. Is it part of the vetting process:How when investing do you determine the people that you dealing with can make that hard decision?In particular when they have no history which you can rely on.
I was intrigued by this post when first published, and I remain so now.1. If you go into it believing all of your founding team will inevitably be replaced, aren’t you more likely to interpret any data/difficulties accordingly, thus becoming a self-fulfilling prophecy? Similar to going into a marriage believing you’ll probably get divorced – if that’s your mindset, then you’re right and you will, probably as soon as the going gets tough. I’m not suggesting some people shouldn’t get replaced, but I do wonder if there isn’t likely a person or two who are capable of adapting and riding the whole way up.2. The same logic for founding teams could also apply to the founding CEO, suggesting he/she should also get replaced along the way. (Which you have touched on in the past: http://avc.com/2011/01/ceo-… ) I’m aware that some VCs are more quick than others to do this, so much so that a16z saw an opportunity to brand itself as a firm that does not believe in replacing CEOs. In the post above, you put forth the view that the CEO could stay on for the full ride, which I’m sure is a more popular viewpoint among entrepreneurs seeking funding. So then what’s different about the CEO vs the rest of the founding team? I’m guessing you will say that 1. the CEO has the founding vision firmly in mind, which is important to retain if possible, and 2. the founding CEO can rally the troops in moments requiring pivots more easily than a new leader. But then where do you draw the line? (when deciding whether the CEO or other management team members are capable of adapting / succeeding in the new role.) If it’s valuable to have a CEO with the founding vision, couldn’t it also be useful to have other senior leaders roles that share the founding vision?
Great reminder. Since you are in Park City let me know if we can host you & Joanne at Michael Franti & Spearhead concert Tuesday eve.
Which team first gets to go on the company ski trip?
My company is in the middle of this. Our first goal is to find a new role within the company. Institutional knowledge is important @aexm:disqus @twaintwain:disqus.I look for experienced hires who had multiple positions at similar companies because those people look for and understand the flexibility needed to grow a company. We often do not have roles for people whose skills are no longer a fit but we try to find them.
Important to remember you might not need a “rockstar” even though everyone says you do. For example: You are a new startup. You have to increase your top line revenue and people have told you to hire a sales manager. Makes sense because everyone’s plate is overflowing and having one person concentrate on sales will help. Who should you hire? It might not be a high priced rockstar you will have to give equity to. It might be okay to hire a capable person that can grow with the position as the company grows.Ben Horowitz wrote about this in The Hard Thing About Hard Things
It would be interesting to hear your thoughts on the building boom in Utah. I visited last weekend for the first time in my 47 years in life and could not believe the construction. Nor could I believe how great the area is! Park City, Alta, Canyons were wonderful. Not too mention the ski technology was incredible to experience!JJD – An Epic Weekend!
Applicable to founders also right? Also, how do you explain the 6 co-founders of Infosys who stuck through to when Infy became a billion dollar company?
This is a valuable post. It’s like old age. If you live long enough you will experience it. It would be great to see a couple of case studies where this has been done well.Funny, the past two weeks I have been sharing AVC posts from 2012 on culture and fit, and retaining your team members. Not all the links work, but the content is still spot on for a new generation of CEOs.
JOB CHANGE, PERSON CHANGE. IF NOT MATCH, CHANGE ONE OF THEM.