Leadership flaws can start tearing at the seams of a startup right at the first signs of success. If we don’t have leadership that works, we can’t make critical decisions, we can’t move forward, chaos ensues, and the whole operation begins to crumble from the top down.
Leadership can be a confusing concept, and it gets muddled quickly at the highest levels. This post comes from a conversation I had last week with a kid who’s startup is already funded and pulling in steady revenue, but hasn’t sorted out who is in charge.
I’m going to put aside the concept of true leadership, which isn’t handed out with a title or formalized on an org chart. In this post, we’re just going to talk about the top of that org chart.
An Executive Team That Makes Decisions
They’re the ones who are actually running the day-to-day operations of our company. The executive team shouldn’t be confused with the founding team — and that’s the first thorny issue we’ll dive into.
Most entrepreneurs err on the side of handing out co-founder status to individuals who are indeed critical to the company’s formation, but not necessarily individually critical. Co-founders are the folks who have unique talents and experience and personality that will make or break the execution of the initial idea.
In short, if another individual could fill their role, that person is not a co-founder. But they could be on the executive team.
Here’s why it matters: While the founding team is sometimes earlier in the company and usually gets more shares, the executive team has more say in the direction of the company. In many cases, especially with startups, individuals are on both the founding team and the executive team. In some cases, co-founders get thrown off the executive team when it outgrows them.
The executive team is the collective of the C-Level, the V-Level, and the Director Level. Some companies will use two layers of executive management. The top layer is the C-Level — with maybe a VP or two thrown in. The second layer is everyone at Director or higher.
While there are limitless ways to structure the management of the company, when it comes to making important decisions, that structure absolutely has to be established and agreed to.
How much weight does the input of each management layer carry? What are executive level decisions and what are board level decisions? Does our CEO have veto power?
Speaking of, we always need a CEO or at least a de-facto CEO, and this person should be the tie-breaking vote for critical decisions at the executive level. We really don’t need any other C-Level, V-Level, or director level employees right away, and we need to be careful about handing those titles out.
When someone at the executive level makes a decision, that decision is expected to be carried out. The executive team speaks for the company to the rest of the company, and sometimes to the rest of the world. It’s crucial that that kind of responsibility be understood when handing out Chief, Vice President, and Director titles.
Finally, when we’re doling out options to the founding team and the executive team, it should go without saying that those shares should always vest over at least three years. Things happen, people change, we never want a substantial chunk of our company tied up in the hands of someone who is suddenly disgruntled, an enemy, or has lost their drive.
A Board of Directors That Guides, Not Meddles
Once we have an executive team, we can operate like a company. Now, there’s a right time to develop a board, and that time is usually when revenue is coming in at higher levels or when we’re seeking investment.
Putting a board together before the right time is a recipe for disaster. Don’t do it.
A board is typically made up of the CEO, the lead investor, and one independent member who preferably has a wide range of experience in the industry or a lot of experience growing startups. Other investors with large stakes in the company will usually expect a seat as well. It’s not uncommon to have other high-ranking members of the executive team on the board, especially early, and it makes sense to get to an odd number with as many additional independents as we’re comfortable with.
The board should have nothing to do with day-to-day operations and decisions. In fact, a board that meddles in the day-to-day is usually a bad thing. The mandate of the board is to establish direction and strategy at a high level. A board will usually meet monthly, with a more formal meeting quarterly and annually.
The board should be helpful with the growth of the company. Some board members are internal, experts in the field (that’s usually me), while others are walking Rolodexes (if that’s still a thing), opening connections to additional investment, customers, partners, etc. when the time is right. Both types are important.
Advisors and Mentors Who Provide Real Help
Advisors and mentors don’t have direct decision-making authority, but they do have substantial input into and influence on those decisions. That’s why they’re there. There aren’t a lot of hard and fast rules about who our advisors and mentors should be or how they should operate, but there a few things we should keep in mind.
First, advisors and mentors are, in my mind anyway, two different roles.
An advisory team is sort of like a second and more informal board. In fact, many of the same people that serve on one could serve on the other. Advisors assist with the growth of the company, and are also out of the day-to-day, but can and should be tapped to help with day-to-day decisions, provided they’re doing what they should be doing: Giving input and helping influence, not making the decisions themselves.
Mentors help individuals more than the company as a whole. A mentor for a CEO helps make that person a better CEO, and hopefully a better person. Mentors are not only out of the day-to-day, they’re usually outside of input and influence, mainly working on helping the mentee make their own decisions. While board members and advisors usually vest shares of the company just like the executive team, mentors usually aren’t compensated for their time. They should be mentoring to give back or to help someone they want to help.
When clear lines are drawn between the levels of leadership at a company, more informal lines can be drawn for the roles of each member of each team. At that point, while everyone might not be speaking the same language, at least everyone knows who to listen to and when.