Archives for category: Startup

Factories of Make-believe

Ben Horowitz recently published his book “The Hard Things, about Hard Things”. It’s no exaggeration to say I love it. As a third time founder having experienced many of the challenges first hand I wish that book was written 15 years ago when I tried to build my first company (although I’m not sure, I would have read it back then. Learning seems to be easier in hindsight).  One of the great things about Ben’s book is that it focuses on sharing the hard lessons, when it’s not all smooth sailing.

Inspired by this, I thought I would add some of the lessons from Tradeshift. Just like Opsware, Tradeshift is a company in wartime as are most B2B companies trying to break into highly entrenched software markets controlled by incumbents with massive cash moats. At Tradeshift we have been fairly lucky in our ability to attract high-level investors who believe in our vision and who want to back us for the long-term, but that doesn’t mean every single day isn’t a fight.

The topic I want to focus on is leadership. Three years ago at a dinner with Ben White and Stephen Chandler from Notion Capital I asked them what had been the hardest part of scaling their company, Message Labs, from startup to a 750m USD exit. They both replied without blinking – scaling leadership above a 100 people.

Curious, and still full of youthful arrogance, I asked why. “Isn’t it just a matter of hiring the right people?”

Stephen patiently explained to me it was not as simple as that. You need to build a culture, training and leaders and make sure communication is aligned all the way through the company. You can’t rely on your own ability as a founder to just stand on a soapbox and be heard and understood.

Talking to other CEO’s and co-founders it’s clear to me that lack of clear leadership across the organization is what kills most C or later stage companies. Having earlier talked about how we handled culture and leadership in the earlier stages of Tradeshift’s history
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I thought I would share how we organize leadership at Tradeshift today and some my own beliefs in what makes for efficient leaders.

Two weeks ago we had a Global Leader Camp, which is our own new talent and leadership development program at Tradeshift. We invited 27 current managers or people who were seen as leaders in the company from their actions or roles, making sure to both include current leaders and the talent for the next generation of leaders.

The goal was to make this a generation of leaders that would help shape Tradeshift through the next three years and lead from the frontline.  We focused on leadership and not so much management (leadership is the job of setting direction and inspiring others, management is the process of getting shit done) as we already have a very strong results culture.  We wanted to make everyone capable leaders of product, people and vision in the diverse and challenging environment that is Tradeshift.

One of the reasons we started this program was to get away from relying solely on the founder signal – where leadership basically was me or my co-founders getting up on that soap-box and having everyone listen and be inspired. We needed leadership on the ground. We were seeing too many people feeling disconnected from the vision of Tradeshift and what it meant for them, too much cynicism (building highly complex B2B products in wartime will do that to you) and people who loved Tradeshift, but were starting to burn-out after three years of running at max speed. You can’t just wish these issues away or do an even more powerful speech to have them disappear. As a founder or CEO you need to go to the root cause and even more scarily hand over some responsibility to others in maintaining and building the vision.

The below presentation is what I used as a starting point, detailing my own leadership beliefs as a way to start discussion about what we all considered leadership.

 

As a leader you have to realize that the only real tool you have is yourself, your own experiences, beliefs and ability to execute. It’s an extremely exposed position because any failure point to flaws in what makes you who you are. It’s also extremely rewarding to succeed as you are growing personally.

So the first disclaimer is that what works for me, might not work for you and that’s ok – as long as you do believe something and use that in the way you lead others. I encourage everyone to find out what works for him or her.

So adding a little bit of context on my core beliefs:

Start-ups are factories of make believe
Everyone remember that scene from Peter Pan where he tells you that you can fly if you just believe it? Stepping out of that window and trusting it is a radical move is the same thing as working for a startup. A startup is only suspended by the collective belief of the people who work to build it, its investors and its customers.

That also means you always must to walk that fine line between hope and cheerleading and being realistic and critical. You can challenge direction of where you are flying, but never if it’s possible to fly (unless you want to crash badly). At Tradeshift we typically say it’s great to be critical, but sucks to be cynical (permanently not believing in anything).

Flying requires bold and visionary ambition
This next step is almost as important as believing you can fly. Make sure you have a bold and visionary ambition. People generally won’t risk their life (or time) on something that is not meaningful. Very few people will take that step into emptiness to make 1% better toilet paper. This goes for both your company and your team. Make sure the goals you set and the team is connected to the vision of the company and not just “make x 1% better”.

Vision without execution is just hallucination
It feels really nice, but doesn’t do shit. When you are challenging people to trust you, to take the leap into emptiness, it’s really easy to get called a liar if you fail. The only difference between being a liar or a visionary is execution. Once you have taken the jump, work your butt off to make sure that the vision becomes reality. You need to cross that chasm of disbelief and the only way to do it is by proving it through execution.

