Founders Discuss The Journey from Startup to Stable Business

Questions that begin with consideration of status, ultimately prove fundamental matters of how to build a healthy, profitable company.

“Without a clear vision to evolve, you will never break free of the ‘start-up’ mentality.”

–Hayley Winter, How to Evolve a Startup Into a Successful Business

How do you go from being a startup to a viable business to a very successful business? Where do we draw the lines between these classifications for companies? Founders from around the world set out to answer these sticky questions in Startups Live.

Haley Winter tried to lay the groundwork for erecting a successful venture. Some of the materials incorporated into her architectural scheme included a business plan, the startup mentality, making yourself visible and profitable, devoting resources properly.

Her article also covered the extremely difficult terrain of trying to decide when a CEO should step aside. The value of a shift in leadership, an early identity crisis – questions that begin with consideration of status, ultimately prove fundamental matters of how to build a healthy, profitable company and achieve grand objectives…

Columbus, Ohio; Naperville, Illinois; Chicago; Toronto; Sacramento, CA; São Paulo, Brazil; SoCal; Bilbao; Istanbul; LaVerne, CA; Paris; Saint Petersburg (Florida); Warsaw, Poland; London; Calgary, Canada; Lagos, Nigeria…

Time zones be damned! Before the conversation truly got going, this Startups Live session began with an exhilarating roll call traversing the world – a testament to the budding and enthusiastic community.

“Not one San Francisco resident, huh? C’mon, SF, get motivated will ya?” joked Wil Schroter.

“Excited to discuss how startups go from Idea to IPO, today!” said a Friday-wired Steph Newton.

“We’re almost ready to break 1,000 members!” exclaimed Wil. “What part of today’s article resonated the most with you, Steph?” he asked.

“It might be because I’m currently watching Silicon Valley – but the part where the author discusses knowing when it is time to integrate someone else as the CEO, because you might not be the best fit. (Spoiler alert: that happens in SV.)”

“Are you sending me a hint?” Wil teased.

“I struggle with that myself,” said Eric Dennis, “wondering if I’m the best fit for my position as CEO.”

“There are kind of two schools of thought here,” Wil got cracking.

“1. no one has the intensity and buy-in that the founder does (plenty of counter examples, it’s just one thought)

2. the founder’s main qualification was being the first person in the room when the company was hiring.”

“I think they both have merit, and obviously there isn’t a universal answer. I tend to bet on the Founder leader more often than not.”

“I have to say,” said Mike Yearwood, “Mr. Scott could come with the blueprints for warp drive and not get a dime because he hasn’t built one.”

“I understand where you’re coming from,” replied Wil. “The Founder of course gets extra credit for being the idea person. But the truth is being a first time Founder is like being a first-time parent – there’s this assumption that just because you created something that you’re fit to oversee it.”

“& I am SURE that there are plenty of cases where transitioning in a new CEO would hurt the company,” said Steph.

“I once did [transitioned away from the startup leadership team],” shared Sherad Louis-Charles. “You can build a great company but leave and have it not be a startup. In my case it was real estate.”

“What was the hardest part (& easiest part!) of the process? Why did you decide to transition?” inquired Steph.

“Hardest was proving myself as a manager and turning things around. Results were key, end of day.”

“I tried to replace myself 4x in my first startup as we grew and I was woefully too immature to command it,” Wil revealed. “Every single time we ran into the same problem (and mind you I actually wanted to do something else) – the replacement had far more experience but never had the heart.”

“I think to properly explore this topic, you have to first define what the primary duties of the CEO are,” Andrew Lekashman put forward.

In essence, the question is: what makes a leader great?

“I think a good test is this,” said Wil. “There is a difference between being told what to do next and *knowing* what to do next. A good leader knows, a junior leader is still learning.”

“A good leader also knows his weaknesses and when to delegate,” added Eric.

“Which begs the question: ‘How would you qualify a good leader who doesn’t have experience?’ There are many cases in tech companies for example…”

“If their purpose is to provide passion and vision, then the founder has a strong advantage,” suggested Andrew. “However, I think most CEOs are judged by their ability to recruit great talent and bring in revenue, and those skills are only mildly connected to passion and vision.”

