Archive for November, 2014

Rules for Building High-Performance Teams

In the recent series, entitled Houston we have a Problem, I focused on six factors critical to success for founders of startups within a larger organization. They included: gaining and maintain latitude/autonomy, honoring sacred cows, putting out a BOLO on the larger organization, building grass roots support, adopting a distinct fiduciary approach, and building a high-performance team.

Since it is critical in any group dynamic (not just startups), I am dedicating a sub-series on seven rules for creating a culture and atmosphere for building high-performance teams. These rules of engagement will provide fertile ground for building an elite team that produces unparalleled results.

For this to be effective it is imperative that every member of the team possesses a deep understanding of the vision, mission and purpose of the organization. Developing such an understanding requires a process that takes time. I will provide suggestions for how to do this in subsequent posts.

Once your team members have internalized the vision, mission and purpose, each member of the team should enter into a contract to honor the rules, and hold each other mutually accountable to them. Based on your personal leadership style and the nature of your team you can decide if you want this contract to be explicit or implicit.

The general theme of the contract is that the team will only expend energy on items that correlate to, and are aligned with the stated vision, goals and objectives. In the next post I will discuss Rule #1: No busy work.

Houston We Have a Problem: Building a High Performance Team

In this series we are focusing on six factors critical to success for founders of startups within a larger organization. So far, we have discussed: gaining and maintain latitude/autonomy, honoring sacred cows, putting out a BOLO on the larger organization, building grass roots support, and adopting a distinct fiduciary approach. In this and future posts I want to comment on what may be the most critical factor for success—building a high-performance team.

High performance teams offer the ability to accomplish a great deal with very few resources. Often resembling an elite Special Forces team, they move with a level of alacrity, speed and agility to execute strategic goals with dispatch. All while making it look effortless.

Unfortunately, high-performance teams are as rare as the northern spotted owl. In a subsequent post I will offer my thoughts as to why they are so rare. The reasons may surprise you.   For now, I want to offer guidelines for putting a team in place.

Developing a high-performing team is imperative if you want to build something quickly that is meaningful and sustainable. The approach used will differ based on whether your team is “inherited” or is built from scratch. While the checklist is similar for both, my focus here will be when starting from scratch.

Simply put, the addition of each new team member must be deliberate in order to ensure a strategic fit. While this concept seems obvious, it is seldom well executed. Because time is of the essence, the temptation is to staff up quickly. Often, the first action a new leader takes is to develop an organization chart, then immediately hire to fill the prescribed positions. The belief is that taking this all-hands-on-deck approach spreads the workload and allows for speed of execution. The leader may recognize that some of the hires will be a bad fit, so will be quick to fire members that don’t work out. This approach has a number of flaws. I will offer just a few.

  1. Eliminating a member of the team steals precious time that would be better spent strategizing and building the new venture.
  2. When new hires are quickly let go, it has a destabilizing effect on the entire team. Other team members aren’t given time to evaluate whether or not the termination was warranted, leaving them uncertain of their own security.
  3. It is largely ineffective to develop an organization chart this early in the build process. Even though we often need to include one as part of a funding request, it is absurd to act on it until the business model has been tested, modified and more fully proven. Keep in mind that proposals and business plans are always wrong. To believe yours is otherwise is either naïve or egotistical. Developing a precise business plan does not make it right.  I merely means it will be more precisely wrong.

Instead, the leader should add each new team member based on immediate need and strategic fit. For example, if the leader scores higher on discovery skills than delivery skills, he might look for someone who excels at program development and execution, and possesses strong project management skills.

If you are building a new venture from within a larger organization, your co-founders must demonstrate excellent 360-degree communication skills; have strong interpersonal skills and an excellent reputation within the larger organization. It is also very helpful if the co-founder has experience in the domain you will occupy.

This process will take time. It is important that the leader exercise the necessary patience to choose wisely, have the courage to handle activities during while searching, and faith that the process will yield positive results.

Once the semblance of a team in place, it is important to create a culture and atmosphere that allows for the highest level of performance. I will expand on this in the next post.

Houston We Have a Problem: Creating the Right Fiduciary Approach

In this series we are focusing on six factors critical to success for founders of startups within a larger organization. In the 10/31/14 post, I discussed the importance of building grass roots support. In this post I want to comment on the best way for the host organization of a startup venture to structure fiduciary matters. I will also offer suggestions for the startup team regarding fiduciary control.

