The Days of Cheap Money Are Over

Colleagues at Endeavor hosted me for a podcast to talk about investing and operating venture backed companies during recessionary times.

Endeavor entrepreneurs and many others are experiencing the effect of high interest rates and depressed public company multiples as investor backed companies start testing the market to raise their next round of funding.

With Endeavor’s audience focused primarily on companies already in growth stage, they were specifically interested in speaking with people who had experienced multiple recessions.

Three Prior Tech Wrecking Recessions

For me, there were three distinct pullbacks driving venture investors to run for cover. Each followed a frothy VC investment period with new heights in valuations immediately preceding these resets:

  • 2000 – 2002 Dot com bust + post Sept 11 recession
  • 2008 – 2009 Real estate and financial markets crisis
  • 2020 – 2021 Initial 18+ months of Covid pandemic

I’m far from unique for having worked through each of these resets. The first two I was on the operating side of the business as CEO and Chairman at TriNet, while during the 2020 venture pullback I was on the investor side doing what I could to help UpVentures portfolio companies make hard decisions following the unexpected falling off the cliff valuation drops at the start of Covid.

Have a listen to the podcast if you’re interested in hearing more about what prompts me to think it may be a couple of years or longer before we get back to late 2021 private company valuations.

Recessions teach us that failing to recognize macro forces beyond our control can too easily result in horrific consequences to once promising companies. Much heartache can be avoided if leaders move quickly to face reality in making the hard decisions.

Whether you’re an operator or investor, if you believe “only the paranoid survive,” it’s necessary to look beyond founder optimism thinking that past momentum points towards everything just working itself out.

Got 3 Minutes? Listen to one segment

Open up the podcast here and jump to a specific topic of interest by advancing to any of the following time stamps in the podcast:

> 1:55: How is the economic outlook different today compared to a year ago? Where’s it going for VC backed companies and how long will the recession last?

> 4:00: Why public market valuations are going down and how that affects private companies seeking funding.

> 7:42: How does the current economic cycle compare to the dot-com bust of 2000/2001 as well as the 2008/2009 recession.

> 9:41: Insights from leading a company during recessionary times, including TriNet’s aborted IPO during the 2000 “dot bomb” downdraft

> 13:33: Why running a company during a recession requires Wartime Leadership that accepts macro reality, making the hard decisions and figuring out how to keep the right people you want in foxhole with you when you’re under fire

> 19:40: What investors can do to support management in making hard decisions. How management leverages data to support, track and adjust a realistic financial plan

> 22:48: Why it’s a great time to be an entrepreneur, including outside major tech hubs

> 24:31: Connecting entrepreneurs to resources is a common social impact thread across UpVentures Capital, and non profits Upstate Venture Connect, Entrepreneurs Across Borders and UpMobility Foundation

> 27:49: “Call me crazy” moment: Running as an independent candidate for U.S. Congress in 2016 and how that evolved to a committed journey inside a national movement to improve democratic processes in New York and the United States

> 29:35: Most Inspirational CEO: Jack Stack + how the Great Game of Business shaped TriNet’s trajectory

> 31:10: Best Business Advice Ever Received: From Mitch Kertzman – Not getting hung up on founder’s percentage ownership of the company

SVB Collapse a New Risk Factor

Since the podcast was recorded prior to Silicon Valley Bank’s demise, ripple effects from that closure are still unfolding. Certainly, that includes investor discovery of a new financial risk factor for the venture ecosystem further depresses valuations beyond the other recessionary factors described in the podcast.

Endeavor Helps Scale Ups

Endeavor is a non-profit leading global community of, by, and for high impact entrepreneurs.  I joined their Western NY Board of Directors last year as part of my mission in connecting high growth founders to resources they need to scale companies. Endeavor is a truly global, mature non-profit built on a Pay-it-forward ethos such as I’ve described in More Good Jobs. The Endeavor board role is helping me see best practices I hope to carry over to other non-profits I’m involved with building community like Upstate Venture Connect, Entrepreneurs Across Borders and the Seasoned Entrepreneurs Gathering Exchange.

