Last week I was a guest speaker at Tallinn University of Technology for their “How to Start Up” program. Below is an edited version of my talk, and it’s one of the most vulnerable things I’ve written:
I don’t claim to know what you should do with your team and recruitment efforts in your startup. All I can share is things I’ve learned as an entrepreneur that one should NOT do. It is very costly for a business to get the people wrong, so now I work hard in trying to avoid these mistakes.
1) Don’t avoid a hierarchy (but don’t become a dictatorship either)
On my first business we were six co-founders. Decisions were slow, and everyone had their own agendas because there was no unifying direction. I liked having the “co-founder” title nonsense because I was young, naive and shallow, but I probably would have gotten more from the experience if I would have been answering to someone and working within a structure, however fragile it would have been. We romanticize democratic decision-making, but there are many good things about having a clear authority.
On the other hand, power reveals. In another startup, our CEO surrounded himself more and more with ass-kissers because they pampered him and didn’t clash with his decisions, which slowly transformed the business into a “dictatorship” of sorts. People realized that agreeing with him was the best way to grow and remain in the company. They would be rewarded with more responsibilities that their peers would notice they didn’t deserve. Those that wanted to challenge his ideas or his ethics, were punished. The sad thing, which I didn’t notice until it was too late, was that behind the back of this CEO and his closed circle of trust, everyone inside and outside the company would discuss the obvious: nod in agreement and act amazed about what he says, and you will thrive here.
Both structures limited our teams’ effectiveness and moral. Don’t take the easy way out and pick one or the other. Strive to create a structure that balances humility with confidence and allows for decision-making flexibility.
2) Don’t recruit “impressiveness” or skills
For the first time ever, we are all in charge of our own credentials. We decide what to put on our Linkedin, or our Twitter/Facebook stream, or our blog, or our resume. People get in the press or speaking events because they know the right people, not because they are the ones we should listen to. There’s nothing inherently wrong with this, but it does mean that we should be skeptical of most credentials because people have mastered the art of bullshit. A new critical skill to posess in a world where people control their own credentials is to be able to see through the bullshit.
There’s a famous cognitive bias called the “halo effect”, which says that our overall impression of a person can influence our feelings and thoughts about their character and other properties. We see someone that is attractive or knowledgeable or charismatic, and we make the mistake of thinking they are good people, or funny, or good leaders, etc. We give them attributes they don’t actually have.
Don’t recruit for impresiveness. It pains me to admit that I’ve made the mistake multiple times of partnering with someone because of how they presented themselves, as opposed to what their values, character, personality, and incentives were. I’ve been “charmed” by people that knew a lot of history, or people that wrote very well, or people that were a lot older, or people with many connections. Those reveal nothing about whether or not they are bad people, or lazy, or charlatans, or have integrity.
Similarly, don’t recruit or partner with someone just because they are a “programmer” or work in “sales.” These are just labels. While skills are obviously important, not having them is less risky for a startup than not having chemistry, a shared vision, or shared values. Don’t rush into professional relationships until you get the personal stuff right.
3) Don’t skip the dating phase
Since my last business, I’ve been telling people that I don’t care about WHAT I will work on in the future; any business idea will evolve as you move forward. I do care about WHERE I will work and WITH WHOM; the environment and the people don’t change. We have to explore and pick carefully.
I made the mistake of “marrying” to business partners too fast in the past. For example, in one my past businesses, I was naive enough to let discussions such as ownership percentages get pushed back over and over, until they never happened.
I no longer skip “dating” with potential partners. I find ways to test how they behave, and how many of their promises or beliefs about themselves actually become true. I ignore most of what people say about them, and I look at their actions. When I find a potential partner for new opportunity, I create low-risk experiments where we both work together but I get to see them in action before making a long term committment. If the experiment fails, no biggie, and I “cut” that person as an immediate ally. Like in dating, if you are going to have a bad relationship, better to end it after two months than two years.
We often hear that “co-founding a business is like a marriage” because, like a marriage, you need to work hard in the relationship to make it work. However, we often forget that, like a marriage, it only has to work once. If you’re looking for a business “life partner,” you are better off dating aggressively until you find the right one, instead of partnering with the wrong person and then hope that working hard will make it last.
No marriage is better than a bad marriage. No co-founder is better than bad co-founders.
4) Don’t ignore your instincts
In a past business, my partner was a lot older and experienced than I was, and I felt lucky for the opportunity to work with her. However, as we moved forward, she started acting very rude and disrespecting me often. There was a little voice that told me “maybe I shouldn’t be working with her”, but I ignored it because I was naive enough to believe I had to endure assholes as long as they had the right credentials.
Boy, was I wrong. Not only I felt bad working with her, I also let her ideas influence my original vision for the business. Looking back, it was a disaster. We made some money, but the business ended quickly. What makes me mad is that I could have avoided the struggle if I would have trusted to my gut.
