Startup Your People
By Paul Moran
Venture Capital (VC) is experiencing a fundamental change and evolving to meet the pace of today’s fast-moving markets. In recent months, deal sizes and valuations have spiked higher than ever; due diligence on startups has evaporated as investors compete to get into hot deals first; venture firms have started investing much more than they normally do; hyper-fast follow-on rounds are increasingly common; and more non-traditional investors are backing early-stage startups.1 In an investment decision, two factors are being assessed: the idea and the people behind it. 65% of startups fail due to management issues. So, when you’re building a startup, it’s about hiring the right people for the right positions—not just those who look good on paper. 2
You cannot read a business journal without learning about the latest billion-dollar acquisition or IPO launch. Within this environment, how do venture capitalists invest wisely while startups maintain the rapid fire growth and innovation that makes them attractive in the first place?
The answer is PEOPLE. Without the right team driving culture and making strategic decisions, many startups lose focus, making it easy to fall off course and become a statistic. “Technology is a catalyst for growth and expansion, but it’s the people who make or break today’s fast-growing businesses,” said Kevin Burke, director of M&A, Globalization Partners. “Every business, no matter what industry you are in needs strong leaders who can adapt to constant change and are willing to embrace the surprises that inevitably present themselves when a company is on an accelerated growth trajectory. The value of people in a business cannot be underestimated and leads to positive results in the both the long and short-term operations of a company.”
Startups are often the vision and idea of an individual or small group of people with a particular passion and focus. As they grow quickly and work to secure funding, they begin hiring employees to keep up with day-to-day needs while also developing a viable long term strategy. In a rapid growth environment, new employees are hired to fill multiple roles, which are continuously evolving as the company morphs. Startups need to ensure the new hires for these diverse and challenging roles are aligned with the company’s mission and have the competencies necessary to succeed.
Innovation is key, and diverse perspectives are a main ingredient in innovation. To compete, stand out, and disrupt the market, startups need to represent change within their industry and recruit a team with a wide range of professional backgrounds to bring valuable insights. A multi-generational workforce may aggrandize a firm’s expertise and idea generation. However, this approach will only be successful if the firm’s culture is in alignment and challenges employees to step out of their comfort zones; collaborate with colleagues from all stages of life; create an environment of inclusion; and provide opportunities for employees to develop. A culture of continuous learning with a growth mindset will help break barriers, boost morale, and improve engagement and performance.
This type of culture needs to come from leadership, with clear communication and investment in development. Leadership teams must link the business strategy to people strategy to drive results. We reference and work through the alignment of business and talent strategy using a simple model called the Talent Management Life Cycle. This process allows starts who are moving rapidly to stay on course with their talent and business results.
Maria Palma, a principal at RRE Ventures, shared this critical connection and how VCs are responding in an article for Valley Voices:
One principle startups and venture capitalists can agree on is that the people on your team will make or break your business. While most CEOs and founders will tell you that people are their most important asset, a majority of them feel like they don’t have enough hours in their days to address the need in their organizations for talent development at scale. VCs and platform teams have helped their portfolio companies attract the best talent by providing recruiting and hiring support, but recently, some VCs have also started to help their companies on the development and retention front. Many are now offering ongoing training, coaching, and proactive solutions to address the common leadership and management challenges that occur frequently as startups scale.3
In this type of fast paced environment with big goals, it is not unusual for competent people to get promoted quickly from individual contributor to manager/leader. However, individual success is not a precursor for leadership success. The skills that make great leaders can prove challenging even for the most adept individual. Leaders need to be able to empower and engage their workforce, including giving and receiving feedback, having tough conversations, driving vision and change, and empowering and engaging their employees to perform to their highest potential. Additionally, the leadership challenges in a startup shifts quickly as the company evolves. Deliberate, agile leadership helps ensure that, throughout these evolutions, the culture remains strong, cohesive, ubiquitous, and aligned to business goals.
The findings of a Columbia University study shared:
Good management is important to the success of all companies, but it is essential for the success of young, fast-growing enterprises pursuing risky investment strategies. Managerial resources often are particularly scarce in young, growing companies; the most innovative entrepreneurs are not necessarily endowed with talents as managers. And, as the newly organized firm grows, its human resource needs become greater and more complex.4
It is critical for Private Equity and Venture Capital firms to attract, assess, and develop top leaders to reduce risk, keep them aligned and a high performing team and ensure their investments succeed. Investment growth requires a talent acquisition and development strategy that addresses the changes and volatility of market conditions, with a strong correlation to its upward trajectory and profitability. Leadership, talent development, and organizational culture play an increasingly important role as growth enablers or constraints. Leadership issues, talent gaps, bottleneck decision-making, inability to deal with conflict, making difficult decisions, and ineffective management teams obstruct growth and investment returns.
However, with the right guidance, VCs can guard against risk and guide startups to success. In our work, we have partnered with VC’s and PE’s, and to coach leaders on how to build an effective culture with strong leadership that is aligned and effective, that is people-centric and positioned to achieve business goals, so that as organizations grow, the people behind it grow simultaneously. How will you get behind your people to reach our business success?
- https://www.protocol.com/vc-bubble-overheated-investment
- https://masschallenge.org/article/important-startup-roles \
- https://www.forbes.com/sites/valleyvoices/2019/05/01/the-one-thing-vcs-think-startups-need-to-%20%20succeed/?sh=64eada0624a9
- https://www0.gsb.columbia.edu/faculty/ccalomiris/papers/Venture%20Capital%20as%20Human%20Resource%20Management%20(1).pdf
About MCG Partners
MCG Partners is a leadership and talent optimization firm– aligning your business and people strategy for maximum results. MCG Partners a woman-owned consultancy and is also a Predictive Index® (PI®) certified partner. To learn more please contact Stephanie Holmgren at stephanie.holmgren@mcgpartners.com and at mcgpartners.com