Related posts:

Wartime Leadership Series

More Good Jobs Series

Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors

This post was prompted by Brad Feld’s release of the Startup Boards 2nd edition.  I’ve been sharing the original since it was published 10 years ago, frequently shipping a copy to founders when I closed on a seed to Series A investment.   This 2nd edition is packed with new content I find useful for not only startup founders, but also seasoned CEOs ready to do a gut check comparing their board with the book’s suggested best practices.

Learning about boards is an overlooked founder priority

For most founders, the onset of bringing on institutional investors triggers awareness of governance and responsibilities of a board. Though even at that stage, I’ve found it’s a rare early stage entrepreneur that grasps the priority of investing the necessary time and energy for learning how to build and manage a board of directors.

More typically, first time founders look to their venture investors for guidance on board composition, development and process – without realizing that the entrepreneur’s following rather than leading, is a huge missed opportunity to develop critical competency necessary to evolve as CEO through and beyond the growth stage of their company.

Once investor backed company CEOs start being held accountable to hitting growth targets, a founder’s narrowing focus to revenue and customer traction can drive attention further inward, coming at the expense of proper expectation setting and engagement at the board level.  Not surprisingly, many founder departures happen when the company hits inevitable speed bumps in the growth stage, where the mix of managing both above and below is new territory for the entrepreneur CEO.

Startup Boards as a Field Guide

The book is a truly a field guide that founders may read through once, then find themselves going back for reference when board issues start rising to top of mind.

Understanding the basics of a board’s purpose, roles and functions lays the foundation for those just beginning their board journey.

A full chapter on VCs as board members demystifies several dynamics that can help immensely in forging productive VC Board member relationships.

Seeing best practices on how to recruit, interview, compensate and communicate with board members are all key, as is the understanding of why having a blend of independent directors is so critical.

With 34 years on TriNet’s board, seeing the arc of that evolution through challenging growth stages, (including rigors of the public market), gives me special appreciation for how the guidance in this book is spot on.

Buy it now and you’ll have the chance to take more control over your future by seeing the connection between good governance and successful companies.

Can my business still operate during New York’s COVID-19 restrictions?

In speaking with company leaders, this is one of the first questions that come up.

What follows is how I’m responding when asked – but with the caveat that this is my personal interpretation of regulations in place as of March 23rd and isn’t official guidance from either Upstate Venture Connect or any governmental agency.

Follow links I’ve included in this post to see source documents yourself. And let’s keep dialogue flowing to share our collective insights to help each other mobilize and connect resources – including through UVC’s UNYCEOs email group referenced in our Upstate CEO COVID-19 Pledge.

 

Restrictions are intended to protect your workforce

Since restrictions are intended to protect your workers (including volunteers for non profits), any organization who can have their employees work from home should be allowed, and in fact encouraged, to do so.

The question becomes what happens if a portion of your workforce have roles that are performed either in a company facility or some other location.

No matter where the location is beyond the home, New York Governor Andrew Cuomo’s Executive Order 202.6 requires that each for-profit, non-profit, or government employer shall reduce their in person workforce at company facilities and locations by 100% from pre-state of emergency declaration employment levels – effectively closing the doors to your work locations unless the employer falls into one of these two exception categories:

  1. Employers who are operating within one of NY State’s designated categories of “Essential Services”
  2. Employers who are not in a specifically enumerated category of Essential Services but apply for and are approved by Empire State Development (ESD) for designation as an Essential Business.

 

NY State Designated Categories of Essential Services

The Executive Order presently defines 12 different categories of Essential Services including health care operations, essential infrastructure and selected manufacturing, retail, financial services, transportation, logistics and other services needed to respond to the COVID-19 crisis or sustain basic life functions in a community..

Details on the specifics behind each of the 12 enumerated categories are listed here in ESD’s Guidance for Determining a Business Enterprise is Subject to Workforce Reduction Under Recent Executive Orders.

Keep in mind that the text of Executive Order 202.6 reflects what was approved on the issue date. Government response to COVID-19 seems to move almost hourly and new orders are being given to clarify missed gaps in the original guidance. So bookmark these links and check back as you’re firming up decisions to see the updated guidance.