Dealing with the budget process of a large organization is like dealing with an adolescent boy. It is clumsy, predictable, and is prone toward bad decision-making. In the quarter preceding the fiscal year, each department is asked to develop a proposed annual budget for its department. The proposed budget is reviewed, challenged, “negotiated” down to a lesser number, and approved. Notwithstanding unforeseen circumstances during the year, the department manages to the budget throughout the year. The advantage to this approach is that it allows senior executive the ability to delegate spending authority within established limits, and more accurately forecast spending for the year.   The disadvantage is that it encourages department heads to spend their entire budget each year regardless of need.

My first experience with this dynamic was as a young financial planner for IBM. One crisp autumn morning, as I was leaving a meeting in the Engineering building, I stuck my head into a colleague’s office to say hello. There, I noticed him crouched over an equipment catalogue. My first thought was that he was trying to design a new part, and was looking for some specialized piece of equipment to complete his important work. When I asked him what he was looking for, his response startled me. “I have no idea. My manager told me to browse the catalogues for stuff to buy, so we can make sure to spend all of our budget by year-end.” When I told him I thought that was a complete lunacy, he said, “Yea, but if we don’t spend all of our budget this year it will get cut next year.”

This same scenario plays all the time in most every large institution in the country, where a process designed to manage spending instead promotes spending. I am not suggesting that budgets are bad. Even in our personal lives, it is good to develop a spending budget. It helps us forecast our cash requirements for the year, and provides limits, forcing us to make necessary trade-offs.

“I can either buy that new set of golf clubs or make my mortgage payment.”

With our personal budgets, cash we conserve is carried over into the next year’s beginning balance. This can provide a much needed a reserve for any surprises we might face.

”What do you mean, you’re pregnant!”

For a department in a large organization, though, there is often an inverse carry-over effect. While you may get a pat on the head for spending below your budget this year, next year’s budget may get cut. Why? Because it is easier to scrutinize budgets based on percentages and ratios than on circumstances. It is easier to ask all departments to limit next year’s spending to a 3% year-on-year increase than to actually review the detailed requirements of each department. Much like what we see in government, this shorthand approach to allocating resources creates a survival mentality based on spending more. Instead of encouraging participants to conserve and make smart tradeoffs, it encourages them to spend as much as they can get away with so they will have a bigger base to compare year-to-year. I could devote an entire series on this topic, but it will suffice to say that it does not work for startup ventures.

To build a successful startup from within, you need equal parts prudent leadership and fiscal autonomy. First, you must ensure the founding team has demonstrated an ability to handle the fiscal autonomy given. There is a reason trust funds are not paid out to adolescents. While aptitude and intent are often difficult to gauge, the due diligence necessary to detect the willingness and ability of the leader to handle fiscal matters is rather simple—check his or her record. If her experience is limited to large institutions look for spending patterns over the years. It is easy to find the big spenders. Look for telltale signs around some of the more discretionary items like travel, meals and entertainment. If he has started a business in the past, how effective was he at conserving cash while managing growth? This is straightforward, but takes some digging.

Once you are confident you have a fiscally responsible leader, treat him/her as one. The most effective way to do this is by employing a funding process outside of the normal budgeting process, managing the new initiative much like a Venture Capital firm manages its portfolio companies. Working with the management team of the new venture, determine the amount of financial capital required to start and sustain the new venture until the next significant inflection point for the new venture. It can take five or more years before the new venture will expect to reach an inflection point, so the funding should be set aside exclusively for the new venture and held in a separate account to me managed by the leadership of the new venture. While the funding can be doled out in tranches based on milestones, the leadership team needs the ability to manage spending independent of fiscal year budgets.

When building Drexel University’s Baiada Institute for Entrepreneurship, our small team started with a promise of $2 million over 10 years. The funds were deposited in our exclusive account in increments of $100,000 every six months. Through fiscal diligence we found that we could manage with less than $200,000/year in the early years, allowing us to preserve cash to help fund significant growth during the later years. Because of the success we enjoyed our annual spending exceeded $200,000 by the five-year mark. Our reserves, combined with additional funds generated through our programs and services, we were able to sustain our growth until becoming a university institute (inflection point) in year 11. The beauty of this approach is that it rewarded good behavior, eliminating the cognitive dissonance that often accompanies the annual budget approach.

With the annual budget approach an all too familiar scenario would have likely occurred. Trying to be fiscally responsible, the leadership team would have only spent $115,000 in year-one, resulting in a time-consuming battle for more funds the following year. The leadership team would quickly learn the importance of spending the entire budget—prudence be dammed—to avoid the battle for budget the following year. What makes this pattern so insidious is not just its wastefulness. Spending $200,000/year in the early years would have eliminated any reserves, making it unlikely we could sustain our growth prior to reaching our inflection point.

As mentioned earlier, creating an effective fiduciary approach only works with the right leadership team in place. In the next post I will posit the need for building a high performance team.

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