Roles- The pitfalls of role dynamics in an early stage startup.
How to avoid role divisions when creating your dream
Roles: Homogeneous vs. Heterogeneous
One of the main challenges that founders routinely face is the creation of homogenous teams. All too often, this is how many founding teams are formed:
An idea strikes you like lightning. You are fired-up and ready to take on the world. You tell one of your friends, maybe a classmate or someone who you used to work with, and they too are hyped about the possibility of starting a company. They want to jump on board with you. Because their buy-in helps validate your idea and offers a comfortable partnership, you say yes, but you both have the exact same skill set. You ask yourself: is this a problem? And because you are ecstatic that someone likes your idea and wants to work with you, you push aside any potential doubts in pursuit of that happiness.
In the beginning, it is magical. You are both running through tasks because you have double the firepower on them. You are crushing it!
Suddenly, you and your co-founder disagree on the direction of a crucial business decision. How could you disagree? You’re both experts in your respective fields — you should both be on the same page.
Ultimately, your co-founder concedes that battle, but not willingly, and resentment builds up. You two are no longer the strong team you were. You are bickering over small insignificant decisions. Your co-founder decides enough is enough and leaves the company.
You don’t have the energy to start over after months of unnecessary emotional drain. The start-up fails.
This is, of course, an abbreviated version, but this happens all the time. I saw it happen to a founding team in my program and watched as they all lost a year of work.
The challenge is that when you bring on the person closest to you, you routinely have similar skill sets. This in turn leads to overlapping roles within the company, which can seem like a benefit at the beginning of the startup. However, despite the flexibility this offers in tackling early-stage issues, this will lead to conflicts later.
Benefits of Division of Labor
Division of labor offers many benefits: accountability, the formation of a hierarchy, and in the case of heterogeneous teams, an assignment of roles based on individual strengths.
We will discuss hierarchy in the next section, but regarding the overall division of labor, this process is crucial in helping to assign responsibilities and identify whether or not a co-founder is pulling his or her weight. This ultimately leads to real accountability, which helps drive your growth as you can trace back missteps and fix anything that goes awry, rather than simply hoping things will get better in the future.
“With a clear division of labor comes clear accountability: Everyone (initially the co-founders, later the board of directors) can see who is responsible for each success and each failure…” [Wasserman, 2012].
It is extremely tempting to bring on the person closest to you. It is something that you will battle within yourself many times while you are searching for a co-founder. I know that I would have brought on the wrong person had I not been in Professor Noam Wasserman’s Founder’s Dilemma class while I was recruiting.
During my own co-founder recruitment process, I was in the midst of the most intense working month of my life. Throughout my career I had routinely worked 80-hour weeks and had broken 100 hours a couple of times, but at this particular time, I was closing in on 500 hours in one month.
The sheer discipline and willpower it took not to bring on one of the other twenty people I interviewed made me feel like my soul was tearing itself from my body.
This is one of the times that could hurt, but I promise you it will hurt much more if you bring on the wrong person. If you are an MBA student who specialized in marketing, don’t bring on another marketing person. If you are an engineer who specialized in UX/UI, don’t bring on another.
A clear division of roles helps keep everyone accountable, offers the ability to assign titles, and will lead to substantially less counterproductive in-fighting.
Hierarchical vs. Egalitarian
Do we approach this like a dictatorship or do we try and get consensus from everyone for every decision?
Both have pros and cons. I have interviewed founders who swear by the egalitarian approach (in the early stages) because it balances out the two co-founders. They named titles, but still took a consensus approach to most of the decisions; to give you some perspective, they currently have an acquisition offer from Google.
The egalitarian approach can work in the beginning. It provides a sense of comradery and trust that the hierarchical approach does not. The challenge is that the longer you hold onto this method, the more cumbersome and destructive it becomes for the company.
The more people you bring into the conversation, the more ideas and directions they will want to pull you towards. If you have more than a few individuals in the company, even small decisions can become a nightmare.
The reason I do not prefer this approach is because I find it to be one of the ways that you avoid having those tough but necessary conversations. To give you an example, the same company that has the offer from Google is severely divided right now. One of the co-founders wants to sell, but the other doesn’t. Now, in an egalitarian approach, what do you do? You’ll never get a consensus here as one views it like giving up a child, and the other sees it as finally getting paid for their hard work.
If they continue to run the company and decide not to sell, this will create a huge division in the co-founding team and will eventually lead to conflict and possibly the resignation of one of the co-founders.
On the flip side, veteran entrepreneurs swear by the hierarchical approach and it is the direction that I lean towards as well, but not as a dictator.