This link to the Executive Order’s FAQ is also very useful in deciding if your business can fall into one of the enumerated categories – including what to do if one portion of your business provides essential service and another portion does not.

 

What if my business isn’t defined on the official NY State authorized list of Essential Services but I believe our company is providing an essential service that falls within the intent of the Executive Order?

If you’re not already on the enumerated list mentioned above, it’s necessary to fill out this online form to apply for your business to be approved by Empire State Development as an Essential Business. At present, I’m thinking ESD is being flooded with a lot more applications than they are equipped to handle with a fast decision.

Since government is most interested in fast tracking those businesses that have a compelling argument on how their company is providing a product or service fulfilling an emergency response need to fighting COVID-19 or sustain basic life functions, you might consider retaining a copy of your ESD application and asking your mayor, state assemblyman or senator, or regional ESD representative to assist in advocating your application for expedited review.

And if your argument is clear enough to fall within the existing exceptions outlined in the ESD guidance then there may be no need to apply. ESD guidance concludes with the following statement:

  “Requests by businesses to be designated an essential function as described above, should only be made if they are NOT covered by the guidance.”

 

Scaling up requires working ON the business

When a startup arrives at a stage of product market fit to show steady increases in revenue, my evaluation as an investor expands to include looking for evidence that the leaders are actively engaged in working ON the business itself as the team builds towards scaling up.

Experience helps pick up pattern recognition across a variety of decisions like how to hire winners, manage cash and keep the team on a focused path by everyone working on the right stuff.

But what about first time entrepreneurs, particularly those without prior experience in managing teams?

Founder vision and passion may be there, as well as the persistence needed to stay the course through tough times, but if the business is to scale up – that also means the entrepreneur CEO has to quickly adapt to challenges that each new phase of company growth brings. For rookie CEOs that invariably means navigating through situations he or she has never seen before.

Work Myself Out of A Job

As an active startup investor, I didn’t think enough about this before now. In part due to not having put enough emphasis on how a decade of management experience before starting TriNet was a foundation for my own entrepreneurial journey.

At the outset, perspective about not being the bottleneck for decisions others on the team could make was already part of my mindset. I had seen what worked and didn’t in my prior efforts to empower others so I was tuned to the value of working myself out of a job.

Founders with the startup being their first managerial role are having to learn these basics on the fly, while also carrying the burden of startup pressures on their shoulders as they navigate through unchartered territory every day.

It’s easy to be totally consumed with top of mind priorities like finding new customers and serving existing ones, supporting team members to keep them productive and expanding the team to fill growing demand.

Those and other day to day activities involving immediate people and resource allocation decisions get in the way of putting time into things like refining strategic direction of the company, driving changes in the company’s internal business processes, culture and public identity, finding investment capital as well as developing their own leadership skills for the next stage of company growth.

Working ON the business

Micheal Gerber’s classic “The E-Myth” popularized the notion that if you looked at any truly successful entrepreneur with an enduring company you’ll find someone who committed significant energy to improving the business itself at the same time they were also navigating through significant revenue growth.

Anyone growing a company from scratch knows how consuming the revenue growth and service side can be – so how does one find the time needed to guide improving the business itself?

Scaling up Requires a Capable Management Team

Organizations are only as strong as their weakest links near the top. A high performing team is one that leads together with unifying purpose and consistency in living a company’s core values as everyone puts the overall company ahead of any single individual or department.

But if the early stage team is also new to managing others, as the volume of necessary decisions grow (resource allocation, who to hire, changes to internal processes etc.), decisions which might routinely be made by a manager in a slightly larger organization are instead discussed among the founders to build consensus.

This all happens without much recognition that the time involved to do so inevitably slows down the needed pace of change for the company to adjust to new scale and demands.

There are no rule books out there saying if you are at a certain size this is how decision making should work.

The Founder/CEO sets the tone of evolving who decides what, with the goal of pushing decisions down the hierarchy to the lowest level possible while still having the company be coordinated with the team in sync with each other.

