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Why you really need to fix your startup’s ‘leadership debt’

Leadership debt is normal in any startup affected by financial and time constraints. It's impossible to avoid, but ignore it at your peril.

By Martina van Hettinga

We all know what it takes to build and scale a tech company: a customer-centric product, an innovative business model and backing from the right early-stage investors.

But there’s another key ingredient: building a competent leadership team.

Most founders or C-level teams of growth companies who already have one or more successful exits under their belt had to learn this the hard way. In their early days, with limited time and budget, startups have to accept certain shortcomings on the executive level.

This ‘leadership debt’ is impossible to avoid — but ignore it at your peril.

Spotting your ‘leadership debt’ 

Unlike financial debt, it’s not so easy to spot leadership debt on a balance sheet. But you can spot common symptoms in companies: high employee turnover, miscommunication and a tendency to micromanage even senior staff. 

if your early employees seem to be struggling in leadership roles, then you, my friend, probably have leadership debt. 

If you’re struggling to recruit great people, if your investors are getting impatient because you’re not filling positions quickly enough or if your early employees seem to be struggling in leadership roles, then you, my friend, probably have leadership debt. 

The majority of founders and C-suite members of growth companies do recognise these issues. But in my experience, they still find it hard to know when to flick the switch once the early business modelling stage is over, and it’s time to enter the phases of scaling and rapid growth. 

Invest in your organisation’s future 

In order to switch into a growth mindset, a central shift in thinking has to occur: early-stage executives, no matter if bootstrapped or investor-funded, are deadly afraid of spending money inefficiently and find it hard to attach a price tag to leadership. 

Yet, when it comes to steep growth, the investment in building a strong culture and a high-performance team is probably the largest long-term saving grace your organisation will ever know. I’m not just talking about avoiding $50k-250k going down the drain each time a mismatched hire leaves your company within the first year. I also mean the opportunity cost of what the right hire leveraged with right leadership principles could have brought your organisation during that time.    

The only serious mistake you can make with leadership debt is ignoring it.

How to turn leadership debt into leadership credit

As it turns out, the only serious mistake you can make with leadership debt is ignoring it.

This is what a strategic game plan with best practices looks like in companies that have managed the shift: 

1. Define the traits of an AAA-candidate for C-level hire in your company — before you starting to looking for one  

When identifying leaders for your company, be it internal or external, make sure you zero in on the leadership skills instead of writing a catalogue of specialist skills — even though these can strike you as more elusive on paper. 

Leadership skill is communicating changes in your strategy in a way that means your team knows what to implement. Leadership skill is recognising the strengths of your employees and coaching them to get to the next level. Leadership skill is taking the contents of an Excel sheet and transforming it into a story that your investors can get behind. 

Ultimately, it’s this kind of skill and experience in growth situations that will, for example, distinguish a great CMO from a good one — not whether they know every nook and cranny of Photoshop. 

A solid definition of a quality C-level hire includes values, personal leadership style as well as skills (and not just hard skills). Then build the hiring process along this definition, not vice versa. 

2. Leadership skills don’t miraculously happen overnight — you need to train them 

Developing a strong C-level and management team is the one of, if not the most important, tasks of a CEO in a growth setting. That means you have to invest in the training and development of key employees. 

Being a manager is a different role to simply being the best specialist in a team; it needs a different skill set that must be learned. It also needs a collective understanding of the principles by which leaders make decisions — these decisions are the most important multiple of your company culture. 

When you define, say, “data over opinion” as a leadership principle, this will only stick when your leadership team visibly only accepts data-backed arguments from employees as well as from each other. This is only possible when you take the time to talk about it and make your values explicit.  

3. Be abundantly clear about the fact that every leadership role is a people-centric role — and measure success accordingly

For most companies, the true bottleneck hampering their growth is usually finding the right people and setting them up in a working organisational architecture. Therefore, choose and train your leaders according to their ability to develop their teams and their structure. This is the one factor that can truly and long-lastingly set your company apart from the competition. 

With that comes a different set of KPIs you need to look at when assessing your leadership staff. Are your managers able to hire and retain employees? Are they able to engage employees to do their best work? Do they build development tracks for their people? This performance needs to be measured in relation to a company benchmark. (And yes, you read it correctly: these are KPIs for your leaders, not just your HR department.)  

4. Don’t be afraid to identify and address the blind spots in your C-level — get a coach

As your company moves along the S-curve of growth, the successful measures needed to recruit, build, lead and measure your team change — sometimes quite radically — from one phase to the next. 

Founders often find the change from their original frugal mindset to a scaling mindset to be quite tough: the role moves from being a hands-on generalist to more managerial. The stakes as well as investment needs rise and become more complex with each funding round. 

It’s important to understand that a company can only grow to the extent its founding C-level is able to grow with it, therefore, invest in your own development as a founder. Internally, this can be done by setting up a feedback system that doesn’t exclude you as a CEO (that sounds easy enough, but we often find that CEOs in particular lack strong sparring partners and peer reviews inside their own company). Externally, the right coach can broaden your perspective and challenge your own views on your leadership style and motives.  

Martina van Hettinga is managing partner at i-potentials, an executive search consultancy for entrepreneurs in the German-speaking region.

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