Tidal Changes: Transitions and Growth

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When transistioning from a startup to a growth-oriented, mature company, there is a sense of low-tide, similar to the image of Mont Saint Michel in France.

The founder has built this castle, glorious, awe-inspiring, and grand, from the foundation up to the spires. Up in this castle, he is King. He is imbued with wealth and power. But alas, all the king’s men who helped fund the castle have conspired to dethrone him, wielding their great collective power over him and all that he worked so hard to build. He has the option to step down peaceably, which means he is more likely to retain at least some control over the kingdom he has built. But, if this low-tide shift in power comes unannounced, he will be dethroned quickly and suffer a great loss in the workings of the kingdom.

He has weathered other storms that threatened, watched the tides change around him day in and day out. But this tidal change is different. This one affects all the kings men, both loyal and new. This is a great sea change, one that erodes the bedrock of the castle on the sand. What did he do wrong? He thought he was a good kind, a fair king, efficient, capable, and beloved.

But his performance was not necessarily the reason the change began. The kingdom needed a new direction, to prosper and grow beyond his skill. Perhaps they could find a new king who had reigned in other lands? They may even ask the dethroned king to help find his replacement. Surely the vetting of a new king would help entrust the continued success of the kingdom!

And so, from founder to king to servant once again, he watches the tidal change. The vast expanse of low-tide will soon well up and surround the castle and its new king in wealth and power. If the founder can weather this change with the grace and dignity befitting a king, then he will see his former kingdom flourish. And perhaps he will retire at high-tide in a beautiful ship  on which to survey all he has accomplished.

Investor Dilemmas: Patronage

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It’s been a while since the Renaissance, when the church supported the arts in an effort to gain souls in heaven. Patronage however, is not dead. It’s just taken a more secular form. The largest investors in the arts are now government agencies, private patrons, and venture capital firms. When you consider the social media patrons of today, crowdfunding shows there has been a significant closing of the gap when it comes to class and wealth in supporting the arts. Now, the average Joe can support an idea he likes with a small investment. An artist gathers a hundred Joes, willing to invest $10 and the artist now has $1,000! It adds up quickly. But what happens when small change is not enough, when you have a Sistine Chapel to complete?

Early on, a founder must weigh in on whether to self-fund (perhaps through friends, family, or crowd-funding), find an Angel Investor (who may or may not have enough money or experience), or seek out a venture capitalist firm. Even artists of the Renaissance had supportive social capital, and perhaps even hoped for and Angel Investor, but Venture Capitalists are a new breed of patron. Motivations of these firms move above the religious call of saints into heaven.

In Noam Wasserman’s Book, The Founder’s Dilemma, he talks about investor dilemmas. Outside funding, once it moves beyond the circle of founder and friends, must necessarily begin to formalize. A company may build a Board of Directors, be required to account for the money invested, and hone strategies for increasing the wealth of the company. It is the high-stakes industries, such as technology and life sciences, that also require swift decisions and broad, risky leaps of faith. Angel investors may not require these things with any stringency, perhaps because they lack the experience or capital to do so, but venture capital firms want their investments to yield profits at all costs. This often places the founder and the founding team in hot water. The team may loose places of power on the Board. They may be squeezed into a tight spot and told to sell or else loose profit.

There is an element of buyer beware when it comes to accepting venture capital. Often these firms play on the optimism of the founder and offer investments based soley on their agenda, not the founding team’s vision. I get the impression, having never worked with a venture capital firm myself, that these firms seek power and control in order to gain profit. Thinking back to the Renaissance Patrons who leveraged their money to weild power over the lower classes, perhaps patronage is not altogether different after all.

I think for artists, the need for monumental patrons is still important, and the government does a passable job funding large art endeavors in the United States. However, the level of Angel Investor seems to strike a nice balance between the high-stakes cash of venture capital and the personal risk involved with investments through friends and family. Many arts related businesses are not looking for millions of dollars in investments. Solo artists in particular, may be looking for micro-loans, just enough to buy a new chop saw for building canvas, or the cost of painting a community mural on an eyesore building. This is where angel investors can shine a light on the arts! Also, many arts based businesses have a complimentary role in edifying the culture of where they are located. Crowd-funding, Facebook ads, pop-up markets, and small-time fundraisers, are perfect ways to find angel investors who may have a more community-minded reason for investing their money. In my mind, these are the true patrons in today’s society. With the growing movement of handmade and local items, I believe angel investors will contribute greatly to supporting the growth of small arts based businesses in today’s economy.