As the business prospers, we’ll all be successful

As soon as we started scaling up at TriNet, our first managers came in at below market salaries but offset with equity upside. There was lots of risk as our industry was unknown and growth prospects uncertain.

It all worked out as that first group of managers came in with leadership experience that made it possible for us to scale up.

Some transitioned out after a few years, several others stayed on for 10 years or longer. And I’m not thinking there was much regret on the part of anyone who took part in the early leadership team as they were all successful in transitioning to other roles where their TriNet experience was valued. Those that exercised stock options and held their shares also reaped significant financial gains downstream.

CEO’s have the opportunity to articulate an inspiring vision for what individual and company success looks like, while at the same time being realistic with regards to expectations. Leaders who are credible in striking this balance attract high performers to the management team who in turn model that behavior as they become critical links for building the company to the next level.

Developing The Company Requires Commitment

Even if the Founder CEO is able to attract experienced managers to the team, the need for management development to work ON the business will be ongoing.

Throughout my TriNet CEO journey I sought out meaningful development opportunities, sometimes as part of industry or entrepreneur conferences but especially where there would be a gathering of peer CEOs who were seeking to learn more about the same issues I was struggling with.

Extra value came from opportunities where those peers then had contact outside the learning session. Building an expanding peer network requires a time investment that also carries the opportunity cost of stepping outside the business to participate.

I could get pretty charged up after hearing wisdom from a world class speaker on some aspect of company development, but then had to be thoughtful about how to bring that new knowledge back into the company.

Our approach included devoting at least one full day per quarter to strategic planning to focus working ON the business with prepared topics addressing known bottlenecks as we generated new approaches to meet higher production and sales growth we were building towards.

In some cases, we enhanced group learning with outside facilitators. We wouldn’t do it often, but as the team grew this proved to be an additional avenue to help get everyone on the same page for important themes we needed to be in sync.

Define and Work the Plan

With so many other things requiring attention in the business, the only way to mark steady progress is to incorporate company development into the operating plan and then track progress against measurable company goals.

We sought out and followed proven structures that helped us learn from what worked well for others. This helped not only on how to frame company development goals but the internal management reporting that cascade down from the overall corporate plan with operating metrics that were meaningful to the people doing the work inside each company department and work unit.

Supplementing written guidance and goals with an outside coach is another way to insure there are eyes on progress against defined management goals that go beyond financial measures and other targets the Board of Directors should be holding the CEO accountable for.

None of this is easy nor will come together with a process that stays rigid. Like most everything in growing a company, the journey begins with commitment to get it done followed by continuous iteration on the approaches used.

With an expanding team, everyone needs to be engaged in contributing to strategic development even while totally consumed with challenges of dealing with rapid growth.

But I’ll argue that unrelenting attention to working ON the business can be the key differentiator separating those who never make it past the startup stage from those who evolve to become true companies.

Perils of a Rich Valuation

The entrepreneur gushed “We just closed a $2.5 million Series A on an $8 million pre-money valuation.”

My response: “Great news – now that you’re a couple months past close, what’s the probability estimate of hitting the 1st year revenue target you set for the VC’s?”

The smile quickly vanished as the entrepreneur acknowledged it was far from being a lock to hit the target. Both the risks and attendant pressures were already starting to hit home.

Valuation optimism can be masked with insufficient data

Unfortunately, this is a much too common scenario as founder drive to minimize personal equity dilution by grabbing the fattest valuation possible seems to override their judgment on what happens post deal.

Typically the culprit is too little thought given to the underlying assumptions behind a detailed bottoms up financial model. Proper models take into account factors like average deal size, sales process steps and time to close, productive lead sources beyond executive team personal relationships and diminished close rates of non founder sales reps. [See my post: Leading Sales as a Startup CEO].

The worst offenders set their valuation target first and then back into a set of projections that align revenues with the valuation goal as they scurry about for data points supporting their wished for revenue trajectory.

