“Team.” It’s the cliché response from VCs when asked about the most important factor in deciding to fund a new startup.
But what separates great teams from weak teams? I believe it’s the team’s ability to “figure stuff out.” Founders figure out potential customer problems that are worth solving. Engineers figure out how to build a well functioning product that meets this need. Marketers figure out how to reach people who really need the product and how to convert them into customers…
While natural talent is a big part of figuring stuff out, we can all benefit by improving our work environment. There are two areas in particular that prevent creative problem solving.
1) Too much focus on financial rewards
It is obvious that the effort required to raise VC funds can be a major distraction from executing the business, but few realize that the repetitive discussions about financial outcomes can also shut down your ability to figure stuff out. In my 15 years in startups, I can’t think of a single breakthrough epiphany we experienced while fundraising.
Daniel Pink demonstrates the potentially negative effect of financial incentives in his new book Drive, The Surprising Truth About What Motivates Us. He describes several experiments where people who were offered a financial reward to quickly complete a challenging task actually performed worse than those who simply did it for enjoyment. An important part of figuring things out is getting into a state of flow (sometimes known as being in “the zone”) and a focus on financial incentives often prevents this state of mind.
The book mostly challenges the effectiveness of typical incentive structures inside more established businesses, but I believe the implications are even stronger in startups where survival is contingent on our ability to figure stuff out and the financial rewards of doing so are potentially enormous.
2) Too much pressure
I’ve also realized that I’m not good at figuring stuff out when I put too much pressure on myself. A few months ago I had a beer with a friend and successful serial entrepreneur, Antony Brydon, and he zoomed right in on my problem. I had put myself under so much pressure to help the startup with which I was working, that I had virtually shut down my creative abilities. He mentioned that he’d been reading Andre Agassi’s autobiography where similar self-induced pressure had destroyed Andre’s ability to play tennis. His career only recovered when he remembered to loosen up and have fun. Every time I feel myself getting tense, I now remind myself to loosen up and immediately feel my creative problem solving abilities return.
While self-induced pressure is common in startups, pressure can also be applied externally by the Board (or the CEO to the rest of the team). Most leaders don’t realize how counterproductive this can be in a startup. It is OK to apply pressure for better execution of things that have been figured out, but it should be applied very sparingly when trying to encourage the team to figure out the remaining unknowns.
The solution: loosen up and have fun
When breakthrough thinking is needed, a fun, collaborative and supportive environment will generally yield better/faster results than the pressure of sticks and carrots. This is especially important in the early days of a startup while the team is still figuring out a viable formula for the business.
Also, given the likely negative effects of fundraising, I recommend fewer/bigger rounds of financing (if possible). Run leanly on your first round while you figure out the key success elements of the startup. Then raise another round while executing the formula. This may result in more dilution, but a more valuable company should offset this dilution.
Finally, encourage the team to obsess about solving customer problems rather than their potential financial outcome from success. The best breakthroughs initially come from immersion in customer problems and then later from understanding the customer experience and benefits of your solution.
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