Skydiving Lessons for the First Time CEO
For any CEO of a startup, building the company is like skydiving, except that the CEO will be building and deploying a parachute while falling to the earth and hopefully avoiding the crash.
Not a bad title and catch sentence, are they? It is the hook that the Silicon Valley Association of Startup Entrepreneurs is using to promote its CXO Forum tomorrow. For more information on the lunchtime presentation, CLICK HERE.
The topic certainly brings back some memories for me. From mid-2003 until early 2006, I was a first-time CEO of an Internet company that offered hosted personal training solutions to health clubs through a SaaS model. At the time, I had no training whatsoever on being the head of a company, other than what I had observed over the years serving as the outside general counsel for dozens of emerging companies. Suffices to say, there was a lot of diving head first into the fire and then trying to figure out a way to survive.
The experience, while extremely stressful and time consuming, was also tremendously rewarding. There is a great sense of accomplishment associated with building a company. Along the way, I learned some extremely valuable lessons. My top 4 are:
- Always raise excess cash. One of the most common mistakes that I see first-time CEOs make is under capitalizing the company. I was guilty of that, as well. Even though we put a ton of time and care into building out financial models to present to venture capitalists or angel investors, it is impossible to predict the future with any great degree of certainty. Things take longer than anticipated, whether that is building out the team or further developing the intellectual property underlying your product or service. Unforeseen hurdle after unforeseen hurdle arise with what seems like rapid-fire frequency. It is very beneficial, therefore, to raise cash beyond what the financial model requires so that there are good reserves in the coffers. Most venture capitalists will require this, but it is something that the CEO must focus on when raising money from angel investors.
- Start the fund raising process very early. A CEO always wants to raise money when the company isn't in dire need of cash. Otherwise, the valuation and the terms of the investment tend to drift farther in favor of the investors. I think about it a lot like buying a house. In this tough economic environment, banks are typically requiring first-time home buyers to have 6-12 months of living expenses stocked away for a rainy day. Companies should follow the same model. That means thinking about raising a first round of venture investment (or a second) when there are still sufficient cash reserves to survive another 6-12 months, or even longer. That will help keep valuation at an appropriate level (i.e., valuation based on the business model, IP and execution) and the terms more toward the middle of the road.
- Let your executive team do their jobs. I regularly see first-time CEOs attempt to micromanage every aspect of the business. It is true that the board will hold the CEO ultimately responsible for the company's performance. Nonetheless, I believe that one of the best traits that a leader brings to the table is to trust the people he or she has selected to run certain aspects of a business. My executive team was instrumental in driving the growth of the business. I didn't always agree with some of their tactics, but I trusted their judgment. That is why I hired them in the first place.
- Select a mentor. I cannot stress this one enough. The ability to pick the brain of someone who has built one or more companies with a successful exit (or even a spectacular flame out) is priceless. Learn from their mistakes. Learn about their thought process. Ask them to identify some of your strengths and weaknesses. Ask how you can become a better CEO. A great mentor is invaluable. I did not follow this advice. Had I chosen a good mentor, I have no doubt that I would have been a much better first-time CEO.
Seth Sternberg, CEO of Meebo, and Tae Hea Nahm, managing director of Storm Ventures, are the guest speakers at tomorrow's CXO Forum. I'm looking forward to hearing what advice they have to offer on the subject.