While VC’s will certainly review assumptions behind revenue as part of their due diligence, entrepreneurs will get some leeway if the product offering is distinctly different with what’s already in the marketplace (thereby lacking trend comparison with similarly situated companies) and you’ve already racked up a few sales to your credit.

Overly optimistic projections come with consequences

The path to judgment day starts with board meetings in which the new institutional investor board members are now brought up to speed with the insider’s view of your progress against the expected revenue targets that were in the deal.

If you’re absolutely confident you’re right on path to meet or exceed the targets then you’re golden.

But if you’re starting to break out in a cold sweat soon after the deal closes, then you’ve got the hard choice of perpetuating expectations you may not have confidence in or going about the delicate process of resetting expectations.

Perpetuating the improbable is a gamble that ever optimistic entrepreneurs take, believing somehow, someway they will find a solution over time.

However, as projections don’t get fulfilled, that factor alone becomes the biggest reason entrepreneurs get pushed out of the CEO role in favor of someone who has a proven track record of “meeting the numbers.”

And that equity stake the founder was concerned about? When projections get missed and Series A funding dries up while there is still a substantial burn rate – you then have the classic down round scenario where in order to keep the company alive with a new financing, founder shares can get crammed down to a pitiful percentage of ownership compared to their post series A stake.

De-risk with detailed assumptions behind revenue components

You can mitigate risk by building a detailed model for how revenue projections are derived.

List assumptions behind each component of a revenue formula so there is complete transparency and no “black box” – even tilting assumptions towards most realistic, if not outright conservative achievement at critical components of the revenue formula.

The best entrepreneurs don’t settle on just a high level view of 2-3 revenue component steps to come up with a formula. Instead they tear apart every step in the customer acquisition process to find patterns which can be reasonably tracked (with a minimum of admin burden) that help point to predicting success at that particular step in the sales process, and in the aggregate – timing of future revenue flows.

Since early stage companies typically won’t have a large enough team for a professional CFO on staff to build such a model, they can fill the expertise gap with an “Interim CFO” who has the background and strategic perspective to dive in and gather input from multiple team members to guide a true bottoms up model with detailed, defined assumptions.

The best interim CFOs divide their time among a cadre of early stage companies and often have the pattern recognition of having been through this exercise across many similarly situated companies. This helps not just in developing the model but with an ongoing retainer relationship will help their client tweak the model as more data comes in and analytics for management and board are refined.

While it’s best to avoid optimistic projections pre-deal, the earlier that investor expectations get reset to the proper level the more likely you are to retain your credibility as a leader.

So don’t wait for your next round to beef up the visibility and accuracy of your forecast. When you’re depending on other people’s money – than your success, and that of your company, may end up riding on how well you can predict the future with a financial model that you actually deliver on.

[Related post: Embrace Public Company Readiness in Scaling a Private Company]

Crossing Boundaries to Build Startup Community

A delegation of a dozen business and professional community leaders from Binghamton took a day out of their already busy schedules to travel to Syracuse. They toured assets in the Syracuse startup community, and interacted with local leaders to learn from their experiences in building startup community.

The delegation included people from Binghamton Chamber of Commerce, City government, Binghamton University and local business leaders. These people are committed leaders with a stake in growing Binghamton’s startup community. They understood the value of getting an inside look at steps a neighboring city went through to build momentum around creating companies and jobs in newer industries. These efforts are now attracting top talent to a revitalized downtown area, and certainly worth paying attention to.

Journeys begin with vision

CenterState CEO’s Rob Simpson welcomed the delegation and provided an overview of some initiatives that started a decade ago. This ingenuity included critical public private partnerships, which set the stage for today’s job creating thrust.

A tour of the Syracuse Technology Garden, undisputed hub of Syracuse’s tech community, featured a recap of programs and entrepreneur supporting activities. Rick Clonan presented, and had John Liddy, Founder and Director of the Syracuse Student Sandbox sharing insights on how the college student accelerator engaged local mentors that were critical to graduating students deciding to put their roots down in Syracuse instead of going elsewhere to start their first company.