Keeping Your Tops

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According to Eric Herrenkohl, in his book “How to Hire A-Players,” top performers are a wiley bunch. They are intelligent, driven, easily bored, and require a certain amount of leadership investment. Herrenkohl advises building an organizational chart to fully comprehend the type of employee needed, then compare your needs to the staff currently holding those positions. The conclusive chapter in his book focuses mostly on businesses that are beyond startup and in some phase of growth or maturity. Therefore, his recommendations are based on a company which already has a collection of employees who likely fit into one of four roles. A-Players being the top performers. B-Players who have potential to be top performers through coaching and increased accountability. Borderline performers who have potential to be top performers by scaling down their roles. And C-players who have problems with performance that cannot be coached or changed (194). In summation, unless the employees have proven they are not up for a challenge, sub par performance can be coached, nudged, and incentivized to perform at top levels, if you happened to have neglected to hire A-players in the first place. (Yes, there is a degree of sarcasm present.)

I agree with Herrenkohl that recruiting A-players “is a sustainable, competitive advantage that can move [a] company ahead of [ones] competitors.” However, I’m glad he offers up the four types of employees and how to help them achieve more in their positions. I believe that very often employees will thrive if given enough respect and opportunity to shine. My take aways from this chapter are as follows:

  • Clearly plan and advertise your position
  • Hire a candidate who has the right skills for the position, both in education and personality
  • Plan to coach and support new employees in their roles
  • Pay attention to top performers and offer them incentives to mature into more important roles
  • Pay attention to b-players and decide how to best support them in their roles
  • Envision your employees in your future business plans so you can decide how to keep the best challenged and willing to move forward with your company
  • Recruit, recruit, recruit and when you have a poor performer, you will not have to look hard to find a better fit for your company

 

Hiring (Dilemmas) with Passion

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Passion. It comes with a certain kind of intensity. When someone is passionate about an idea, there is a fervor to their work, an intense desire not only to bring the work to fruition, but to see their idea wonderfully realized. When I was in college, I fell in love with photography. I loved my camera. I bought special cloths to clean the lens, a special bag to protect it. I read every book I could find about photography. I couldn’t wait to develop film or watch the latent image appear under the red glow of the darkroom lights. I was the last student to leave the darkroom when the sun went down. I was passionate about photography. The first job I was offered after graduation was taking portraits at Sears for $6.50 per hour and I turned it down. I couldn’t believe the compensation. Surely Sears could afford to pay more than minimum wage to a college graduate! Passion with all its intensity is diminished when rewards do not support the intensity of passion. I remember the young manager who hired me on the spot, was incredibly disappointed. Perhaps this was her first hiring campaign. She said she would make sure to tell the next interviewee the pay rate at the beginning of the interview. My point: when a founder begins hiring a team passion is imperative to the work, but it must be supported, motivated, and appreciated in order to acquire and keep top performers in your company.

“The biggest challenge in hiring a team is recognizing passion. Especially with the team that helps build Jetset Times, it’s not enough to just “love traveling.” Every single person on the team has to be passionate about journalism, creativity, making things work, seeing a long-term vision. Passion also can’t be pinpointed on a resume, it’s only in the presence of relentless work ethics and vibrant speech. It’s best revealed with time, which makes it difficult to recognize in the hiring process.”

