Too many Chiefs? A lesson for start-ups

One of the core principles in designing a great racecar is to achieve a low centre of gravity. Start-ups should learn something from this.

Top-heavy cars don’t handle well. The weight is all in the wrong place. At an extreme, they can topple over. There’s a reason Formula 1 cars aren’t shaped like toasters.

The same principle applies to start-ups, SMEs and often corporates as well.

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We should learn from ants and bees

Yet again, nature gives us a clue of what the right approach is. Ant colonies and beehives have only a few executives that manage everything, while hundreds (or even thousands) of foot soldiers go off and do the necessary to feed the colony.

Far too often, I come across start-ups that have extensive “executive management” teams and not enough worker bees that come at a lower cost. This generally happens in businesses with multiple founders, all of whom want to play important executive roles even though it may not be necessary.

If we cut through the noise, there are basically three roles in any business:

  1. Sales
  2. Finance
  3. Operations

That’s it. Any SME role you can possibly think of will fit into one of these buckets.

It’s worth touching on the importance of culture. Culture is the foundation on which a business is built and every role is performed. That’s why “people” isn’t a fourth pillar, but rather part of the DNA of the company itself. This should never be delegated to an HR function, but should be actively defined, nurtured and lived by the founder and founding team.

Right-sized for the right result

It’s critical in any start-up or small business to carefully manage costs. Creating an onerous payroll commitment puts the company under pressure and will negatively impact its valuation.

The key is to understand where the pressure points are.

For example, if the company has complicated and technical operations (like a warehouse or a bespoke tech system), then it will be important to have a strong operational person at an executive level. If the company has reasonably simple operations, then having an expensive operations person simply doesn’t make sense.

Executives must cover off their blind spots

Whether you own a business or you are looking at acquiring one, you can apply this principle to assess whether the company is adequately resourced with the right people.

How often do you read about a company led by a charismatic CEO that fell over because of accounting problems or fraud? This happens when a CEO is brilliant at sales, but weak on finance. It’s a risk that can only be mitigated by having an impressive CFO in place.

Beware of inspirational and influential founders who don’t have a solid financial and operational team behind them. It often ends in tears.

Similarly, a technically brilliant but highly introverted leader is more suited to a CFO or COO role than CEO. There are practically no examples in the SME space of CEOs who do not need to inspire staff and deal with clients, which talks to the “sales” pillar.

Companies without charisma will find it difficult to win new business, regardless of how brilliant the product is. The best orchestras are useless without a conductor.

The Second Steve

There is no finer example of this than Steve Jobs and Steve Wozniak. They co-founded Apple in 1976 with practically no money. Less than half a century later, Apple is now the most valuable company in the world. The market cap has rocketed through the $2tn mark, previously only achieved by Saudi Aramco in vastly different market conditions for the oil industry.

Steve Jobs gets all the credit. He’s the face of Apple. Jobs introduced the world to Apple’s new products, but none of them would exist without Wozniak. Wozniak was the technical genius who gave Apple the wizardry to compete, but Jobs made the products so beautiful that people identify as “Apple people” and run their entire digital lives on the platform.

Jobs was an industrial engineering and sales genius. Wozniak was the bearded man behind the scenes. They needed each other to build Apple into what it is today, but Jobs is the name that most people know.

A clear line of leadership

Companies need to identify the core skills that are required at executive level, but they also require a clear decision on who is in charge.

Co-CEOs almost never work, even at JSE-listed company level. Founders make this mistake because they are nervous to have an honest conversation about who the lead founder is. Look at any company with a group of founders and you’ll probably be able to tell who the most important person is.

Most of the time, that person should be in charge.

Having co-CEOs results in a top-heavy company that struggles to make decisions. It is far better to identify key roles (like Jobs and Wozniak did) and have an honest conversation about who would be better suited to the top job.

This article is a collaborative effort between The Finance Ghost and Arete Advisors – all rights reserved.

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