The most common challenge for a startup CEO is to stay focused. This is especially true in early days, before a company has found product-market fit, when the CEO expresses insecurities about their business with endless experimentation.
More moving parts means more complexity, which means more failure points, which leads to more failure. This is true for hardware, software, and service companies alike.
“Multiple revenue streams” can be death by a thousand cuts.
Founders may be ambitious about dominating their industry, but success almost always begins in one narrowly-defined arena first. Winning on multiple fronts at once is nearly impossible.
I recently worked with a manufacturing company that had well over 100 products, but only five drove more than half their revenue. And yet the design time, manufacturing challenges, inventory and shipping logistics were spread equally across all products. The business would look very different if money spent on maintaining unprofitable products were channeled towards marketing profitable ones .viagra
I’ve seen a company simultaneously try to build a training program, a consulting service, and a marketplace for their industry. Each of these is its own business, and each requires different resources to build and operate. Given that the company is just barely profitable with its core business, building two other businesses at the same time might be suicidal.
Lack of focus can cause conflicts of interest.
I saw this first hand while on the board of a Mexico-based web development company called Crowd Interactive. In addition to consulting services, our team in Mexico hosted the annual Magma Conference, the largest Ruby on Rails conference in Mexico at the time. Magma did have some positive impact on our company’s reputation, but more than anything it gave our management team all sorts of perverse incentives: they ran Magma as a separate company with its own P&L. Though I owned part of Crowd, I somehow owned none of Magma.
This friction was one of several issues that ultimately led to the splintering of our company. Things came to a head when the employees running Magma Conference decided to cut ties with the parent company altogether to form a competing service called Magma Labs. It was a death knell for Crowd Interactive, and it could have been avoided.
Lack of focus weakens the CEO.
Great CEOs are easy to follow. They have knowledge about their field, the ability to execute, and can inspire others with a compelling vision. When things aren’t going right, they listen to their team and make changes quickly. They are the source of stability and clarity.
But when the CEO’s tactical plan is “spray and pray,” they have little chance of inspiring anyone. And since few people are truly experienced in the art of business validation, most CEOs end up with multiple failed efforts. In these cases, CEOs can make lots of great progress, but in the wrong direction.
Finally, when employees see the c-suite focusing on new ventures, they may rightly assume their jobs are at risk.
Ideas can be tested without losing focus or squandering resources.
From landing pages to vapor ware, there are now well-documented ways of testing new ideas without wasting lots of time and money. But it’s often better to have a tiny team of people who report to the CEO run these experiments than the CEO him or herself. If there are no other employees to do this work, then the CEO needs to work extra hard to communicate the what, why and how of these tests. Experiments should have a board-approved budgets, clear ownership structure, and a plan for when to kill bad ideas and when to double down on good ones.
CEOs should continually experiment within the core business, but with the goal of promoting what works well while cutting back on what isn’t working.
Do these challenges sound familiar to you or someone you know? Contact me if you want a free consultation for your business.