A Note to Founders as We Head into 2023: Become the Leader Your Team Needs
By: Rick Zullo, GP & Co-Founder at Equal Ventures
*Read more on Twitter here
Back in November of 2021, we shared a memo with our founders and LPs entitled “The Fortune of Failure”, citing how experience with prior market downfalls had led us to the believe that we were experiencing a bubble and detailing the “5 Principles of Resiliency’’ we were using to help our fund and our companies weather the impending storm. Since then, the Nasdaq has fallen >30%. We shared that memo with the broader public months later to help others mitigate some of the adverse effects of the market, but I regret not sharing it earlier.
As we enter 2023, we are in a very different time. The industry is certainly more somber than it was at this time last year and the realities of the new normal are setting back in. Expectations are shifting slowly, but they are shifting and the next year or two are likely to be a grind that defines the long-term winners from the rest.
With that, I began to think about the resiliency needed in the quarters ahead. We’re not in a battle, but rather a war. One that will be long fought and require teams to operate at their best to make it to the other side. Those that do may find themselves in truly rare air given the far more limited competitive landscape and could be positioned for incredible shareholder value creation during the next bull run (when presumably the companies have matured to access public markets). Even then, liquidity is only another step in the journey of building a lasting, category defining company.
As I was reading a book called “The Great CEO Within”, I was reminded that the unifying thread of all GREAT companies is that they are led by GREAT leaders. Great leaders aren’t born, they are forged through times like these. They don’t become great leaders independently, but rather through the feedback, advice and support of those around them. When we invest in a founder, the biggest bet we are making is on their ability to develop into that leader — one that is capable of transforming their category and leading a public company. I’m incredibly fortunate to work with the founders I do every day and I believe each of them is capable of growing into being that leader.
That said, 2023 will show us a new side. As Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.” The last 6 months have been a proverbial punch in the mouth to the startup ecosystem and it’s going to be the BEST founders who pick themselves up and press forward through it. Working with founders through times like these is what we (i.e. Equal Ventures) are here for — to be the hands-on partner to our founders regardless of whether times are good or bad. I wish I had the capacity to work with dozens of other founders, but the style of our investing and level of support for our founders dictates depth > breadth.
In lieu of working directly, I wanted to share a few thoughts that I shared with our founders headed into the year ahead. I know there are many lists like this, but I’m hopeful this will be helpful to the few who are willing to read just one more. While the road ahead will be rocky, I see incredible opportunity for both our founders and the broader startup ecosystem. GREAT companies require GREAT leaders, especially during times like these. Below is the advice that I’ve given to the CEOs I work with on a daily basis and I’m hopeful these lessons can help founders become the leader their team needs in 2023.
Subject: Thoughts as we head into 2023
Happy 2023 to all of you!
I’m hopeful each of you had the opportunity to rest and reflect over the last couple of weeks and are excited to take the bull by the horns in 2023.
Over the break, I had the chance to do some reflection and reading (a little bit of rest in there, too) and I wanted to put together a few of those thoughts to share with each of you — the founders/operators that I have the pleasure of working with every day.
Along the course of the break, I came across a book that I think would be helpful to all company leaders who read it (The Great CEO Within). The book served as a lasting reminder that while the success of companies and markets will ebb and flow, the constant of startup success will always be that GREAT companies require GREAT leaders. With that, nothing is more important than doing everything we can to help each of you get the resources, feedback and help you need to be the best leader you can be. Me and our team have invested in each of you because we are confident that you have the potential to be an exceptional leader — someone who is capable of redefining your industry and running a public company. While market turbulence may make that goal more difficult than it may have seemed 12–18 months ago, I know that each of you is capable of realizing that goal for both you and your companies.
With that, I wanted to share a few brief observations and reflections as we head into the new year. I know you all have seen far too many of these posts, but I’m hopeful these can prove helpful in some way to each of you in the upcoming year.
Fundamentals First: The last few years were devoid of math. This led to a lot of irresponsible behavior and I’m proud to say that none of you fell into that trap. This is the year that unit economics and business durability (not just revenue/growth) will define the winners, so make sure that you are making every effort you can to optimize for a great core business, not just one that chases growth. Measure the core aspects of your business with a heightened focus and track your deviation from plan with increased scrutiny. Developing predictability around the core engine of your business will be the secret to unlocking future capital.
Steady Hand: There is value in a steady hand as you navigate the year ahead — constant calamity is likely to only make matters worse while wasting time and energy. A lot of investors, board members and employees have only seen a perfect market, and there will be those that react frantically to more tumultuous conditions. Focus on what matters most, not the noise of every detail. Embrace the sobriety of this market, develop a plan that you believe gives your team the best chance at LONG-TERM success and execute it. Set the strategy and live by it. Measure against it and establish mile markers for assessing whether you have validated that hypothesis or not. If you fail and need to pivot or adjust, do so with intention and permanence (make sure these are decisive “redirections” and not flippant oscillations). Being consistent with your strategy and sticking to the mile markers you’ve established can be a steady hand for your team to trust the direction of the company (nothing is worse than working on work that you know will get scrapped 2 months from now when leadership changes direction). Adjust where you need to and develop a course that enables your team to develop momentum with its build. When changes need to be made, present them calmly with clarity. This will be a welcome sign of relief and enable them to focus on the mission.
