Burned Relationships Burn Down Companies
TL;DR Nutshell: Success in building a company most often requires a founder team who can not only find great investors, advisors, employees, and other stakeholders, but build deep relationships with those people in a way that leads them to be emotionally, not just financially, invested in the success of the company. Short-sighted founders focus on the costs of those relationships, ‘transactionalizing’ them in a way that weakens loyalty. The smarter ones realize that those costs are an investment in an invaluable safety net that will support the company when it hits rough waters.
A brilliant phrase that I learned a while back, and which I’ve often used in suggesting to founder CEOs how they should approach building their “roster” (not just employees, but investors, advisors, lawyers, and other stakeholders) is to never be the person who “knows the cost of everything and the value of nothing.” If you approach every relationship from the perspective of maximizing your gains and minimizing your costs — get the highest valuation possible, keep as much control as you can, minimize the equity package, minimize the salary, discount the bill — you may think you are doing what’s best for yourself and your company, but in reality you’re just isolating yourself from the people whom you should most want on your team.
Talent cares about relationships.
The most successful and talented people in any market/industry — venture capital, angel investing, design, programming, law, sales, PR, etc. — very very rarely get to where they are because they were chasing money. They often do what they do because they, in some sense, enjoy it. It may not be fun in the same way that going fishing or on a great vacation is fun, but work is something much deeper to them than just work. This is not at all, however, to say that money is irrelevant to them, but getting paid well is often more about respect for their talent — a moral acknowledgement of the value they provide — than about their actually needing the dollars themselves.
Put slightly differently, the highly talented people whom you want supporting your company’s success will very often have “F.U. Money” or “F.U. Skills” or both. They’ve already mastered the bottom rungs of Maslow’s hierarchy of needs and are looking for respect, involvement, trust, engagement, etc in their work and investments. They are looking for real relationships. Build and nurture those relationships, and the long-term returns will be massive, either for your company or you individually. Burn those relationships, and you’re fu**ed.
Don’t Transactionalize People
Obsessed with maximizing your valuation/control and minimizing dilution? You’re going to end up with shitty VCs; the kind who add no value, are always whining about performance, and will replace you in a heartbeat for not producing the results that they can’t help you achieve. Insisting on keeping equity packages as small as possible? You’ll end up with shitty employees who will drive you insane with the amount of oversight, correction, and overall time sucking they require. Focused on keeping those legal bills to an absolute minimum? You’ll end up with shitty lawyers who are unresponsive, incompetent, and accruing legal technical debt that you’ll pay for later. The examples go on and on.
Watch the bottom line and the cap table intelligently, but let good people make good money. When you push too hard against talent, they will either (i) pass entirely on you for someone who values them more, or (ii) register in their mind that their relationship with you is purely transactional. The qualitative difference between a transactional relationship and a deeper one sounds small, but in a high-risk, low resource business it can be everything. If you hit a funding snag and need a bridge to get to your next round, investors with whom you’ve built real relationships may put in some money to keep you going. Investors who view you as just another number in their portfolio will not. Need to cut compensation temporarily, or stretch payments on a bill, to get through that bridge period? You better hope your employees and service providers actually give a damn about your business for reasons beyond their paycheck.
Healthy long-term business relationships are built on a mutual sense of fairness; that it’s OK to take into account leverage and context in negotiations, but that everyone should in the end leave a little on the table as a statement that the relationship is there for something bigger than just money.
Mistrust Burns Money
Trust — meaning a feeling that you have a solid understanding of a person’s authentic character and that they’ll treat you fairly and respectfully — is not just some teddy bear “kumbayah” lets-all-love-each-other buzz word. It is currency that makes doing business long-term significantly, dramatically, more stable and less costly. If you frame it purely in terms of a risk-reward analysis, if I feel like I can trust someone, I automatically feel like working with them is less risky. And if it’s less risky, the threshold of reward that I need (my compensation) to make the relationship worthwhile goes down significantly. Mistrust is spectacularly expensive. As a startup, you can’t afford for people to not trust you.
The end-conclusion here is a straightforward one: all of the data on business executives confirms that emotional intelligence — the kind of ‘people skills’ that enable you to connect and build trusting relationships with others — is a foundational trait for successful founders, particularly founder CEOs. People are born with varying degrees of those skills, but everyone should work on improving them.
Very very very few teams succeed purely on the momentum of their business. Study the histories of successful teams, and you’ll see a network of valued relationships being built and nurtured over time, propelling founders forward and often protecting them from hitting rock-bottom. Don’t be the guy who knows the cost of everything and the value of nothing. He’s lonely, unsuccessful, and poor.
Originally published at Silicon Hills Lawyer.