Great founders shine in a crisis.
Ordinary ones watch their companies burn down.
I just had coffee with two co-founders of an e-bike company who were mentoring one of our student teams. In short order I realized they were great founders – creative, agile and still having fun building their company. Unlike other e-bike rental companies, their business model was unique, offering riders free rental time in exchange for looking at ads. We had a great conversation, and they talked about everything – except the dead moose on the table.
The Dead Moose
Before we met, I read they had just lost out to three other e-bike companies (including Uber) to operate in another major city. This meant they were now shut out of that market for the next four years. Being fourth in a group of three is painful, but good CEOs learn from failure and ensure that those lessons get baked in going forward so they never happen again. (And if not, their board hits them on the head until they do.) As we talked, I learned that wasn’t the case with these founders.
They casually mentioned they were again competing for the rights to operate in a major city, this time the one I was in.
I asked what I thought were obvious questions, starting with, “What did you learn from the loss? What did you change to ensure it won’t happen again?” And to me, most important, “What happens to your valuation and business if you lose this city?” The answers were vague, and if I had been on their board would have given me pause. (That’s a polite description of what I would have said.)
A Crisis – Ignored
While the founders were still talking about new product offerings, brand partnerships, and customer acquisition programs, they hadn’t processed what their past loss meant, and the potential consequences of losing this next city. Let alone that they were now in a life-and-death struggle for the survival of their company. If not for survival, at least in a fight for one- or two-orders of magnitude difference in their valuation.
The CEO just didn’t have the urgency of what would happen if they lost this next city selection. Having seen this movie before, I suggested that they needed to treat this competition as a four-alarm fire. This was a crisis, and they were treating it like any other day-to-day issue.
Recognize When It’s Not Business As Usual
Startups are inherently chaotic. Founders face a constant barrage of decisions, demands, and distractions. But they need to recognize when an event/outcome can have an order of magnitude/life or death impact on their company. When a crisis happens the CEO needs to marshal all resources and organize to deal with them differently than the multitude of other day-to-day “hair on fire” issues in a startup. Rather than making this “one more fire drill,” as a first step startup CEOs need to articulate why this is an existential threat to the survival of the company. I found the best way to do this is to draft a one-page memo laying out:
- What’s changed
- Why it matters
- Why our current “business as usual” organization/process/product is insufficient as a response
And unless the building is on fire, test the memo with some trusted advisors (not your exec staff or board.)
Then, the CEO needs to personally lead the response:
- With a team focused 100% on the problem
- The CEO and team need a “War Room” – with a wall covered by visual representation of how the problem is being worked and progress to date
- Move to the city/location to get the deal/fix the problem
- Identify and remove all obstacles
- Create a new strategy for sales, marketing, influence, roadmap, etc.
- Finally, as I suggested to the e-bike company, you need new people of a different caliber, experienced in whatever issue is on fire who have a track record of success.
This was the hardest point to get across. Replacing or augmenting people who thought they were doing a good job but don’t see the need for change, is painful.
Lessons Learned
- A competent founder can recognize when it’s a crisis, not business as usual.
- A good founder knows how to build new skills and capacity to manage a crisis.
- A great founder already has a plan B in place.
- In a crisis if you can’t manage chaos and uncertainty, if you can’t bias yourself for action and if instead you wait around for someone else to tell you what to do, then your investors and competitors will make your decisions for you and/or you will run out of money and your company will die.
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