The delegation toured the new Syracuse Marriott Downtown (a project CenterState CEO helped lead), and enjoyed a luncheon discussion with Marc Viggiano, a retired business executive who shared his personal experience on how becoming involved with the Seed Capital Fund of CNY, StartFast Venture Accelerator, Genius NY program and Upstate Venture Connect all lead to helping entrepreneurs start companies and create jobs.

Entrepreneurs revitalizing downtown

A tour of Syracuse CoWorks, a nationally prominent co-working/living space, provided an inspiring look at how downtown space can be configured to foster relationships that attracts both millennial entrepreneurs and residents. The “community” also serves as a base for StartFast Code – a coding academy that puts individuals on a career path as professional web developers or helping advance their existing businesses.

Final stop was SpinCar, graduate of StartFast 2013 cohort and now a blossoming company with 40+ employees headquartered in Syracuse. Co-founder Mike Quigley shared the SpinCar story, including how the community helped his team on the path to success. This included connections to key people and resources of which Mike says made all the difference in SpinCar getting to the right customer market, finding investors and talent.

We closed the day with an engaging discussion around elements of a strong startup community. This long-term outlook and willingness to cross geographic and institutional boundaries relies on people working in concert. The result is connecting entrepreneurs to the resources needed to grow companies and create high-paying jobs.

True leaders break new ground

Five or more years ago, we could not have seen a delegation from one of our Upstate cities traveling to another community to learn about building a startup ecosystem like this. Not only would best practices have been harder to identify, but the interest to travel and learn from others just wasn’t getting any traction.

Over the last year, I’ve spent a lot of time in Binghamton and I’m impressed with the seeds of change that have clearly been planted. There is no doubt that this group of leaders, who are crossing boundaries are leading the way in accelerating change. Working together, we’ll have a meaningful impact in growing companies and creating jobs in Binghamton’s future economy.

Embracing Public Company Readiness in Scaling a Private Company

TriNet’s IPO was the culmination of contributions from a ton of people over a very long time period.

Few outsiders were aware that our management team adopted a philosophy of being “public company ready” way back in 1994.

Over the two decades from then till going public last March, our leadership team had several themes related to readiness that served as key filters for decision making in both setting expectations and allocating resources.

Being accountable to a budget

Paramount on the list of readiness factors is defining a realistic growth budget and then delivering on the results.

While all CEOs espouse the importance of this basic principle, now that I’m an active early stage investor with an inside look into a large number of fast growth private companies, it seems only a small minority of those I see come even close to that deep commitment of learning how to deliver on budget expectations as they are scaling up revenue.

All companies going through a rapid growth phase encounter uncertainty around market adoption as well as unexpected bumps from the external environment – be it competition, market forces, technology changes and government regulation to name just a few.

And the faster the growth, the harder it is for the team to adapt as they have to evolve internal processes that affect consistency in how the company attracts, prices and services customers at higher volume – all of which ultimately drives the forecasted results.

But the public company principle is that as leader, I was never in doubt that my tenure as CEO was directly related to my ability to accurately predict the future in terms of where our revenues and profitability would be up to a year or further out from where we were at any point in time.

So developing competency in how to do that wasn’t something that I could learn in a single year or delegate to someone else, but instead had to work towards instilling commitment to setting and delivering forecasted results throughout the entire company every single quarter.

Institutionalizing Accountability Begins With CEO Direct Reports

Even if the CEO is “all in” on the importance of setting realistic targets and delivering on that, no single person can make that happen on his or her own.

If I was being measured by how accurately I could predict future quarters, it wasn’t a big stretch to say that should be the same approach in how I looked at my direct reports.

That put my focus on making sure I was getting that intense commitment from my direct reports to both setting expectations within their respective department, and that those commitments were direct linkages to support achievement of the overall budget – especially on how everyone in each department was contributing to growing revenue.

It was up to me to define the process by which we would define and track progress of goal achievement and set the example of holding my direct reports accountable by showing consequences to the reporting executive if goals were not achieved.

Consistency in doing so, as well as supporting systems to report and track goal progress both helped push this approach company wide.

