People Challenges Can Sink Startups

There’s a well-known blog post by Marc Andreessen published in 2014 about 10 Ways to Damage Your Fast-Growing Tech Startup. I find it still relevant today, and if you have not read it – it is a short read and very insightful for tech founders.  What I find most prevalent to many of his points is the human capital component. I agree with Andreessen’s observations, and from my experience having worked with many tech companies, I believe that people challenges can sink startups

The single largest issue that causes the most headache in a startup is people challenges.  Yet, most tech startups will tell you they don’t need a Chief People Officer – which I argue is in many respects, probably one of the most important function in a company.

Most managers, including seasoned executives and founders, are amateurs at dealing with people challenges.  I have seen many startups fall into this classic death spiral pattern: they received funding and are now hiring like crazy. They are trying to capture the market as much as possible and manpower requirements keeps shooting up exponentially. Then, the trouble begins. Certain departments are overstaffed, while others are under. Many employee relations conflicts are on the rise, due to wrong hires because the organization structure hasn’t been well thought out. Internal recruiting capability and processes are either ill-designed or non-existent – leading to a vicious cycle of mis-hires and waste. It's a cycle I've seen repeated many number of times. 

My point is this: The people side of your business is not an “HR” touchy-feely function.  It is a business function.  As a founder, it is important that you establish early on who on the executive team is responsible for making sure that people are hired well, the company’s culture is well-thought, and the internal business practices are scalable. 

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Beware the ‘Edifice Complex’ — and 9 Other Ways to Damage a High-Growth Startup
by Marc Andreessen, August 2014

Here are 10 ways to damage your fast-growing tech startup — and hurt the perception of Silicon Valley in the process. None of these are specific to any one company; they’re general patterns we’ve observed across multiple cycles of tech startups.

#1 Only hiring — or training/motivating/incenting your managers to hire — without focusing on firing. Or on performance management and efficiency optimization.

#2 Selling too much of your own personal stock too quickly, which alienates employees and leads people to question your long-term commitment as a founder. On a related note, letting private stock sales by employees get out of hand creates a “hit-and-run culture” — and forces your company to take on the burdens of being public before actually going public.

#3 Diluting the crap out of the cap table by being sloppy and undisciplined with stock grants to early employees. This also plants hidden “morale landmines” for later employees.

#4 Maximizing absolute valuation of each growth round, which not only makes later rounds harder and harder to achieve but can trigger a disastrous down round.

#5 Letting investors (including, occasionally, private equity firms and hedge funds) suck you into terrible structural terms on growth rounds. You’re guaranteed massive trauma if anything goes even slightly wrong there.

#6 Going public too soon! Going public before you’re a fortress, before you can withstand all assaults leads to a stock-price death spiral and ends up in a train wreck for everyone.

#7 Pouring huge money into overly glorious new headquarters — “The Edifice Complex” — then repeating two years later. There’s also a danger in signaling to employees “we’ve made it, we’re amazing” (and while everyone hates the cramped but collaborative space when they’re in it, they miss it terribly after the move).

#8 Assuming more cash is always available at higher and higher valuations, forever. This one will actually kill your company outright.

#9 Confusing the conference circuit — and especially the party scene — with actual work. This also creates a toxic culture on multiple fronts by encouraging alcohol/drugs and valuing so-called “ballers” over other important, less “loud” contributors.

#10 Refusing to take HR seriously! This issue isn’t specific to just tech-heavy environments; it’s prevalent in anyhighly creative, highly skilled workplace. At a certain company size, you need both the ability to manage people and an effective HR person. (Even though it is absolutely worth training company leadership in good HR practices, most managers are dangerously amateur at doing actual HR). Without smart, effective HR, terrible internal managerial and employee behavior leads to a toxic culture that can catalyze into a catastrophic ethical — and legal — crisis.

 

Mimi Vold