Founder & CEO Wendy HungJetSet Times

There are many dilemmas facing a founder when hiring their founding team. Finding, hiring, and maintaining valuable employees is multifaceted not only at startup, but as the company matures as well. In Noam Wasserman’s book, The Founders Dilemma, he states that “founders face the same dilemmas with hiring decisions that they face with cofounding decisions, but with the added complexity of aligning the startup’s stage of development, its level of formality….and its available resources” (245). In Figure 8.9 (246), Wasserman breaks down the “three Rs” he discusses earlier in the chapter (211) of relationships, roles, and rewards as the company begins at startup, moves through transition, and becomes a mature business. The hiring needs of a startup are significantly different than a mature business. The startup begins working with personal networks, generalists, a low cash flow, and of course passion. Transitioning out of the beginning stages often sheds light on “decisions that seem ideal at first…[which reveal] employees at all levels struggle to scale with a maturing startup” (209). Titles and roles that were not clearly defined in the beginning often create tension. Some employees lack the skills or knowledge needed to progress in their position. And hiring to replace or add positions must focus on weak connections since the founder has likely already exhausted his or her personal network. If a business is able to persevere, the rewards come in investors, their financial and social capital, and all of the complications that emerge as a business becomes of age.

“When hiring someone in the technology field, it’s important to look for passion above anything else. It sounds cliche, but let me explain why. People who are passionate can be trained in everything even if they don’t have the “experience.” They are the most driven worker that you can have in the workplace. He or she can accomplish everything they are told to do and will go beyond the typical job requirements.”

Founder & CEO Jonathan TarudKoombea
100 person team working to build powerful technology & beautiful user experiences

I believe all of these stages require the aforementioned passion. How else could a small team of cofounders make it through all of the awkward phases of entrepreneurship? Why would employees accept the risk and relatively low compensation of helping to build someone else’s dream? And why would investors offer their capital if there was not a passion somewhere for what the founders want to create? Time and time again, I have read quotes from successful entrepreneurs, and the consensus among the averages is to hire employees who have an intensity of passion for what you want to create in your business. Then, depending on the stage of your business, consider their relationship, roles, and the rewards you will offer for their passion.

Recognizing and Appreciating the (Not So Obvious) A-Player

IMG_5101I was a server for 15 years, and I worked in food service for over twenty years.

Despite the fact that these numbers show how close I am to forty, they also show a tremendous amount of resiliency. Let me say, I trained a lot of servers and I can tell you first hand that there are skills you can teach and skills you can’t. I trained college graduates who had no ability to multi-task, couldn’t recite the specials without a cheat sheet, and had illegible hand-writing to boot. I trained stay-at-home-moms who could handle more tables than two of those fumbling college graduates combined! No matter how hard I worked to show some wide-eyed newbie the ropes, there were some that were just never going to get the hang of waiting tables. However, there is no doubt in my mind that everyone should at least try to wait tables, just so they understand how resilient, focused, and quick on your feet you have to be to attend to the needs of thirty people at one time. It is a learning experience every single day.

One of the things that always bothered me about being a server was how so many customers couldn’t see the real me. When someone looked at me like I was stupid, I wanted to tell them I graduated summa cum laude. When they asked me if I had been to college, I wanted to show them how I drew the customers in my down time, having studied anatomy at a classical drawing school post grad. To so many patrons I was “just a waitress,” and if I wasn’t so darn stubborn, I might have let that be then end of who I had become. But my greatest assets are curiosity and a love of learning. For over twenty years, I was not the obvious choice for recruitment to another field of work, but my skills as a waitress translated to many other types of work environments in which I could succeed.

In Eric Herrenkohl’s book, How to Hire A-Players, he recommends looking for a “large pool of people who already have the fundamental skills you want, interview a lot of them, and hire the best of them” (100). Based on the type of business you are trying to hire for, it helps to write out the kinds of skills needed for the position. Consider the skills you can teach, and reflect on the skills that are less concrete or difficult to teach. Then, go out and look for positions that have skills which overlap with your requirements. Ask them questions that draw out their history, personal drive, passions, and strengths. Interviewing potential employees from outside your industry may just reveal someone like me. Someone looking for more than a job, who will work hard, who is open to learning new things, someone waiting to be appreciated for all that they are, not just the stereotype they have been given.