Transparency with Investors and Team Members

Predictability in delivering forecasted results is closely linked to having enough detail in the assumptions driving the budget to be understood by key stakeholders.

Initially, this is the Board and management team, but we found it very high impact to expand the knowledge and transparency through the entire company.

We boiled down a set of business drivers appropriate for full team consumption internally and then constantly reported on our progress so everyone knew where we stood against a full range of operating metrics and budget assumptions.

Another aspect of transparency was our internal mantra of “no related party transactions” as we knew any hint of executives or shareholders having anything less than an arms length arrangement would be a red flag that blows management credibility with sophisticated investors.

Having a “Big 4” audit firm is a huge boost for transparency. We took that on 20 years before going public and never looked back, notwithstanding the extra layer of fees we paid even through the lean years just we could hold to that standard.

Earlier start builds competency

In TriNet’s case, our public company readiness philosophy got a big boost after taking on a large public company as our controlling shareholder in 1995.

Even though we were a small entity rolling up into a big corporation, the public company principles were very top of mind to us as we planned and executed corporate governance over the next 10 years.

Our public company readiness ended up being a significant factor in TriNet’s successful transition from the corporate controlling shareholder to General Atlantic, our financial partner and controlling shareholder since 2005.

I can look back now and see how critical these steps were to laying the foundation for managing through challenges of an evolving institutional shareholder base – the most important undertaking any CEO who wants to be around for the long haul can take on.

And while few high growth companies will find their shareholder exit in the form of an IPO, those same public company principles will insure a stronger company on every dimension that is important to success for both internal and external stakeholders.

Confidence and humility are not mutually exclusive

As I meet entrepreneurs seeking to launch their first startup, I’ve begun noticing behavioral traits I wasn’t paying much attention to before.

Signals I’m picking up more frequently are from entrepreneurs coming across as super confident (even aggressive), perhaps in an effort to show they are hard driving and ambitious.

While confidence in one’s beliefs is indeed a critical asset for a startup entrepreneur, my BS detector begins kicking in when I see a total absence of humility. The tells are things like:

– working their accomplishments into the conversation
– no hint of what they don’t yet know or are seeking to learn
– expressing no curiosity about whom they’re interacting with
– interactions appear motivated only by potential self interest – no evidence of “pay it forward”
– how they interact with others who serve or bump into them seems different than their style of interacting with those in a professional context

Because I’m an investor who looks hard at leadership qualities of the CEOs I want to work with, my mind gravitates towards thinking: “If this is what I’m noticing now, I wonder how it translates to future interactions this entrepreneur has with others they seek to recruit and lead?”

Humility as a leadership trait

If you’re looking for thoughtful insights backing up the quality of humility in leaders, check out Jim Collins’ Good To Great and his work profiling Level V leaders. His research supports the thesis that CEOs embodying the unusual combination of fierce resolve and personal humility ended up being a critical leadership trait for top performing companies in the study.

My own view was shaped most by my Dad and my wife Krista, but also the good fortune of having close contact with a bunch of exceptionally strong leaders who personify humility in how they lead and interact with whomever they meet.

Jack Stack, Founder/CEO of SRC and visionary behind the Great Game of Business would certainly top my list in exemplifying resolute commitment and personal humility. SRC is not only a phenomenally successful company that has transformed thousands of lives, but beyond Jack’s Southern gentleman’s humble style, his open sourcing of the GGOB and open book management practices empower a generation of entrepreneurs like me to embrace principles around getting everyone in a company to think and act like owners – the ultimate management humility as it means running an organization with the power bubbling from the bottom up.

Back in 1995, Anthony Martin, now retired Chairman/CEO of global staffing giant Select (and subsequently Vedior) picked TriNet to invest as one of the 40+ companies in his portfolio. Much to my benefit, he traveled “across the pond” for 10+ years to sit on TriNet’s Board of Directors. Soft spoken with never a wasted word, his gracious, gentle, almost patrician manner helped set the tone for our board meetings with wisdom that came through penetrating observations and questions that were so much more effective than the contrasting style of boards featuring competition to demonstrate who is the smartest guy in the room.

