If you are one of the local Phoenix startups that has received venture funding in the last few years, heed this advice. You are not rich. At best, you have lengthened your runway. And much as you may be pushed both by the VCs and by the myth of Silicon Valley to expand, do it slowly with an eye on sustainability. Shit happens, and even Uber can run out of cash (and probably will).
Many of our funded startups are now run by first time CEOs. They’re mostly young, and there’s very little mentorship in how to grow a healthy corporate culture. So they hire to scale, and then have to lay off.
Let’s nip that in the bud, please. We are not like Silicon Valley, where if you get laid off you can walk down the street and get another job. Employees who come to work for a startup, no matter how experienced, can find themselves having to leave Phoenix just to support their families. I’ve helped a number of them re-position themselves to the enterprise just to keep them here. I don’t want to tell people with kids not to work for startups, but sometimes I do.
Our founders don’t raise Uber-scale numbers. $2m does not go very far in a growing company. In my own business, with $1.6 million in revenue, I felt comfortable at about 15 people. And that was many years ago. Because my own business depended on revenue, I was forced to be more careful about staffing up. But the Silicon Valley growth mentality affects startups who raise money: suddenly there’s no end in sight. We can always raise more. Always.Be.Raising.
There are some really good rules for first time CEOs that our funded startups could follow:
- Don’t be tempted to expand too quickly. Your interests and that of your VC are not necessarily aligned. They may ask for growth, but YOU should look at revenue growth to find out whether you are heading toward a sustainable business or a crash at the end of a runway.
- Contract out non-core competencies. I see many companies run by successful CEOs where in the early days the CFO function, the Chief People Function, and even the CMO function are contracted out.
- Remember that when you hire someone, you are becoming responsible for a life. People are not just human capital. They are fathers and mothers, husbands and wives. I remember what it was like to lay off people who had become my friends and confidants. The only way I could get through it was to be as transparent as possible, share my books and my fears with them, and give adequate warning.
We haven’t had any notable crash and burns recently, but they are coming. And being a first time CEO is no excuse. You ought to be able to read, and if you can’t get mentoring or read a book, you shouldn’t try to start a company. When you start a company, people’s lives are at stake.
We need to develop a culture here that’s about people and how they are treated, not just about money.
Remember, business is ultimately about people. Here in Arizona we’re supposed to be better, and learn from the mistakes of others. We aim to be the world’s most generous community for entrepreneurs and their startups, let’s act like it.