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Monday, September 6, 2010

Managing Startup Expectations

I thought long and hard about the wisdom of addressing the subject of startup expectations. The startup expectations of business owners, investors and employees are a complex mix of emotions, dreams, culture, naivete, ambition, peer pressure, ego, risk assessment and national pride. These factors make the subject delicate and inherently risky for anyone brave enough to address them. You can easily be accused of being on a religious/political/cultural quest or a CFO's rant on expense management when you talk about a ventures expectations. Despite this minefield startup expectations are such a fundamental part of early stage companies that the subject warrants the risk.

My experience starting companies, closing companies, taking companies public, selling them, managing them and funding them has made me realize that the way a team manages expectations can be one of the most influential factors in the success and longevity of a startup. It is also one of the most difficult subjects to deal with because expectations are so crucial to making the leap into a startup. Expectations are associated with many startup problems that lead to issues ranging from team member conflict, investor dissatisfaction, insufficient funding, unrealistic time lines and inappropriate staffing. Well managed startup expectations are also at the root of companies that become very successful companies.

Startup culture has historical roots going back well before the current age of technology. In the US the mass emigration into the country was spawned by individuals wanting to start something new. In many cases people came to the US with virtually nothing except an idea and hope that things would turn out well. Back in the 1800's Horatio Alger wrote books on how social mobility in the US allowed anyone to work hard and make it big. His series of publications mixed with the American dream eventually grew into a national business culture fueling the notion that if you have a good idea and work hard you will be successful. This culture has spread throughout the world becoming the fuel for entrepreneurial ventures.

People are inspired by the success of Facebook, Google, Apple, Oracle, SalesForce.com and Microsoft and strive to do the same. It happened to the founders of those companies why not me?

Yes, that is true. However, many entrepreneurs jump in without fully understanding the intricate mix of factors that led to the success of the big named companies. Take Apple for instance. This company nearly collapsed with Steve Jobs being thrown out on his butt only to rise from the ashes of Apple and a number of failed startups(remember NEXT) to make Apple what it is today.

In point of fact many startups will go through several phases and may never become an Apple, Microsoft, Facebook, Twitter, etc. or it will appear that the startup is doomed when in fact a bit of good fortune and quick thinking will prevail and the company will survive. In some cases the company will prevail yet never reach the level of the original expectation or goal.

This is where the real challenge lies for entrepreneurs. How do you manage expectations given the realities of a startup company? How do you manage investors, employees, advisers and management team expectations. How do you keep the company on a trajectory to meet the original goals when the going gets a lot rougher then you ever anticipated?

This subject is too interesting and complex to be fully addressed in a single blog. The subject deserves a more detailed history lesson, examples, interviews, war stories and tactics used in specific scenarios. However, there are some short thought provoking tips that are worth mentioning that can help to successfully manage expectations.

Bury The Discussion Of The Big Pay Out - You may have sat around a table and speculated about the big pay out. However, when you start the company get rid of that notion. You need to hunker down and figure out how you are going to start and run a real company. The prospect of the big payout may be the initial reason you got into the venture. However, it can wind-up being toxic when reality hits. Forget about the dream until its proven that you are on the dream track.

Team Composition - Startups are not for everyone. That includes investors, contractors and employees. Spent some quality time assessing potential team members. Have they ever lived through a startup before? If not, what is their risk reward expectation levels? How often have they been thumped by a life experience and gotten right back up? What is the energy level in the team. Do you really have the right skill set mix or are you a bunch of friends that want to start a company.

Execution is 9/10's Of the Law - Expectations are great. However, they need to be backed up by execution. Everyone in the company should get a startup orientation. The dream may be far off so let's focus on the here and now getting the critical tasks done step by step. Focus, focus, focus.

Is The Idea Any Good? - If a company has already been successful with an idea it is unlikely that another company will be. Pick an idea that is new yet not so far out that people will not get it or it is too hard to implement. Derivative of successful ideas are good if you can move fast enough to beat everyone else thinking the same thing. Does the world really need another social network? The idea phase is actually very important and is filled with insidious expectations that need to be dealt with before turning the idea into something practical.

Success Takes Time - It will always take longer then you expect. In many cases much longer. Deal with this upfront.

Investors - Be careful with naive and ill informed investors. You do not want to have them knocking on your door six months after they invest asking for 100x of their investment. All startup's desperately need investment capital. Many of them take money from investors that have unrealistic expectations. Make sure they understand that time may actually work in their favor or be prepared to spend a significant amount of time managing investors and not your business.

Dream Parties, Fun And Milestones - Recognize the smaller milestones even if they are not the home runs. This will emphasis the importance of baby steps and deemphasize the big dreamy stuff. Above all try to have a congenial environment without masking the bad news. This is really hard to pull off and requires real leadership skills on the part of the management team.

When Things Are Not Going Well - Let investors and employees know about it. This is part of being in a startup. If they can not handle it perhaps they should go to work for a big bank or insurance company.

Expectations are complicated yet essential to get a company off the ground and to drive employees and investors to shot for the moon. Expectations can be managed in a way that keeps your team grounded and at the same time motivated to accomplish things they would never have accomplished without them. Be careful with expectation setting because people will buy into them and expect you to deliver on the promise.


tenax_technologies said...

Great blog!
Thanks for sharing.

Tenax Technologies is a Belarussian software company delivering complex web solutions. We provide comprehensive software development for startups based on Java J2EE Spring Hibernate web2.0 technologies.

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