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Very Early Stage Technology Investing

Symptoms and Treatment of Founder’s Fatigue

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At CincyTech we manage a broad portfolio of seed to venture stage companies, about 32 active today. When we started five years ago we expected to make 4-5 investments per year, so we should have about 20 at this point. Oh, well. After the downturn of 2008/9, we had a bolus of quality deal flow across our four sectors of focus. In a community trying to build a robust start-up ecosystem we made the decision to accelerate our investment pace, with the expected complications and increased workload.

Today, with the same size team (albeit with some new members) we expect to do 8-10 new investments per year, so the inevitable confluence of old and new company needs hit hard in the past few months. It didn’t help that we were in the midst of fund raising for our next seed fund. In some cases the needs were driven by companies maturing, in others companies were reaching inflection points, in others we were bringing on new management. Since each company is an independent experiment unfolding on its own schedule, there is little we can do but amp up and ramp up our activity accordingly. Of course similar cycles of feast or famine occur in an early stage company.

My own fatigue got me thinking about founder’s fatigue. I am always looking for signs of founder’s fatigue among our companies. It may be a fleeting condition, but left undiagnosed and untreated it can lead to a death spiral for a company. It’s curable in some cases, passes like a stubborn cold. But in other cases it means it’s time for change. Symptoms of founder’s fatigue included:

  • No Bad News – An early stage company is a work in progress and the founder’s gift is often the ability to learn and adapt quickly. I expect each start-up to adjust in ever smaller increments as it moves from concept to company. Those adjustments are driven by bad news and negative feedback. Frankly, start-ups are nothing but negative feedback collectors in the early years. Market resistance, product short-comings, talent retooling and fund-raising rejections are all part of the learning. Eventually a founder may become numb to bad news, and it may happen just as the light appears at the end of the tunnel. When a founder quits collecting and applying negative news to drive change in the business it may be founder’s fatigue.
  • Flat Metrics – There are natural growth plateaus in any high velocity business. Flat metrics are not always a sign of founder’s fatigue, but it’s possible. Flat metrics mean the company is operating at some level of equilibrium, and that is unacceptable in a start-up for more than a few measurable periods. For mature companies it may be a few quarters, for early stage companies it may be only a few months. A high growth company CEO needs to be on guard for equilibrium. Early warning signs (canary metrics) should trigger a healthy fear in the founder. A founder who is not reacting to flat metrics may have reached a level of passivity born of fatigue. Often times the founder who built revenue to a plateau is unable to sort out how to reach the next level. It can be a surprise and it is often necessary to work through the issue with the team and board to see if it’s time for a new infusion of talent or a new leader.
  • Stale Talent/Relationships – As companies grow and progress against the challenges of being a new market entrant, the need for talent and partnerships diversifies. A founder needs to be challenged at all times. The first sales rep is rarely the sales leader that will blow the top out of the forecast. The original programmer that built first product in the basement is rarely the CTO with the chops to help raise the A Round. And the accounting firm run by your brother-in-law is not the one you need to get ready to go public. It is the founder’s job to continue to grow ahead of the business or bring in a CEO. Those are the only choices. Either the founder wants to take on the CEO role and step up to the complexity of that job, or not. A lot is at stake, and the consequences of mistakes grow as the company grows. If the founder is not bringing these relationships to the table, not looking to grow ahead of the business, it may be fatigue.

There are, I’m sure, other signs of founder’s fatigue. But the most important thing to do as an investor, board member or mentor is to be proactive. There is nothing quite like carrying around a payroll and vision on your back everyday. I did it for five years and it was exhausting. We have founders in our portfolio who are at five years plus and continue to answer the bell. Treatment for founder’s fatigue is simple. Talk candidly and directly about it. Most founders have the integrity and clarity of mind, once asked, to think deeply about their role and the right path forward. I find that most of the time the issue is just exhaustion aggravated by isolation. It is easy to get walled in by the burdens of the company, and many founders will try to bear the bad news alone or by wary of sharing it with others, especially investors.

So practice open, transparent communication between the founder and the investors. Everyone needs to be comfortable talking about bad news, canary metrics, management, customers, cash burn, gaps in talent, issues with product or anything that is material to progress. And founders should be open to change, up to and including finding a new CEO, if the fatigue is persistent and damaging the business.

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Written by Mike Venerable

April 24, 2012 at 9:56 am

Posted in Uncategorized

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