As a CEO, your time is a vital company resource. How you spend your workday — the meetings you're in, the initiatives you weigh in on, even where you are physically — influences how decisions are made.
I've long described decision-making as the defining factor of company culture because it determines how leaders lead and how teams collaborate, and every competitive advantage (or disadvantage) stems from these two factors. This means you set the tone for your entire culture, whether you realize it or not, just by how you spend your day. No pressure.
<p>Determining how you spend your time is much easier at the start of your company because it's driven by necessity. Everyone is in the trenches and wearing multiple hats, which means in addition to being CEO, you're also part of sales, marketing, human resources and facilities. You're part of every decision, because every decision as a young company is a big one. Eventually, though, you scale enough to hire people to make those decisions. Then what do you do?</p><h3>The Biggest Mistake Leaders Make</h3><p>Here's where many leaders at high-growth companies trip up: You keep doing what you're used to doing, long past the point of necessity, not because you're a micromanager but simply because of inertia. Once you're in a routine, you tend to stay in that routine unless you have a mechanism to force a change or at least a reevaluation. And this mechanism needs to trigger frequently, not just when you expand your leadership team.</p><p>I've learned this through experience. At several points in my tenure at Zillow, particularly when we entered rapid growth as a public company, I found myself sitting in meetings that I didn't need to be in, my team deferring to me on a decision that they should be making, my calendar morphing into a hamster wheel and my inbox into a game of whack-a-mole… all eating into the time I should have been spending on the bigger picture as CEO. I needed to recalibrate.</p><h3>How to Break the Cycle</h3><p>To reclaim and refocus my time, I developed a system: Every three to six months, and even more frequently during phases of hyper growth, I forced myself to rethink how I managed my day. I would delete all recurring meetings and start from scratch -- declaring "calendar bankruptcy." I'd also declare "data bankruptcy" by removing myself from all data distribution lists and weekly reports which I'd accumulated as regular emails. I'd revisit our company priorities, determine how as CEO I should be engaging, then rebuild my calendar and inbox from there. It took time, but it was invaluable and oddly cathartic.</p><p>As a leader, recalibrating is so critical, because you outgrow certain decisions. A tangible example: Early in Zillow's time as a publicly traded company, we began hosting a ton of trade marketing events that were central to our industry engagement strategy and a sizable investment. I was actively involved in the decision-making throughout the process in the first couple of years, but once we got to a certain size I removed myself entirely from the details. I'd attend the kickoff and the "know before you go" two weeks prior, but every other decision was delegated to my capable team. </p><h3>Do It for Your Team</h3><p>Recalibrating is not just about making the best use of your time. It's also about the health of your organization. Layers of decision makers slow things down by reducing autonomy and adding approval hurdles. Fast-growing companies don't have time for this, and as CEO you can actively fight this entangling web by setting the example of delegation. Good things happen when you trust and empower your team.</p><p>The one caveat I'd add to all of this: When you delegate, you need to be prepared to accept the decisions... even when you disagree. But that's another article altogether.</p><p><br/></p><div class="rm-embed embed-media"><div class="horizontal-rule">
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Sometimes it's better not to raise money. I know this sounds strange coming from me. I'm an angel investor in over 50 startups, my Twitter is essentially a ticker for funding news and I've always been a huge proponent for going public, which requires a long road of investments along the way. But there are great reasons to turn down venture capital investment and bootstrap it yourself or take just a small amount of funding. This was the crux of my discussion the other day with a founder facing this big decision on whether to raise a seed round.
This founder's company is getting great customer traction within a niche of a skyrocketing industry that has some very powerful players. He's at a fork in the road. If he pursues funding, he'll likely be able to raise a round. But is it the right thing?
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Here are three reasons I gave him to consider abstaining from raising:
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<h2>1. You Can Stay Small and Stay Focused</h2>
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Without investors, you can continue to focus on the niche problem or gap that inspired you to start the company, become the best in the world at solving that particular problem and develop a loyal user base.
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With investors, you are pressured to swing for the fences and will have the cash to do so. Investors expect returns, and that means going big. In this startup's case, it would mean going horizontal with its product offering and taking on the established players across many service lines. It will be much harder to win horizontally against giants than it is to win vertically in a niche. True, the size of the prize is much larger horizontally, but the probability of winning is smaller.
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<h2>2. You Have a Higher Probability of a Better Exit</h2>
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Without investors, you have the option to sell to a bigger company as your offering gains traction, gets noticed and grows in value. You can do very well in these exits with M&A (merger and acquisition) values between $2 million and $50 million. That would be especially true if you've avoided dilution from investors. As soon as you take money from investors, you have to go big, and that means a sale of less than $50 million is not a "win" anymore.
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With investors, the floor for a favorable exit is much higher because your venture capitalists won't let you take any less than the funding round or the prior valuation. Plus, you have more stacked against you when it comes to a favorable exit: You will be diluted from your initial round and future rounds, meaning that you will own less of the company because you've sold portions of it to venture capital investors in each funding round. As a founder, you need to probability-weight and risk-adjust your exit strategy.