Role Dilemmas When Founding a Startup

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Just as every puzzle piece has a precise location in the big picture, each person in a startup has a very specific position in the overall picture of the new company. Sometimes it takes a little turning to get the exact fit for each person, and the picture is ever changing. In Noam Wasserman’s book, The Founder’s Dilemma, he talks about the dilemma of assigning roles to founding members and beyond. To begin with, a founder must decide who gets a title and why? If one is given a title (or assumes one), what is their role in the company at startup? Does it overlap with other roles? How does their role change with the company?

Wasserman believes that overlapping roles at startup, “when there are too many things to do and not enough people and time to do them, when the startup is cash-poor, and when the strategy and business model may have to turn on a dime, having an organization with flexible and overlapping roles-changeable as needed-can be a big advantage” (Wasserman, 124).  However, as the company grows, the roles may need to be more specific (as each person begins to fit precisely into the big picture) to decrease redundancy of tasks, and increase founder differentiation. As the team becomes more distinct in their roles and responsibilities, the division of labor that occurs can be a difficult transition from previous overlapping roles and responsibilities. Collaboration may be more difficult, and the growth and evolution of the company may become fractured as the team becomes more autonomous in their roles.

If autonomy is considered an advantage and a sign of a maturing company, how does a startup decide who is in charge of final decisions? Decisions must be made, but the group has a choice of making those conclusions as a team or allowing a single person to be responsible for the final determination. Wasserman refers to this choice as egalitarian or hierarchical (129). Research by Professor Kathleen Eisenhardt “found that consensus-based teams make decisions too slowly for startups operating in ‘high-velocity’ environments” (Wasserman, 133).

Therefore, it is concluded that in the beginning, it may be beneficial to make decisions slowly and with group consensus, but as the startup becomes more mature, it behooves the group to allow for a single, decisive voice in the leadership team.

One of the significant differences already discussed in founding teams is the motivation of wealth versus control. Money and power come in to play again when assigning roles to a founding team. If we stick to the idea of games, this is a game of paper, rock, scissors. Money and power motivations equal themselves out in most circumstances. Money motivations in both (or all) founders will generally succeed. But when two cofounders are both motivated by power, there is likely going to be some struggle ahead. In Wasserman’s words, “potential cofounders should assess each other’s motivations to understand potential sources of role conflict,” and do so before founding to avoid those conflicts (144). It’s kind of like making sure the puzzle pieces in the box match the picture on the front.

Benefits and Risks of Building Homogenous Teams

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When it comes to building a strong founding team, there isn’t a lot of gray area. As Noam Wasserman points out in The Founder’s Dilemma, in small business, “people of the same gender or race and people of similar geographic origins, educational backgrounds, and functional experiences are disproportionately likely to found companies together” ( 91). This tendency toward homogenous teams can be beneficial when growing a startup, as the founder does not have to look too far to find people with common interests. Often homogenous teams are made up of the founders inner circle of friends, friends of friends, or mutual acquaintances. Wasserman states that one of the primary benefits of building a homogenous team is that “choosing cofounders from among people with whom he or she probably has important things in common is often the quickest and easiest solution” (91). They also have other interpersonal skills already in place such as communication, trust, mutual understanding, and the common interests that allow an organization to create an identity (Wasserman, 92).

However, the short term benefits of ease and speed of homogenous teams eventually level out as the founding team begins to see overlap in their abilities, leaving gaps in the organizational structure, and requiring changes. Heterogenous teams are built around diversity in terms of background, gender, age, skills, and experiences. Differences naturally create tension as people have to take time and effort to understand and empathize with those outside of their realm of experience.

So, at start up many founders choose homogeny in order to side step the discomfort of getting to know a diverse group of people. Homogenous teams are not inherently bad, but diversity offers more positive incentives when it comes to team building, provided the team can master the art of communication.

“Teams with diverse networks are often more creative and innovative, have better access to a range of potential investors and corporate partners, and are able to tap into a wider range of potential employees” (Wasserman, 94). The old adage, “it’s not what you know, its who you know” rings true when considering the benefits of a heterogenous team. But “soft factors” as Wasserman states, such as compatibility, personality, risk  tolerance, commitment level, and values can create significant friction in a heterogenous team (96).