“I think some number of folks just have great instincts. I’ve never worked with Mark Zuckerberg, but it’s probably safe to say the dude has good instincts,” said Wil. “I’m surprised you say that it’s only mildly connected, Andrew. I suppose it depends on the environment, but my experience is such that the first 1-4 years tend to be very much fueled by passion because most of the other tangibles are still in question.”

“So is it fair to say that the best qualities and time spent by a founder are 1) build the best team, 2) be the key evangelist, and 3) provide guidance while encouraging each team member to succeed at their role?” ventured Brandon Hollembeak.

“If you’re fortunate enough to do all 3 of those well, I think that makes you a great leader,” said Wil. “There are other qualities, of course, but boy it’s hard to be truly great at all of them.”

“A great leader is also a great student when experience is not there,” Jean Grisard remarked. “But when you look at experience, leadership skills most likely exist depending on the position, but just not with the new company.”

Wil agreed. “I struggled with being a good student. I thought leadership meant you had the answers even when you didn’t. That was a big mistake. Turns out no one has the answers.”

Because leadership assessments seemed to come in 3s today, Craig Humphreys offered, “The best measures of a leader are: 1) do they develop their team? 2) are they servant leaders? 3) do they create a shared vision of success and foster an environment to succeed?”

Max Zinski, backtracked to Wil’s earlier comment, “I think instincts are key. They bridge the gap between that initial passion and the expertise acquired from leading.”

“The instinct factor is tricky right? It’s hard to quantify but you know when it’s there, a la Mr. Jobs.”

We tend to overlook the role emotions play in decision making and leading. Here, emotional strength received brief but vital air time.

“A good leader is someone who can remain strong under pressure and not be swayed by emotions. Someone who can keep his or her feet down,” reckoned Mfon Ekene.

“Has anyone here ever suffered from entrepreneurial PTSD? Boy I have.. lol,” divulged Eric.

“We spent a lot of time going through acquisitions of startup companies ourselves,” replied Wil, “and I can tell you the PTSD among those founders is serious. It’s one of those things not enough people talk about. It’s real.”

“Why do you point out the emotional fortitude, Mfon? Not disagreeing, just curious why you focused there.”

“Because it has done more harm than good to me. When pressure came, I made decisions in a hurry! Too quick to do this and that because I allowed emotions, heat of the moment to sway me.”

“Has anyone here felt they have ‘graduated’ past a startup phase?” Wil asked. “The article talks a bit about that distinction. What did that look like for you?”

“They give a few examples, size being one,” recalled Steph, “which I’m not sure should count, personally.”

“I tend to think profitability is a big one,” said Wil.

Lauren Tiffan mused, “Once a startup, always a startup? I feel like the startup culture and mentality is something businesses tend to keep even once they’re ‘graduated’ past all the major milestones.”

“I think everyone has a different idea of ‘startup’,” Wil responded, “but I’d say there are probably points at which folks feel like ‘we’re going to be around for a bit’.”

It’s worth mentioning that, like oil leaping from a hot skillet, nearly each comment made initiated its own thread of conversation. The group was really sizzling. It would be impractical to recap all the threads (which is why you should always tune in directly!).

“We have been profitable from day one and totally in startup mode,” stated Michael Kassing. “For me, the startup phase is dead when I can focus on my job of running the company while the other tasks I do have people doing them better than me.”

“So for you,” Ryan Rutan sought clarification, “it is a matter of saying I’m no longer working primarily on the business – I’m now working in the business?”

“#truth,” was his response.

“I feel like there is this place where you go from starting to scaling,” began Wil. “I always think about ‘startup mode’ as survival mode. If anyone is a video game nerd like me, it’s the part where you finally find the first gun and ammo and are no longer having to fight off bad guys with a pipe, crowbar or knife.”

“It’s about being able to take now stable processes and scale them,” added Ryan.

“For us (startups.co) it was always about getting to profitability as fast as possible,” noted Wil. “We were hyper focused on getting ‘unlimited runway’ as our move away from being a ‘pure startup’.”

“I’m not suggesting that profitability is the only metric, but let’s face it – all things being equal, it’s the only one that will let you stay alive long enough to figure the rest of the problems out.”

“I’ve seen so many startups use other metrics (staff, users, growth rates) to indicate ‘progress’, but time and time again, it becomes a false idol. I haven’t run into lots of companies who were profitable and somehow later said that was a bad metric (as they listed their ping pong tables on eBay).”