In the emerging tech world, anyone that knows or interacts with uber VC Brad Feld (@bfeld) will attest he gives so much of himself to so many causes (building entrepreneurial ecosystems, women in tech, computer science education and entrepreneurship globally to name just a few) and notwithstanding an incredibly packed and productive schedule and contact list, still shows an uncommon curiosity and willingness to pay it forward with each new person he bumps into.

Humble, super successful people stand out

So I take notice when I encounter a super successful person who isn’t showing the expected trait of being the center of attention in a dialogue among a small group.

My respect grows as they instead show curiosity in others and demonstrate care and concern for people they don’t know, as well as how they contribute talent towards things not driven by self interest.

Encounters like these also reinforce my not losing sight of humility in what I say and do.

Paying it forward is going to be a theme I hope to keep shining more light on. Not only to help keep me centered, but also my belief that raising awareness of success beyond financial measures is the real story behind entrepreneurs with the most impact.

Numbers not the only measure of entrepreneurial success

While most of my inbound startup inquiries come from first time entrepreneurs, this one was different. Even though he was still pre-launch, the aspiring entrepreneur is on the founding executive team of a company that went from startup to a successful IPO in six years.

Now with a year of public company executive team experience on top of managing through multi-year hyper growth, his view of the challenges and decision making to build a true enterprise were things I could relate to right away.

He was getting ready to leave the public company and venture off to start a venture where he would be a first time CEO. Plus he was in the enviable position of choosing to self fund or take his pick of investors at the door with Series A checks in hand before he even showed a pitch deck much less form a company.

What was surprisingly refreshing in our conversation were the entrepreneur’s thoughtful questions, and even a degree of humility that I almost never see from someone with that success pedigree.

After discussing the topic that prompted his call, he shifted into asking me about insights I might offer for the chapter 2 journey he was about to embark on. This was kind of fun for me, since sharing with someone who had been through what he had could be done with a lot of shared context so we breezed through some heavy topics quickly.

Imagining if I were in his shoes, three quick highlights came to mind:

1. Take some time off between gigs. Even though his vision for the new startup was a burning ambition, he is coming off six years of continuously running full tilt. Taking the helm to build a startup from scratch is an all consuming endeavor. The opportunity to recharge now, especially with family, might not be coming again for potentially several years or longer. No matter how quick the market might seem to be moving, there is no doubt that opportunity would still be there for him even if he took 6-12 months off now – time that could never be recaptured again.

2. Finish Big means a lot more than liquidity. When you’re in the trenches going through all that’s involved in building a high growth company, it is way too easy to fall into the trap of thinking how great life will be if you exit someday with a big payoff. However, in my own experience of speaking with quite a few other exited entrepreneurs, I’ve found many more of them unsettled with their lot than those who were leading fulfilling lives. Bo Burlingham’s recently published Finish Big – How great entrepreneurs exit their companies on top, covers this phenomenon with such great insight that I am now giving it to every startup I work with as they approach Series A financing. That’s right, putting the lens on what makes a successful exit (beyond financial measures) can guide decision making on influencing the kind of company culture to build and how to set expectations with those around you that you will want to deliver on.

3. The reward is the journey. In the 20 years of my serving as TriNet’s CEO, this became a mantra incorporated into my closing remarks at our quarterly all hands meetings. The thought is often attributed to Steve Jobs and to me embodies belief that reward isn’t measured so much by the imagined big exit, but instead by the little successes experienced by team members at every step we took along the way. No matter how hard we worked in constantly adapting to change, we sought out ways to reap reward from things like crazy ways to make meetings fun, hiring people we enjoyed spending our time with and friendly competitions to do things we could see made a difference for our customers and their employees. Memories of those shared interactions and successes will last a lifetime for me and many others who found intrinsic reward from being part the TriNet journey.

I’ll be watching with interest on how this new startup entrepreneur’s journey unfolds from here. He has the maturity that points to the right stuff. Those getting on his team are likely to benefit in ways they’ve not yet imagined.

Prior post with related themes – Startup to IPO: An Entrepreneur’s Reflections