News

News
09 April 2018

From the Penthouse to the Ground Floor

Matching exceptional talent to exceptional companies is about a meeting of minds: attitude, culture, skills and specialisms, and expectation. The ambitions of candidates is therefore as important as the trajectory of the business. Many senior executives come to us because they have cut their teeth in corporate life and are now looking to bring their experience to a high-growth startup. But just like an investment, sometimes "past performance is not an indicator of future value". Here is our primer for top corporate performers considering the move to a startup...

 

Many executives – irrespective of role or sector – find the transition from a large, established organisation to a startup challenging.

That’s fair – it’s going to be different!

But it’s worth investigating how different. Most senior executives at some stage feel that they would like to bring their expertise to a startup, but in our experience not everyone is cut out for it. If you’re considering taking the leap from the comfort of the corner office to the hands-on world of the startup, you need to be ready for dramatic change.

 

Steer the ship with half the crew. Blindfolded.

It’s obvious, for example, that in a smaller business there are fewer resources, less hierarchy, and more of an “all hands on deck” environment. In a high-growth business, this is likely to continue to be true well past 50 employees. Many of the businesses we work with still have a startup mentality beyond 200 employees, especially if those 200 people are dispersed, opening offices in new territories. The established company mindset (with both its benefits and drawbacks) only really kicks in with a fully matrixed organisation.

But the resource issue is not just about headcount. You should find out what capabilities have already been matured in the business, because some departments will be ahead of expectations and other parts behind. Most high growth businesses develop in an unbalanced way, with key functions like sales bolstered to deal with urgent demand; while less important roles (especially back office) are starved. Have you built an entire technology team or customer success function before? If you’re used to working within a predefined structure, you might be underprepared for the task.

Plus, recruiting will almost certainly be harder, because you have neither the brand recognition, the internal HR and talent management resources, nor frankly the deep pockets of a corporate to automatically attract the best. Great startup players are masters of the art of persuasion, as much for potential talent as for potential clients.

 

A dearth of data

Moving from a corporate to a startup also means restricted vision, less data and zero predictability. Practically every corporate today proudly describes themselves as ‘results-oriented’ – yet the metrics to measure those results are complex and cost money. In a typical startup, the ability to measure outcomes has not been created (although data is rapidly becoming available at exponentially lower cost) and the cultural norm of holding team members accountable to results has not been ingrained.

It will be up to you to create those systems. In the meantime, your assessment of performance will be based on gut intuition and generating success through sheer force of personality. That’s exhilarating for a certain type of executive, but if you’re the sort of person who needs a dashboard to develop a strategy, a startup might not be for you.

 

Remuneration with risk

When moving to a startup for the first time, executives from larger businesses will need to acclimatise to a different remuneration regime. Pre-IPO, bonuses are much more variable; ranging from “non-existent” to “designed around complex and possibly fluid KPIs”.

The base compensation is similarly complicated, with several contributory factors. A Series-A business with $5M raised and an eye on the length of the runway is in a very different position to a cash-rich business with $100M raised and plenty of that money still in the bank.

Then, there is the market rate for the function. CTOs in private companies can command very high salaries; the variance between different cities for CTOs can also be dramatic. Our salary survey has found that the remuneration for CFOs operates differently, with a big jump in pay coming at $250m turnover (where an ambition to go public becomes achievable).

Equity, no doubt a component of the executive’s decision, will typically only become liquid at the point of IPO or acquisition. The structuring of equity evolves constantly, with different systems falling in and out of fashion as companies try to attract and keep the best talent in a complex marketplace. To make sense of it, crystallise these three factors:

  • Vesting structure: current common practice is a one-year empty pot with three years to follow in which equity vests equally monthly.
  • Number of shares: don’t be fooled by percentages – think hard dollar values (this is one area in which big-company execs are perhaps better prepared than most). Then, consider the many amounts involved: how many outstanding shares the business has, how many you are being offered, the current price, the strike price, expectations of volatility and dilution, and the valuation that the company can achieve in the next three to five years - including the contribution that you intend to make to that increase in value.
  • Finally, what are the odds of the business achieving that valuation? What stands in your way? Use the above numbers to make a basic calculation as to the likelihood of success for both the business and for you. Furthermore, ask yourself how you would feel if the worst happened: if the start-up fails after four years, will you and your family be OK? If not, then don’t join it.

 

The good news

All that said, there is plenty of upside to joining a startup:

  • First, obviously, you might make a lot of money.
  • Second, you will develop both personally and professionally. It is the exact flipside to the challenges we’ve described above: you’ll have the opportunity to be the one person responsible and recognized for building business functions from scratch, and with limited resources. And whilst there are big-company executives who find this all too much hassle, there are others who find it fun and for whom that big-company experience is very useful: they know what the future of the startup looks like.
  • You’ll have the opportunity to experiment. Where big companies take months to change course, startups are born to experiment, iterate and refine. If you want the excitement of burning rubber as you change direction, a startup will be a fantastic experience.
  • It’s not as risky as you think. If you have adequate heritage (e.g. a good technology business career and regular promotions), there is a very high probability that you can go back to those companies in a good role if your startup endeavor fails. In fact, a sojourn in startup-land is often respected by the major tech businesses, because you will have experienced the work rate required to stay at the cutting edge. In reality, the risk of joining a startup is much lower than expected.

All told, the journey from the corner office to the ground floor is one of riding with the punches. Your responsibilities will change frequently as the business grows, and nothing is ever “somebody else’s job”. You’ll need to solve more problems on your own – although this is also the time that the smartest execs leverage their networks for best practice advice. Tomorrow won’t be like today, and you’ll have nothing but your own judgement to tell you what to do.

For some, this is the natural next step in a career built on inquisitiveness and achievement. For others, it sounds like fun but actually isn’t. The rewards can be exceptional, but only those with a taste for the unexpected should apply.