Lead from the front
In the second year of Tradeshift I was sitting together with a new colleague getting our board presentation ready for the next day at 1am. I felt really sorry that he had to spend his night like this and I told him that I was really sorry. He looked at me and said, “That’s no problem, and the difference between tonight and my old job is that my CEO would never had been sitting next to me.”

There are plenty of long nights, weeks, months, years in any start-up – remember that everyone is watching you and if you are the first to shovel shit – they will follow. 

Fight for your vision, always
Quitting is for pussies. This is Ben Horowitz advice for CEO’s but I think it’s valid advice for any leader pursuing an idea.  Any new idea that matters meets massive resistance so get ready to fight for it. The difference between a leader and everyone else is often how much they are willing to fight for their ideas.

Challenge conventional wisdom
Ben Horowitz talks about selection bias, which is what happens when decisions are close to 50/50 and leaders go with the group because they are afraid of being alone when they fail (better to fail as a team). This is not just something that matters between a CEO and his board, but all the way down in an organization. Leaders are leaders because they dare taking controversial decisions and stick to them, even when they go against the grain of the group. 

Be the first to change direction when needed
You have to fight for your vision and challenge the conventional wisdom. But you also need to be the first to change direction if your decision was wrong. Don’t cling to it because you are afraid of losing face. The ability to let go and move on is one of the most important skills of a leader.

Radical trust
If somebody fucks up the biggest thing you can do is help him or her, rather than blaming or yelling. Trust me, they will remember that a 100x more than you being angry. In Tradeshift we practice radical trust in the people we hire and give them a lot of freedom and when they screw up we don’t take it away. We encourage them to move on and learn.

Vulnerability is strength, not a weakness
I’m an insecure overachiever and I can be afraid that others will think that the incredibly skilled and experienced leaders working for me are better than me. But I’m not afraid of showing that vulnerability. Through the years I have learned it’s better to be real and flawed as a leader rather than trying to project a picture of constant perfection. Everyone will have an easier time relating to you and they will not abandon you the moment you fail (and you will fail many times).

These are the beliefs that have helped me navigate as a leader and what I shared with the next generation of leaders in Tradeshift. Together with an intense program of strength based leadership training, coaching, cultural leadership and working with real life leadership challenges I’m sure we have generated a strong generation of leaders in Tradeshift who will help lead from the trenches for the next three years.

I’ve tried both failure and success. When I built my first startup Human Zoo, everything went well until 2001 — at which point we lost our largest customer and shortly after, ran out of money. I was probably too young to run a company, too inexperienced and I made a lot of mistakes along the way for sure but I tried and I fought hard but it didn’t help. In 2001 we were out of options, we couldn’t extend credit or raise new funding and so there was only one option: bankruptcy.

Well that’s part of startup life, right? Just go out and try again?

Not quite. See I lived in Denmark and in Denmark you don’t just go bankrupt. It haunted me for 10 years, not just financially, but also mentally. People I knew would avoid me, my parents would avoid talking about it at parties, I was branded a failure. Even 10 years later, running Tradeshift, I would still get skeptical questions that referred to those early days.

But this is not really a story about me. Instead it’s about something fundamentally wrong with Danish startup culture — or maybe just Danish culture. We don’t celebrate success; we just see it as a failure waiting to happen and when people fail, we can’t wait to kick them when they’re down.

Recently, my friends at AppHarbor had to make a tough move: close down their Danish branch with three employees or close down the entire company. They were still growing, had an increasing customer base and revenue stream, but it was just wasn’t happening fast enough and they soon knew they would run out of money before reaching break-even.

They made a very tough move; they made the Danish branch go bankrupt, even though the employees offered to work for free (under Danish employment law, employees would not be protected  in such a case.) The result was that the Danish authorities (by extension tax payers), other Danish companies collectively got stuck picking up the bill of 3 months pay for the developers and some creditors are owed money.

Was this a pretty move? No. Does this move have some bad karma? Yes. Did they somewhat exploit the system? Yes. But did they save their company? Yes!

What happened next was unfortunately predictable: the Danish startup scene exploded with scorn. The co-founder of 23 Video wrote this blog post, quoting:

“but it’s a symptom of a problem, a symptom of startup chic infecting us. There is honor and character in how we succeed and how we fail, and AppHarbor reflects poorly on the Danish startup community.”

The CTO of another Danish startup (who just got funded through Dave McClure’s 500 Strong – which I think is awesome) wrote this post , which I’m quoting from too:

Rumours had been going around for a while before this, that the heavily funded Y-Combinator alumni company, who’re supposed to be the Heroku of .NET, was not doing as well as expected. This is probably in part caused by the fact that selling hip cloud services to the enterprise, which traditionally uses .NET and Java based solutions, is a little more difficult than selling a hosted Ruby on Rails environment to young developers without a mortgage and thus also no concept of risk aversion — or “nobody ever got fired for buying IBM equipment.” 

