The Most Common Challenges Facing Startup CEOs: Part 2

Written by Ron Close

Ron Close is a Senior Leadership Advisor at Portag3 Ventures and Sagard Holdings

My decades of work with numerous startups have revealed clear patterns of common challenges. In part 1 of this series, I went into some detail on four of the more frequent issues observed:

• Perfecting a focused and compelling story;
• Building and using an operating model for your business;
• Embracing the need to balance the interests amongst customers, employees and investors; and
• Becoming an excellent people-manager

In this article, I expand upon other common challenges:

• Nailing your product-market fit
• Organizing for growth
• Communicating effectively as a leader

Nailing your product-market fit

There is simply no more vital deliverable for any startup than crafting your product or service to satisfy the needs of your chosen market segment and doing so better than competitors. Let’s unpack this challenge.

There are arguably three key tasks involved in nailing your product-market fit: First, it means cleverly designing and developing your product or service so that it works, and even delights, your users. This includes not only the product itself but also the process of finding, ordering, tracking, paying for, and servicing your offering. That entire user experience matters.

But prior to product design you must determine which market segment to focus on first. Smart companies do not sell to markets. They market their products to carefully chosen market segments. How you choose to segment your market is perhaps the most important strategic decision you will make. Give me a segment that is highly addressable: I know specifically how to get my message to every member of my chosen segment. Give me a segment with the largest pent-up and underserved need. It’s far easier to sell gauze to someone with a “bleeding neck wound”, than to sell vitamins to a healthy person. Find the segment that most needs your product.

Most marketeers are content with standard segmentation criteria: age, income, education, geography, gender. I want to see a market segmentation analysis that is so specific and addressable it actually results in a named list of specific prospects (or as close to that as possible). Now that is a useful tool! Most market plans reveal only a macro list of broad criteria: females under 40 years old, university educated, professionally employed with annual incomes above $50,000. While this list of criteria does help me narrow down my product, my message and my promotion and channel strategies, it falls far short of the detailed segmentation I mean. The more detailed you can make it, the less you will spend reaching those targeted prospects. Wouldn’t it help you be more effective in all of your product and marketing efforts to know that your offering is ideally suited to health-conscious millennials who are active posters on social networks, shop online at least monthly for health-related foods, vitamins or cosmetic products, and make regular contributions to their retirement plan? Find correlations. Think about your “most-likely-to-buy” prospect. What car would he/she drive? What would she read? How does he dress? What activities interest him/her? Look for clear “tells”. Of course, a highly specific list of criteria narrows the size of your list. But I’d rather see a smaller list with a higher connect rate than a longer list with lower conversions.

The third challenge in getting your product-market fit right involves knowing your competitors. Figuring out exactly how and why you will win in the market means knowing a lot about other choices available to your targeted prospects. Most competitive analyses I’ve seen are thin. They discount the true strength and strategic cleverness of their competitors while they seek to artificially make themselves (and their investors) feel better. Assume your competitors are as well-trained and as smart as you but have three to five more years of experience. For most startups that is the reality. Study your competitors and their offerings with an eye that looks for the things they do right. What is their clever strategy? Where and why do they win today? Markets will pick the winners. When you decide to go head-to-head with a competitor, for goodness sake don’t fool yourself! Analyze them with respect and a legitimate desire to learn.

As stated earlier, the most important business challenge for startups involves an iterative cycle of market segmentation, competitive analysis and full-product design and development. That cycle forms the kernel of good strategy.

Organizing for Growth

Startups commonly struggle with the challenge of designing and refining their fast-moving org structure, the cadence of managing key company processes, and architecting the daily, weekly and monthly series of meetings, metrics, dashboards and reports.

Furthermore, young companies often get off on the wrong foot and have to painfully backtrack to correct early missteps. They over-title in the early days and then have a problem when they realize that their “Chief Technology Officer”, while fine for a ten-person startup, does not have the years of experience needed to effectively oversee a much larger tech team. Young companies often over-invite attendees to meetings. They then have to un-invite people when the company grows and the meetings become too large and unwieldy.

As Stephen Covey preached, “begin with the end in mind”. What will your organization look like in two or three years? How will the functions or teams be structured? How many people are in each team? How will effectiveness be measured in each team? Market share? Net promoter score? Percent of on-time delivery? Code quality? Cost of acquisition? Conversion rate? Actual versus budgeted expense? If the founders have this sort of longer-term vision and then deliberately grow into it, they greatly improve their chances of avoiding the many growth pitfalls I’ve seen.

If you have a board of directors (and I hope you do or will), there is a cadence of processes into which you have to fit. Some of those “authority” processes (above you) involve regulatory compliance, reporting, controls, strategy, investment approval, operational reviews… the list goes on. So, any processes that you and your team design for your company must fit into the cadence of those higher demands. Structure your work plan to ensure that you shine in every encounter with your board. Be ready in advance for the strategy discussions and demonstrate your leadership. Think through your Board reports and the metrics they need to see. As a founding CEO you can greatly influence, if not control, the nature of your board discussions. But you have to be out in front of their concerns and questions and you have to earn their confidence by having the right data and metrics, combined with the right level of analysis and recommendation. Experience helps. Seasoned advisors help. And always present it as a “work-in-process” and iterative cycle of improvement, inviting suggestions at every turn.

Once you understand the needs and timing of your Board discussions, you can then design the synthesized schedule of company meetings (quarterly, monthly, weekly) that optimizes people’s time, yet also provides the necessary comfort and oversight on key processes, and equips you to shine whenever you have to “look up” for support.

Think about each of your key business processes: strategic planning; product development; go-to-market planning; talent management; financial control and reporting; communications; etc. Each of these fundamental processes will have decision-making needs as well as informational needs. Who needs to participate in the debates that lead to decisions? Who just needs to be informed after the fact? How often should these teams meet? Who runs each process? Again, working top-down and outside-in will help you develop a stream-lined and effective cadence of managing your startup.

Communicating effectively as leader (with courage, data, clarity, and with both head and heart)

There is a lot to “get right” as an entrepreneur and it is tremendously complex and difficult work. Strategy, product, development, go-to-market, talent, finance, administration… there are hundreds of opportunities to drop the ball. Good teamwork is essential. And teams are made better through effective leadership communications.

Context is key. Tell people what is really going on. What is working? What isn’t working? Where do you see things going and why? What worries you right now? What pressures are you feeling? Good leaders don’t merely tell people what to do. They provide full context about the entire organization and its direction so that individuals can make better decisions within their own functions. Err on the side of over-communicating. Be brave in your level of disclosure. Make sure that your direct reports are informed enough to speak for you (and for each other) on any business topic. That means making time for sharing, debating, explaining, listening and venting. As leader, that is part of your job.

People simply want to be an important part of something good. Startups have a secret advantage: it’s easy to make your teammates feel important in a small and rapidly growing company. Every person is indeed visible and essential in a startup. Each person truly matters. And believing that your company really aspires to “change the world” is also a common truism of startups. Use that advantage to communicate with passion, transparency and authenticity. Put down your dukes and invite ideas and input. It builds inclusion and buy-in. Lead with courage. Legitimate tensions amongst valid alternatives make decisions difficult. In those times, effective leadership communication can make the difference.

I sincerely hope you find some of these insights helpful as you navigate the inevitable ups and down of leading a startup and I look forward to sharing part 3 with you in the coming weeks.

We empower and invest in visionary financial entrepreneurs. Learn more about Portag3 Ventures at p3vc.com.