Figuring Out Your Way to Startup Success

“Team.”  It’s the cliché response from VCs when asked about the most important factor in deciding to fund a new startup.

But what separates great teams from weak teams? I believe it’s the team’s ability to “figure stuff out.” Founders figure out potential customer problems that are worth solving.  Engineers figure out how to build a well functioning product that meets this need.  Marketers figure out how to reach people who really need the product and how to convert them into customers…

While natural talent is a big part of figuring stuff out, we can all benefit by improving our work environment.  There are two areas in particular that prevent creative problem solving.

1) Too much focus on financial rewards

It is obvious that the effort required to raise VC funds can be a major distraction from executing the business, but few realize that the repetitive discussions about financial outcomes can also shut down your ability to figure stuff out. In my 15 years in startups, I can’t think of a single breakthrough epiphany we experienced while fundraising.

Daniel Pink demonstrates the potentially negative effect of financial incentives in his new book Drive, The Surprising Truth About What Motivates Us.  He describes several experiments where people who were offered a financial reward to quickly complete a challenging task actually performed worse than those who simply did it for enjoyment.  An important part of figuring things out is getting into a state of flow (sometimes known as being in “the zone”) and a focus on financial incentives often prevents this state of mind.

The book mostly challenges the effectiveness of typical incentive structures inside more established businesses, but I believe the implications are even stronger in startups where survival is contingent on our ability to figure stuff out and the financial rewards of doing so are potentially enormous.

2) Too much pressure

I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself.  A few months ago I had a beer with a friend and successful serial entrepreneur, Antony Brydon, and he zoomed right in on my problem.  I had put myself under so much pressure to help the startup with which I was working, that I had virtually shut down my creative abilities.  He mentioned that he’d been reading Andre Agassi’s autobiography where similar self-induced pressure had destroyed Andre’s ability to play tennis.  His career only recovered when he remembered to loosen up and have fun.   Every time I feel myself getting tense, I now remind myself to loosen up and immediately feel my creative problem solving abilities return.

While self-induced pressure is common in startups, pressure can also be applied externally by the Board (or the CEO to the rest of the team).  Most leaders don’t realize how counterproductive this can be in a startup.  It is OK to apply pressure for better execution of things that have been figured out, but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns.

The solution: loosen up and have fun

When breakthrough thinking is needed, a fun, collaborative and supportive environment will generally yield better/faster results than the pressure of sticks and carrots.  This is especially important in the early days of a startup while the team is still figuring out a viable formula for the business.

Also, given the likely negative effects of fundraising, I recommend fewer/bigger rounds of financing (if possible).  Run leanly on your first round while you figure out the key success elements of the startup.  Then raise another round while executing the formula.  This may result in more dilution, but a more valuable company should offset this dilution.

Finally, encourage the team to obsess about solving customer problems rather than their potential financial outcome from success.  The best breakthroughs initially come from immersion in customer problems and then later from understanding the customer experience and benefits of your solution.

12 thoughts on “Figuring Out Your Way to Startup Success

  1. I fail to see what’s cliche about “team” since we’re going to have to live together for probably 5-10 years ;-)

    The insight on putting yourself in the pressure cooker is spot on though.

    Re money, there are some interesting studies about what happens to people who win the lottery. Usually it results in depression (all they ever dreamed about was money and when they have it they realise it changes nothing and feel aimless) and social alienation / a sense of disconnect from their real friends (envy, social distance etc). Should be required reading. The studies basically tell you that winning the lottery is possibly the worst thing that can happen to you (tetraplegics fare better than lottery winners, according to Pursuit of happiness, though that one seems a stretch). Getting our lizard brain to accept this and the teaching of Maslow is another task however …

  2. Thanks Fred. Just because “team” is a cliche response doesn’t mean that it’s not an appropriate response. I appreciate your comments.

  3. Yea I notice the exact same things in my startups. A lot of pressure or the absence of someone to shelter the team from pressure causes very bad performance.. nice read! whish everyone realized this!

  4. Hey sean – nice post.

    I think it takes 3 things to build companies: the ability to identify big markets, money, and the ability to build a team.

    I think your post really gets to the heart of this 3rd ingredient (which incidentally, i think is the most difficult). You and your cofounder will probably get along better. Your employees will be happy and more productive. And the team will be more focused on customer needs.