It’s interesting that it’s not outsiders, or even journalists ripping AppHarbor apart. In fact, not even the employees that were fired (who offered to work for free, because they believe in the idea) but fellow startup founders.

Nick basically states that he never believed in their business model and always found it hard to see how they would succeed. Steffen, who is a co-founder himself, called them “startup-chic”.  There seems to be a good portion of jealousy at play here, with telltale use of phrases like “heavily funded.” Since when has 1.4M USD meant strongly funded?

This is Danish culture at play at its worst. Yes, they fucked up. They know it. But they are not fucking “start-up chic”, in fact I would go as far and say they are more real than most Danish startups.

They went to San Francisco without any money, shared a crappy apartment for 6 months without visas and coded like mad. They have built a platform that is amazing from a technical perspective and they have users who love them. They got into YC! because they were good and willing to take a HUGE risk personally. They bet everything on their dream.

I wonder how many of the armchair founders that are now calling them startup-chic (or expected them to fail) have ever have taken a similar personal risk? Or if they have, how come they suddenly forgot how it was…

In my opinion Nick & Steffen and the others ripping at AppHarbor don’t get it. Yes, it was not a good move, it was not a nice move, it was not the ethically cleanest move — it was the ONLY fucking move they had and they took it. There is no honor in failing. It’s always brutal, messy and dirty and everyone who thinks differently has never tried it.

To quote Ben Horowitz, from “The Struggle”:

You think you have no moves? How about taking your company public with $2M in trailing revenue and 340 employees, with a plan to do $75M in revenue the next year? I made that move. I made it in 2001, widely regarded as the worst time ever for a technology company to go public. I made it with six weeks of cash left. There is always a move.

I don’t expect journalists to understand this, or anybody in a normal job, but I’m sad that fellow founders don’t get it. This will never be a real community if we turn on each other at the first sign of trouble.

The other day we were interviewing a great new software developer for our marketing team, Denica, when I asked if she had any questions, she said, “I would really like to work for a startup and I’m unsure I will fit into a big company like Tradeshift”.

I yelled, “We are a startup!” and then I realized – we certainly don’t look like it.

We have four floors in the centre of Copenhagen. Nice desks, furniture – we are comfortable. In Danish you would say it’s “hyggeligt”, which means something like cozy.

It scared the shit out of me. Being from a nation where government welfare is the default, a nanny state, I can see how “hygge” can kill any startup. The reality is that Tradeshift is still very much a startup: we might look like a real company, but underneath that very nice and well-marketed exterior is a fragile being in its most dangerous state – “a startup looking like a real company”.

This is the state where new hires might not know the difference between a startup and the former companies they worked at if someone didn’t tell them. Two years ago it was self-evident that we were a startup from the simple fact that we were sitting in a garage freezing our asses off as we could choose between running the heater or having power for our laptops and Internet (no we did not choose warmth); back then we were never in doubt what was next, because everything was on fire and nothing worked – we worked like maniacs and loved every second of it, we were not afraid of anyone and we had nothing to lose.

As your company grows, you can’t help loosing a little bit of that feeling, you hire managers, create new processes and just settle into certain ways of “doing stuff” and suddenly before you realize it you look like a real corporation not a startup, but you are not, the investors still expect extreme growth and that you disrupt something, comfortable people don’t disrupt. But more than I believe that most existing management methods are not scalable to the hyper scale required for fast growing startups, classic command & control just breaks down when scaling fast.

So what do you do?

At Tradeshift we specifically try to counter becoming too corporate by disrupting our own organization continuously.

As we grew we knew we had to do something to keep the startup feeling alive. We introduced some simple concepts to fight the corporatification and make sure we keep the best from the early days.

1)        Break the pattern: every three months we have our Tradeshift team camp, which is a crazy experience of 48 hours non-stop work on new concepts, strategies and ideas combined with plenty of beer and lack of sleep – in short original startup-life simulation.

2)        Piracy is expected: we try to drill into anyone that we expect them to be pirates and make decisions they think are right first, and ask later. I believe in hiring really great people, giving them a direction and then letting them run as fast as they can.

3)        Accelerate the problems: challenges are good and comfort isn’t; if we are becoming too comfortable I try to break something, typically by overloading it. We just told our sales team that there are no limits to how much they can sell in 2012, knowing that the rest of the organization still don’t have a clue how we will deliver, but in the end I know they prefer the challenge to boredom.

If you can keep your organization challenged, breaking the patterns and encouraging piracy I think you can postpone the inevitable growing up (at least for a little while).

Now I can’t wait till Denica experiences her first team camp in December and hopefully learns that we are still very much a startup.

But just to be sure, I did this presentation at our last company wide meeting.