“It really boils down to *certainty*,” insisted Ryan, “certainty of direction, certainty of survival…etc. Once you have that certainty, you are no longer in Startup phase.”

“For me – startup phase is characterized by *most* things being in a state of uncertainty. For sure, and I’d go so far as to say that profitability tends to come later,” elaborated Wil, “revenue is probably the first meaningful milestone that you can start to say ‘OK, we have something…’”

“I have another question for the group as well,” said Eric. “Is it possible to value your company off of other factors besides revenue? What are these factors?”

“It is possible – I think the question comes to will it be credible,” Ryan surmised.

“What factors are you considering now?” Wil asked.

Eric spelled it out, “I am trying to value my company off of the fact that we built a very unique brand over the past seven years through a social movement that I founded and that it can’t be duplicated for any amount of money. Even though we don’t have much revenue, I feel like our company and brand and intellectual property has tremendous value as we get ready to enter the market in licensing merchandising through mass retail.”

“There is a big distinction between potential value and market value,” Wil pointed out. “What you’re describing is potential value. Market Value means there is some sort of generally understood and liquid value to be placed (re: revenue).”

“Is potential value something that I can use to negotiate terms with an angel investor?”

“Most angels negotiate on potential value for a living.”

“Ok good. I definitely learned something, thank you.”

“However,” Wil cautioned, “I don’t want to be misleading in saying that. If you have two companies that have the same product and one has potential value of 3x and one has market value of 1x, I’d still argue the 1x is probably more valuable. Sort of a bird in the hand type situation.”

“Hi Eric,” Bob Griffiths chimed in. “I would say if you can convince them that your community can be monetized in some way, that would be very useful. Could you do a small demonstration of how you could do it?”

“What sets you a part from the rest of the thousands of brands in the marketplace,” Jean asked rhetorically.

Ryan did not mince words.

“In terms of leverage with an investor – market value is a good, strong stick – potential value is foam, pool noodle.”

“Ahh..”

“Sherad said what I’m saying in a much simpler way,” offered Wil, “Proving that you have real traction that can be accelerated is really what an investor wants.”

On a related but slightly different note, Mike said, “One thing that drives me crazy – ‘put on your business hat and write a business plan.’ That’s like me saying to you, put on your programmer hat and build a point of sale for your store.”

“Business plans offer more structure and are viewed as more of a blueprint imo,” tossed out Jean.

“I think the concept of Business Plans has just gotten off track,” said Wil. “There’s no downside to thinking about your business critically, but I think people got too hung up on creating a document. Mind you we own a product (bizplan.com) that does this and people ask how strongly we feel about writing business plans (as docs). We say the same thing over and over – it’s not the doc, it’s the strategy.”

“Plans obviously serve a purpose,” said Ryan, “and not planning is extremely dangerous – but so is endlessly planning, or planning based entirely on assumptions when you could be planning in conjunction with taking meaningful actions that actually build your business. Things like testing acquisition with a landing page, or building a social audience based on knowledge sharing in the same space you want to build product and 100 more…”

“There are 3-5 parts of a business plan that tend to go woefully ignored among Founders, and that terrifies me,” said Wil. “Customer Acquisition method, Problem/Solution/Market Size, Key financial indicators… to name just a few.”

With endearing honestly, Mike divulged, “I first heard the term ‘pitch deck’ and thought it was referring to a sinking ship!”

“90% of the pitches were hear (we have 20,000 companies per month joining) tend to focus on the solution of the company with no indication of the problem it solves,” said Wil.

Ryan calls this “building a better Yeti trap.”

“The best companies start their business and plan with the customer and work backwards,” argued Craig.

“The biggest part of a pitch deck or business plan is just getting you to think,” said Michael.

“Agree 100%,” said Ryan, “and I tell people all the time – the value of the plan is in knowing what you’d put in it (i.e. having the thoughts, having the answers) – unlike ikea furniture – having the parts is just as good as assembling it…”

He then went on to add, “I’d like to thank everyone @here for what was definitely the most amazing and engaging week on Startups Live yet – I’m insanely fired up about how this continues to grow and get better and better day by day – week by week.”