    However, this all can’t happen in the absence of the first 2 ingredients. Otherwise the world would be full of music startups that are really fun, but don’t solve monetizable problems and can’t pay their employees :)

  5. The thing with teams and making sure you are getting the most out of them is to make sure that you are utilizing the proper people in the proper places. I’ve worked many places where I had to be on a team and some of these places would do a shuffle of members of the team on different tasks as to make sure everyone was efficient in every aspect of the task. These teams seemed to be much less productive than the teams I was on where the person best at the job was assigned the job.

  6. Great points. I’d also put it this way: if you can’t have fun working with the people on your team, probably either your focus is wrong or you have the wrong team.

  7. Change is painful and most startup require ongoing self-improvement efforts on the part of the founders. We did some work with cancer research teams, and while they are not motivated by money they are motivated by a strong desire to make an impact on people’s lives.

    I don’t think it’s “fun” that unlocks innovation but a need to solve the customer problem you have set before yourself, coupled with a willingness to look at existing challenges from different points of view.

    See also Dave Snowden’s “Culture and Innovation” at http://www.cognitive-edge.com/blogs/dave/2006/10/culture_and_innovation.php
    where he argues that that there are three necessary, but not sufficient conditions for innovation to take place:

    1. Starvation of familiar resource, forcing you to find new approaches, doing things in a different way;
    2. Pressure that forces you to engage in the problem;
    3. Perspective Shift to allow different patterns and ideas to be brought into play.

    Snowden continue: “Creativity is just one way, and not necessarily the most effective to achieve perspective shift…creativity is not a cause of innovation, but a property of innovation processes, its something that you can use as evidence of innovation, but not to create it.”

  8. I cannot agree more. Weren’t fun and passion exact same reason to get started in the first place? How can you loose sight of your goal?

    The problem is, people see things and stats as goals when really it is just emotions.

  9. Absolutely right on. Too many people think a “fun” culture means Xboxes, free drinks and fooze-ball. That’s a mistake. I think that for creative people – esp. developers and product people – it is intrinsically fun to simply build something awesome, even in a less than “fun” space. The main reward is people loving your awesome creation because you’ve solved their problem. I’ve found that even talking about the money can be de-motivating because it makes the problem solving feel less pure, more instrumental, less meaningful. Nothing is more fun or sustaining in the tough times than a simple email from a user saying “I love your product, thanks!”. When the team lives for that, you’ve got a great team.

  10. Great post. Noted designer Tom Wujac gave a talk at TED in which he outlined the Marshmallow Challenge: In 18 minutes, teams must build the tallest free-standing structure out of 20 sticks of spaghetti, one yard of tape, one yard of string, and one marshmallow. The marshmallow needs to be on top. His findings about collaboration include that the poorest performers are recent business school grads (they all jockey for leadership) and among the best are recent kindergarten grads — they don’t. When he heightened the stakes by offering a $10K prize for the tallest structure, people couldn’t complete a tower — they, like the business school folks, looked for the best plan and then had to suffer when the aha moment (adding the marshmallow at the top) resulted in an “Oh No” moment. This finding is consistent with your post’s conclusion that adding financial incentives don’t enhance creativity, they likely impair it. The Kindergarteners, in contrast, iterated repeatedly and had many more ‘aha moments’ This is a powerful way to consider collaboration, team management, and the iterative process of project management. What are some of the most effective ways you’ve seen entrepreneurs get their teams to collaborate, build teams or otherwise find ways to turn marshmallow plantings into aha moments?
    I know that when recruiters have called on my in the past I’ve reflected on what things made me most like my current job — the money was on the lower level of the Maslowian pyramid for me. Relationships with those with whom I worked and the culture were always critical. Ensuring that you can consistently maintain that hospitable cutlure is really important in fueling an environment in which creativity can thrive.
    Ed

  11. Great insight Sean,

    You might enjoy “Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation” by Frans Johansson.

    He has some specific points about how known financial incentives can actually reduce innovation. He suggests that innovators expect a fair slice of the pie after providing creative solutions, but knowing exactly what those rewards are in financial terms can destroy that motivation.

    I suspect that it’s a bit related to the gambling gene phenomenon which makes us more likely to pursue unpredictable rewards.

    Cheers,
    Tristan