Another sticky subject under homogenous teams is relational teams, which covers teams made up of family ties, husband and wife teams, past co-workers, and friendships. Since it appears these kinds of homogeneous teams will never go out of style, Wasserman offers ways to mitigate potential problems in these kinds of relational teams. Most of his advice centers around prompt, honest, and direct communication. But a founder must keep in mind that even though good communication can offset a world of difficulties, it cannot necessarily change the emotional component of working with relational teams. While Wasserman does not dissuade relational teams, he does point out the peril of joining a team with someone with which you have strong or lengthy emotional ties.

Moving beyond the concept of homogenous versus heterogeneous teams, whoever a founder decides to bring in must have passion. To quote the entrepreneurial powerhouse Martha Stewart,

“There is no single recipe for success, but there is one essential ingredient: passion.”

She recommends seeking out “people to work with who are brimming with talent, energy, integrity, optimism, and generosity.” If you can find that among your friends and family, coworkers or acquaintances, then by all means bring them on your team. Just make sure each person is both passionate about your vision and the job required of them to bring your vision to fruition.

Building Social and Financial Capital

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There has never been a better time in history to build social capital. In fact, our culture is obsessed with social interaction via the internet, blogging, and the ever-changing landscape of social media. One wonders if the social capital being created nowadays is as strong as the more traditional face-to-face ways of building one’s network of connections? In The Founder’s Dilemma, Noam Wasserman states that when it comes to social capital “youth is often at a disadvantage” (47). He believes that young entrepreneurs lack the lifetime of experience that helps to accumulate the “durable network of social and professional relationships through which founders can identify and access resources” (47). I am inclined to believe social capital is more readily accessible to youth and experienced professionals alike because of the internet resources available. However, I am not convinced that the type of capital created through social media is as influential as the connections made through a robust career as a professional, the lifetime of bonding and bridging that occurs when meeting, greeting, and building personal and professional relationships.

Financial capital is another type of capital where Wasserman believes youth is at a disadvantage. He points out that many entrepreneurs will build a nest-egg while employed in order to fund their startup. He states that “the size of this cushion can largely determine the amount of time the founder is able to give to the startup, the amount of stress and urgency he or she feels to become cash-flow positive, and the decisions he or she makes to build the startup” (48). I imagine I would not be far from the truth if I stated that while social capital is easier than ever to obtain, financial capital has become significantly harder to access since the financial crisis in 2008.

The good news, according to Jesse Colombo, contributor to Forbes article It’s Never Been Easier to Build This Little-Know Type of Wealth, social capital is more valuable than financial capital. Financial capital thinks in terms of dollars and cents. It is very concrete. Social capital has many fluid characteristics. Colombo lists many of these traits including how social capital is less sensitive to economic fluctuations, is not taxable or affected by inflation, does not accrue interest, and it is not as competitive because most people are working to increase their financial capital. Colombo also adds that greater social capital is associated with additional job security, more prestige, and helpful in generating publicity and attaining financial capital.

“Even though social capital exists outside of the conventional financial paradigm and is difficult to measure in financial terms, it has very real economic value because it can be converted into financial capital if needed.”
-Jesse Colombo It’s Never Been Easier to Build This Kind of Little-Known Type of Wealth

So, if an entrepreneur is low on both financial and social capital, where should they begin to accumulate wealth? Since social capital can be leveraged to create financial capital, then building connections is a smart place to start. Of course employing internet resources is an immediate way to create connections, but if one is looking for capital that is a little less tenuous than social media contacts, an effective way to build social capital is through the arts.

“Cultural endeavors offer social capital effects both direct and indirect, immediate and long lasting. The arts provide a powerful way to transcend the cultural and demographic boundaries that divide us and to find deeper spiritual connections with those like us. To use our phrasing, the arts create both ‘bridging’ and ‘bonding’ social capital.
-Better Together: The Arts and Social Capital

Involving oneself in the arts is a fantastic way to meet a budding IT tech, a investment lawyer, and a retired business person all in one setting. As the Better Together article states, the arts are both bridging and bonding. Choral societies bring together people who love to sing. Jazz jams bring together lovers of improvisation. Art galleries bring people together through a love of color and cultural history. Theaters bring actors and audience together through literature. Art has no age limit, no status boundaries, and no minimum requirements for intelligence or abilities. Connections made through the arts are more likely to be stronger and more long lasting because the connection has a personal touch through the love of the art form (bonding), and creates relationships between people who might otherwise never have met (bridging). These well founded connections can then be utilized to access funding, while also adding to each person’s community wealth.