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<h2>3. You Have More Control of Your Journey</h2>
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The third point about abstaining from capital isn't so much about the financial picture but about the experience. Being an entrepreneur is about so much more than the money — it's an all-consuming and incredibly fulfilling endeavor full of problem-solving and hard decisions.
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And the way you handle those problems and decisions is fundamentally different if investors are in the picture.
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Without investors, the latitude to do your own thing is huge. You have a smaller footprint because of limited resources but are free to move at your own pace and accountable only to yourself and your customers for your decisions. In other words, you can grow slowly and comfortably.
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With investors, your hair is on fire. You have more opportunity and resources, but also more pressure, accelerated timelines and accountability to people who aren't in your everyday operations.
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Ultimately, choosing whether to go the funding route requires you to be honest with yourself. What do you want to get out of your experience? Some people just want to build a tidy business for a good profit, sell and then take on a new challenge. Others want to build the next Google. You can't do the latter without investors, but you can do the former. Ask yourself what you want, and be open to reevaluating as your company grows. There are lots of middle lanes, too; when it comes to startup funding, one size does not fit all. Just remember that your funding decisions frequently dictate your product strategy, business strategy and exit strategy.
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The other day I had a call with a founder in my portfolio of angel investments who is preparing for a Series A round. His question was: At what point should he step back from personally leading sales and hire a real sales team?
Every seed or Series A company will go through this important step. There's no question that a founder's passion and knowledge of the product usually makes for a great salesperson. But at some point, it's time to let go and bring in the experts: true salespeople.
The challenge is, unless you cut your teeth in sales or have direct experience with the inner workings of a sales organization, many founders don't know much about recruiting or structuring a sales team. So where do you start?
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First, with people:
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There are many different types of sales professionals out there, all with different strengths, and in an unlimited capital situation you'd want to hire a bunch of different types and see which one performs best for your startup. But most companies at this stage can't afford to run that experiment. Here are the four types of salespeople you can start with as your first hire:
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<li><strong>Cheap and scrappy.</strong> This is your straight-out-of-college, hungry-to-prove-and-perform individual with no industry or sales experience but great coachability and drive. This person will need investment up front, but the right pick will pay off. </li>
<li><strong>Seasoned sales pro</strong>. This person has lots of sales experience and can be a vital asset in structuring and leading the sales team as it grows, but they have no industry experience or connections and will need to develop those. </li>
<li><strong>Seasoned industry pro</strong>. This person has both experience and connections within the industry you're operating but no sales experience. While this person can still be successful, arguably skill gaps are harder to fill than knowledge gaps. </li>
<li><strong>Sales and industry pro</strong>. This is a turnkey hire because of their sales experience within the industry, giving them the knowledge and connections to hit the ground running with the least amount of upfront investment. </li>
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I advised the founder that #4, a sales and industry pro, is probably the easiest place to start. That said, any one of these types of sales hires can be successful; ultimately it comes down to how much you can invest in them (less experience requires more time, training and coaching), and also who you come across in your search. You may find the perfect fit for your company's purpose and values in any of these buckets, and any additional investment or ramp up is worth it for the right hire.
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Second, compensation:
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The right compensation model helps you not only attract great professionals but help them do their jobs more effectively with the right incentives. But make peace with the fact that you will make a lot of mistakes in this area, and you will need to adjust and pivot throughout the growth, maturation and life cycle of your business. It's just part of building companies. With that disclaimer, here are two crucial pieces to sales compensation:
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<strong>1. Compensation model. </strong>Your structure consists of a base salary plus commission, and understanding the right base salary depends on the type of salespeople you're hiring. A good guideline is a $40-60K base salary (remember, I'm talking about startups here), but it could be as high as $100K depending on experience and field.
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Once you've established that base, the next step is to determine what percentage of total compensation is variable based on a commission, which is paid out if the salesperson meets or exceeds quota. A good rule of thumb here is setting the variable comp at 25% of the base salary and up to another 25% for exceeding quota. That means a sales person on a $50K salary will make an additional $25K for meeting quota and up to another $25K (double the salary) for crushing it.
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<strong>2. Quota and revenue churn.</strong> This second piece is vital not just for the earning potential of the employee but also for the long-term health of the business, and you'll find much of your adjustments over time happen in this area. Quota and churn are inextricably linked; if you don't consider revenue churn when setting quota, your salespeople will "sell hot" into accounts that won't last — which will over time bury them in a hole that makes it difficult for them and the business to recover. An example: Say you set quota at $10K of new revenue per month, and in the first month your sales person meets it. But in month two, you see 10% ($1K) of that new business churn. To make quota, your salesperson will need to sell $11K, or quota plus 10%. Should this pattern continue, the hole gets deeper and more difficult to scramble out of. Churn guardrails are crucial.
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Incorporating churn into quota is overall healthier for the business. Not only does it disincentivize "commission hole-digging," it also forces your salespeople to form more consultative relationships and take greater care in onboarding and account management since churn and quota are both front of mind in their efforts.
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While there's no prescribed path to success with your first sales organization, you need to have a plan to scale from founder evangelism to mechanized sales that scale revenue. Founders should always be selling their own product, but even more important is their ability to create a scalable sales org beyond themselves.
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