Patience for the LONG-TERM: This isn’t about your valuation in 2023, it’s about where we all are at the end of this journey. At least for Equal, we don’t care how long that takes. We want to see you be successful regardless of what that time horizon is, so embrace patience this year. Let’s invest in the core capabilities and long-term minded decisions that give your companies the best pathway to long-term success. That may mean longer time cycles between fundraises and that’s perfectly fine. For those who are fundraising, the bar has gone up considerably and multiples have come down a lot — that may lead to mark-ups being less exciting than in years past and/or more dilution. IT DOESN’T MATTER. YOU CAN’T CONTROL THAT. Let’s keep our eyes on the prize, knowing that this isn’t about raising our next round, but about building a category defining company. If we achieve that in the LONG-TERM, this will all be a blip.
Decisive on Talent: While strategies and objectives should be long-term minded, you need to be extremely decisive on talent resources right now. Where possible, be scrupulous with resources and be judicious on where potential cuts can be made. If folks aren’t meeting plans that they committed to and there isn’t a clear answer to why, now is the time to cut them and move on. If you aren’t meeting your plan in a certain area, figure out why and make the talent investments necessary to address them. This is not the time to learn on the job, it’s the time to bring in A players (plenty of which are available on the market at a significant discount to last year) and let them do what they do best. Talent compounds so delaying on firing bad hires and/or hiring necessary leaders can have perpetual impact. Make the decisions early to save valuable months of runway (far more costly than the actual cost of these employees) and preserve a culture of accountability to results. For those looking for some additional reading on elevating talent/culture in your company, I highly recommend Amp it Up by Frank Slootman, current CEO of Snowflake ($44B) and former CEO of ServiceNow ($78B) and DataDomain ($2.4B).
Know the Goal Posts: If you are going to raise capital this year (NOTE: markets are still investing), make sure you are building toward a plan that gives you the best chance of unlocking that. Most of you have already done this, but make sure you reaffirm your goals at the board level to right size them to the current market expectations. It’s no longer just about growth, you need to be showing the potential for category leadership, sound unit economics and a path toward sustainable finances. Once you set that plan, make sure you hit it. Falling short of forecast erodes trust in future forecasts with downstream investors (making it all the more important you have leaders you can trust to hit their goals). I know this is a lot to ask, but it’s the ask of the market out there and I don’t anticipate it changing any time soon, so let’s get ready to play the game on the field and play it the best we can.
Don’t Hide Anything Under the Carpet: Trust is of incredible importance during times like this. Nearly nothing is unsolvable when we put our hearts and minds together. As investors, we are here to help, but we can’t help what we can’t see. I’m never afraid of the stain on the carpet, but rather the crumbs beneath them (i.e. what are the issues I can’t see). Embrace the stains and work with your team and investors to solve them. If something isn’t working and/or you are missing plan, bring that forward early. Hiding it can only hurt you with investors and team members giving you advice based on a different set of assumptions. Implement this throughout your organization, unveil every “crumb” so you can have clear sight of your business and make the best decisions you can to solve for them. If mistakes have been made, own them and let’s find a way to solve them. There is no value in the blame game when we are all in the same boat. Let’s identify the issues early, often and in detail and bring forward solutions to fix them. Teddy Roosevelt once said “Complaining about a problem without posing a solution is called whining.” Reward your problem solvers, not your whiners.
Embrace the Wins: The job of being a founder/CEO will not always be fun. The hope is that the good times outweigh the bad, making the late nights and hard fought battles all worth it in the end. It’s not important for you to love every minute, but to love the journey when all is said and done. We’re all very fortunate to be able to do what we do, but it can be easy to lose sight of that amidst the grind. We often need reminders of why we’re doing this and I encourage you to do so by embracing the “wins.” Whether it be a new customer or simply a day where you are feeling inspired by what you do, be intentional about finding joy in the day-to-day moments of building the company. Bring that joy to your employees, recognize their wins and show them your appreciation. It takes very little time/effort/cost to tell someone that you appreciate them and the impact may be more than you’ll ever know.
Make sure YOUR Needs are Met: For the team to be successful, you need to be at your peak performance. Being a founder/CEO of a startup is amongst the hardest jobs on the planet, so make sure you are communicating your “needs” to the team. For those of you who haven’t read “Reboot” or “Nonviolent Communication”, I highly recommend you do so as I’ve found the lessons of these books to be really helpful to those that have read them. The reality is that you are one of (if not THE) most important assets to the company, so do what it takes to invest in yourself to ensure that you are positioned to thrive as a leader. Communicate with your teams about your needs to ensure you are not putting undue harm or stress on yourself. Reach out to me (or others) for a helping hand when you need it. It’s OK to admit you are personally struggling and need help. I have had to do this a lot in my life and more CEOs do this than any of you would know or expect. Don’t be afraid to reach out and ask for it, because others can’t meet your needs if they don’t know them. I encourage you to embrace this philosophy and perpetuate it further into your company. GREAT companies are led by GREAT leaders and the BEST leaders develop GREAT leaders within their companies.
I don’t know what will come from the year ahead, but I have immense confidence in each of you and know that we can work together to unlock opportunities that would have seemed impossible just a few years ago. I’m incredibly proud to work with each of you and I value these relationships more than you will ever know. There are ups and downs of my own seat, but getting to be a small part of each of your companies serves as a lasting source of inspiration — it feels like a “win” whenever I get the chance to answer an email, answer a text or hop on the phone with each of you. Know that me and our team are honored to help you anyway we ever can.
With that, go out and make 2023 your best damn year yet.
Rick