The reason you’ll want to avoid going full Stalin in your company, other than being associated with a violent dictator, is that “CEO dominance is associated with a 19% decrease in firm performance.” [Eisenhardt et al., 1988]
If you take a bird’s-eye view, this makes sense. A startup or small venture’s best quality is the ability to innovate and move quickly versus the competition. If you have a CEO who refuses to listen to feedback from the people who are in direct communication with clients, especially regarding the direction of the product, then you’re going to have problems.
The best leaders are the ones who are also coaches. They call the plays but listen to people out in the field. They have buy-in and trust from their team. This is a topic we will dive into more when we get to the leadership section.
Entrepreneurs who follow the egalitarian approach often do so because it avoids having to make another transition and possible conflict in the startup’s future. If you are building and scaling a company, you will always have to make the shift to a hierarchy, and when you do make that change, it provides a new place to run into potential venture-ending conflicts. Why would you add a possible conflict later down the line when you can move through them now? I have never understood putting off tough conversations, and it is in the best interest of everyone to know where they stand from the beginning.
Finally, an essential reason for instituting a hierarchical system is the accountability that comes with ita. If you have overlapping roles, there are many pitfalls because of possible misinterpretation. However, if you have defined roles and something doesn’t get done, it is easy to find out where you had a breakdown in the process and fix it rather than pointing fingers and getting into arguments.
Do you have the right CEO?
A guest speaker once came to discuss his startup in my technology commercialization class, and normally I love hearing other people’s stories. One of the reasons I’ve enjoyed writing this guide so much is that I can learn more and hear about the pitfalls that founders face to move the founder-failure dial in the right direction.
The issue was that the person speaking, who was the CEO, should never have been the CEO. For two and a half hours I listened, I tried desperately, but I couldn’t figure out what the company did. In all honesty, I couldn’t determine if they were a lifestyle company or a venture that was looking to take rocket fuel from VC’s. For someone who has been in business for multiple years, this was not a satisfactory presentation.
To remedy the situation, and to the dismay of my entire class, I took ten minutes of his time to pull the information out of him and make it a cohesive statement, which should have been done within the first two minutes of his speech.
In this instance it took someone with my sales background to bring together their vision into a cohesive, easily understood pitch. This is problematic because a CEO has three primary jobs: raise capital, sell, and recruit. If your CEO cannot fill those functions, you need to reconsider how the roles at your venture are organized.
It was one of the more frustrating talks I have ever been to, but this wasn’t an isolated incident. I have encountered many situations where the “idea person” takes on the CEO role, but in no way should. To reiterate, if you have a CEO that cannot accomplish the position’s core tasks, you will be in trouble.
One of the pitfalls that founders routinely fall into here is that the person with the idea reaches for the CEO title 47% of the time [Wasserman, 2012]. If that individual is an incredible marketer, in-depth finance person, or a talented engineer, but doesn’t have the capability of performing the role of CEO, it is best to have the tough and honest conversation up front. If you wait to have this conversation, trouble can start brewing, and it can lead to disastrous co-founder conflict that may spell the end of your venture.
With that being said, keep in mind that it is not necessarily bad if the idea person reaches for the CEO title. He or she may very well have the skill set and the willingness to go above and beyond at the beginning of the venture, which can be a tremendous asset. However, once the venture starts to mature and grow, potential problems can still arise.
Being disciplined about who takes on the leadership role and making sure you have the right person are essential for the startup to be successful. And while having an honest conversation about who should take the CEO role can be a tough — especially as it will entail someone ceding power — the earlier you have that conversation, the better you can build a vision for the company and where it is headed.
Something else Wassermann discusses that warrants mentioning is the role of titles and how everyone takes a C-level title when the venture is formed (e.g. CEO, CFO, COO, etc.). Keep in mind that if you have little to no experience in your field or no management experience, there is going to come a point in the venture when you are replaced or someone is brought in above you.
This goes for all positions, especially if you scale and take venture capital funding. Many CEO’s are replaced past their Series A funding round, and the rate of replacement goes up exponentially from there.
In the formation of your own venture, if you adopt a C-level title without the ability to effectively grow (or simply don’t have the skills associated with that position), you should not be upset if and when you are replaced.
Eisenhardt K, Bourgeois III L.T.. 1988. Politics of Strategic Decision Making in High-Velocity Environments: Toward a Midrange Theory. Academy of Management Journal.
Wasserman, N. 2012. Founder’s Dilemmas. Princeton University Press. 117–144
Spiegel O, Abbassi P, Matthaus P, Schlagwein D, Fischbach K, Schoder D. 2015. Business Model Development, Founders’ Social Capital and the Success of Early Stage Internet Start-ups: a Mixed Method Study. Blackwell Publishing. Information Systems Journal 26, 421–449
Lucas is the founder of Spark xyz, platform management software for incubators, accelerators, Angel groups, and VC’s.