Returning to Wasserman, “research has shown that people who accumulate more social capital before founding are able to attract more human capital (such as cofounders) and financial capital (such as seed capital) with which to launch the startup, and to do so more quickly” (48). In conclusion, building social capital can be exceptionally rewarding in terms of building financial capital to start a business. Utilizing all the resources available for increasing social capital, including the internet and community involvement, can significantly benefit the success of a startup and the people involved in the founding. Investing in social capital through the interaction in the arts is particularly potent way to make strong, worthwhile connections.

Maker-Entrepreneurs: Wealth vs Control in the Artisanal Economy

I have a keen interest in the maker movement. In fact, being a maker is what inspired me to pursue a masters in entrepreneurship. Like many makers, I did not intend to start a business. I began making felt flowers as a creative outlet after the birth of my first child. In the beginning, my focus was on creating the flowers, not selling them. Making flowers was simply something to do, a hobby. It was only after my husband questioned why his office was covered in felt flowers that I pondered trying to sell them. I applied to the farmers market and Heartfelt Flowers was born.

SONY DSCI did not consider the dilemma of wealth versus control that Noam Wasserman brings up in his book The Founder’s Dilemma. I made my business decisions week to week after my children went to sleep. In the midst of my third summer at the farmers market, I began exploring the issue of scaling up in hopes of creating more money. Little did I know, I had come face to face with the dilemma of wealth versus control. I could not make  more money unless I could make more flowers, and I simply did not have time to make more products. I wondered: Could I make them faster? Could I teach others how to make them exactly as I do? How do I keep my designs from getting copied? If someone else is making my flowers or using my designs, does my product loose its story value?

The questions that came up for me as I considered the wealth aspect of my business is not all that uncommon in the realm of the artisanal economy. Anthropologist Grant McCracken studies American culture and the connection between culture and commerce. McCracken has a series of articles on his website that address the concept of the artisanal economy. In his article The Artisanal Economy and the 10 Things that Define It, he describes the cultural components of the artisanal movement. According to McCracken, consumers of the artisanal movement have a preference for small batch, handmade, all-natural products. These products are unbranded, yet personalized by the maker. Consumers feel as if they are purchasing the story of a location, a product’s simplicity, and/or the maker’s authenticity. Artisanal products are not clouded by the large corporation and its manufacturing, but seen as simplified and transparent in their production and marketing. And finally, there is an ego driven sense of connoisseurship. Artisanal products are often perceived as more sophisticated by consumers.

Think about the kind of vendors you meet at your local farmers market and your motivations for shopping with them, and you will have a pretty good understanding of the artisanal economy.

I highly recommend reading McCracken’s two-part article “The Artisanal Economies.” In the Part 1, he interviews a shop-owner who embodies the concept of artisanal products. And in Part 2, he interviews a farmer who makes an unlikely trade for a service required on his farm, showing how valuable an artisanal product can be perceived because of the story behind it.

As you can see, the maker movement fits squarely inside the artisanal movement. Consumers feel the worth of the handmade object is connected to the story or meaning behind the object. This brings me back to the founder’s dilemma. I believe the makers dilemma poses a double dilemma.

An entrepreneur is charged with deciding between the worth of the business and the importance of control over the business. But a maker-entrepreneur must also consider how worth is connected to the story of the object.

Seeking more wealth may forfeit the meaning of the object, because it may lose some of the artisanal qualities consumers value.

Choosing control may forfeit the value of the object because the maker is limited by the manufacturing of the product. Continue reading → Maker-Entrepreneurs: Wealth vs Control in the Artisanal Economy