An experienced entrepreneur, business leader, and product manager. Hugh Geiger is passionate about data-driven decision making, behavioral economics, a believer in #givefirst and personal empowerment, and a staunch advocate of user centered design. He currently serves as the Investment Manager for North America for the Techstars startup accelerator network.
Colin: Hugh, we’ve spoken a few times about the skills that are needed by startup CEOs. It’s great to have this chance to talk about what you’ve learned as a serial founder and CEO, and how you apply those learnings in your work with founders in Techstars.
I’d like to start by asking you about how CEOs can manage the company from a financial perspective while continuing to lead their team and run the business.
Anyone who’s been a startup CEO knows that you need to be able to partition your brain. What I mean by that is you have to devote one part of your brain to managing cashflow and runway and – if you’re fundraising – talking to investors and making sure you close the round before you run out of cash. But at the same time you need to have another chunk of your brain focused on managing your team, keeping them motivated and doing their best work to achieve the company’s mission, without being distracted by questions of funding.
I’ve seen a lot of founders struggle with this, especially if things aren’t going well. It can lead to some serious cognitive dissonance.
Hugh: You’re right. That situation really does create pressure. Every CEO has to be focused on managing the company – making sure they’re generating revenues, managing burn rate, and raising money so that the company doesn’t run out of cash. But they also need to be keeping their team working on the big opportunity in front of them.
The last thing CEOs want is their team worrying about having a job in three months.
It’s particularly tough at seed stage, especially if the company has raised a large seed round and gone from just the founders to suddenly having a sizeable team. Most startups burn through their seed funding pretty fast, so it can quickly go from “Wow, we’ve raised enough money to build an awesome team!” to “Hey, we need to raise another round so we can pay this huge salary bill!”
Colin: What advice do you give startup CEOs in this situation?
Hugh: First, you have to have regular, formal communication with the team. It’s not enough to just have informal chats amongst the founders. Now that you’ve got a team whose salaries you’re responsible for, you need to sit down with them every week and step through the fundamentals of the business.
If the team is under 30 people, this should be done by the CEO. Once you’re above 30 people., it can make sense to delegate the task of preparing the update deck to a CFO or COO. But even then, it’s vital that the CEO own the deck and deliver the key messages in terms of the company’s direction, cashflow, and progress on fundraising.
Colin: How much detail should CEOs share? Is it possible to be too open?
Hugh: There’s a continuum in terms of how much information CEOs share with their teams. Some believe that the best thing you can do is stick to a high-level overview, avoid sharing financial details, and try to keep the team focused on their work rather than the company’s cash position.
Personally, I believe in being as open and transparent as possible. People are smart. And if you’re not transparent about how the company is performing, they’ll quickly develop a good sense of when the runway is getting short or things are going badly.
This is especially true if the company is fundraising. People pick up on cues such as body language and can detect a stressed-out CEO from a mile away.
In my experience, if your team is accustomed to you being totally candid, they will be used to hearing about financial realities, they’ll know that the runway is finite, and they’ll understand that there are ups and downs. Being totally candid builds trust in you as a leader.
In contrast, I’ve seen companies that don’t have an open culture. The CEO can generally keep people in the dark for a while, and maybe for a long time if the company is performing well. The trouble comes when eventually the company hits a financial hurdle. The team will figure out that things are going badly, and they can quickly lose trust in the CEO because they weren’t kept in the loop.
It can be a real shock when employees finally realize there are cashflow issues. As a CEO, this is when you risk losing people who get spooked and leave the company, and this can affect the morale of the rest of the team.
Colin: Do you think CEOs should try to flatten out the bumps in the story? For example, if you’re trying to close a funding round, week-to-week things can go from great to terrible to great again. Should the CEO share a blow-by-blow account of every up and down?
Hugh: As a CEO, I always shared our cashflow statement with the team every week. I would have a burndown chart, and we would talk about budget, burn rate, and runway. If we were fundraising, I would share progress on closing the round, even if that meant talking about setbacks. There were no off-limit topics. Everyone was encouraged to ask any question they wanted.
Having said that, I don’t think it’s helpful to burden your team with the day-to-day challenges you face as CEO. Let’s say you had a difficult conversation with one of your investors. It’s part of your job as CEO to deal with this, repair the relationship, and not to add unnecessary stress to your team by venting about it in your weekly standup.
Colin: What are some of the other topics that CEOs should cover with their teams? Are there any that are generally not handled well?
Hugh: A vital role that a lot of CEOs don’t understand is that they need to constantly communicate how each person’s work is contributing to the company’s overall goals.
As a team grows, it can get harder and harder for people to see how their specific job contributes to the big picture. If they lose sight of why their work matters, they can get demotivated, lose a sense of urgency, and end up not caring about the quality of their work.
Eventually, these are the folks you risk losing because they get a job offer from another company with a better salary, more security, or other perks.
If you can continue to show people how their work contributes, you’ll continue to have motivated employees who will stick around even when times are tough.
Colin: It seems pretty clear that teams need resilience if they’re to survive the startup rollercoaster. Are there any practical steps a CEO can take to ensure they’re helping their team to become more resilient as the company grows?
Hugh: The first thing is to hire the right team. You need to hire people who are committed to the mission, who understand that they’re joining an early-stage company, and who are willing to take some amount of risk to have a shot at being an early employee in a company that becomes hugely successful.
The worst thing you can do is hire people who are there just to get a salary, who don’t share your vision, or who don’t believe the company can succeed at scale. Early-stage companies are volatile, and you need people who are prepared to go on that journey.
You also need to make sure you’ve properly aligned compensation to encourage your team to take a long-term view. A big part of this is granting equity to employees so that success of the company means success for them individually.
By doing this you’re more likely to have a team who are emotionally committed to delivering on the company’s vision and able to weather the inevitable ups and downs of being part of a startup.
To gain more insights and support for leading your startup, sign up for Microsoft for Startups Founders Hub today.