Paul Graham says that in startups you should never trust your intuition, except when it comes to people. Sometimes we don’t know why we should walk away from someone other than because it “feels wrong,” but that’s all you need.
5) Don’t punish nor expect vulnerability
If you create an environment where being vulnerable, honest and critical is ignored or punished, people will start hiding what they think or lying to you. I already gave the example of my past business where disagreeing was risky. In other cases disagreeing was simply a waste of time, because the founder would just rationalize and ignore all feedback. There was no backlash, but it was pointless to bring new ideas because the CEO would eventually put them aside.
A scary thing I saw once I announced I was leaving a business I co-founded was how many people involved with the company started being honest with me in private about how they felt about the organization, the leadership, the ways we disappointed them, and more. From clients, to employees, to partners, they all opened up. More importantly, they admitted that they didn’t say anything before because they didn’t think we would welcome the feedback well.
I got scared because I realized I’ve been deluded. People didn’t feel their honesty would be rewarded, so they didn’t give me access to the truth. And in business, nothing is more dangerous than living a lie. The worst part is that some of these people are involved with this company to this day and they still feel and think the same way but won’t say it out loud.
Another problem with a context that does not foster vulnerability is that people will start running their own agendas way before they tell you. By the time someone announces they are moving on a different direction, they have been thinking and planning their move for a while, and they think it’s better to a) extract as much value as possible before leaving, or b) minimize the value given. I’ve been on both sides of this equation. I’ve been shocked by people saying they didn’t want to work with me any longer, and I’ve shocked people that I’ve worked for when I told them I was done. In both cases, the environment didn’t foster true vulnerability, so remaining secretive made more sense.
This is a bad situation because when you don’t see what people are thinking or feeling, you risk investing more and more resources on a lost cause. I’m working hard in allowing people to be more open and honest with me about their doubts and unmet needs in our current projects, so if they do decide to do something else, I can help with their next endeavor without me being caught off guard.
6) Don’t ignore their past
A co-founder of mine had been sued by his former business partner, and I didn’t know about it. I was so young and naive that I never thought of asking. I learned about it once I left, because an old mentor researched him and informed me afterwards. Looking back, I feel stupid for not seeing that something was fishy. There was a gap in this person’s history. It was hard to find ties to his past professional projects, and that’s never a good sign.
If you’re thinking “but Carlos, there’s two sides to every conflict”, here’s a good heuristic to figure out who’s more risky to work with: Who has the most to hide and opens up the least in public? When people can’t say “talk to John and Mary about working with me in project X, they will tell you what I’m like”, watch out.
Let me be clear: things can go wrong, and we shouldn’t be always punished by our past. We must burn certain bridges sometimes, since some people are better to never see again. However, I would have prepared differently and taken smarter risks if I would have known. I know I would have saved myself many headaches if someone would have given me at least one more version of this person’s true colors, which I saw too late.
A lot of what people say about them, about what they did, and how they got to where they are is a fantasy. People invent a story they like about themselves. In most people’s cases, those stories involve a healthy amount of honesty and self-blame. But sometimes we work with people that would rather bury any non-flattering part of their past. It is because of these cases that we must always dig, so we know who we are dealing with.
There’s one caveat for asking people for recommendations: People will praise anyone if there’s no risk for them to do so. This is why we can’t trust most testimonials online anymore.* People will also praise anyone’s product or professional services if they are their friends, so they gain good will from them, even though they have never paid for them.* You can’t trust these recommedantions.
The only credential that matters is this: What do the people that invested their money or time in working with you as a client/partner/boss/employee have to say about you? Ignoring this question has been extremely costly for me in the past. Next to running short term experiments with people, asking for referrals from others that 1) invested in them in the past and 2) have both something to gain and to lose if they make the wrong recommendation to you, is the best way to know who you can trust.
7) Don’t promise more than you can give
My old business mentor taught me that every business has five parts: value created, marketing, sales, finance and value delivered. When I ask people what they think is the hardest to execute, they often say it’s sales. I disagree, I think it’s delivering the value that your promised them when you closed the sale. It’s easy to sell a product or a job if you tell people everything is going to be amazing. What’s hard is to be grounded in reality and sell only what you can deliver, so you don’t scam people.
On a past startup of mine, right before I would leave, I sold our product to +10 more customers. This was a very expensive product. It pains me to this day that some of those people, after their experience with the product, talked to me in private to let me know how it disappointed them. I hope I will make it up to the somehow someday, even I did not use their money.
Around that time, past team members of the same company told me that they were promised something which was never delivered. From money to responsibilities, these people felt betrayed. It may be tempting to exaggerate what the future holds in order to recruit more people, but you must avoid the temptation, because it will come back and bite you. If you’re in business for long enough, people will notice and spread the word about the gap between what you say and what you do. Like the boy who cried wolf, at some point people stop believing you, and if you lose people’s trust, you’re doomed in business.
Better to be humble and accurate than delusional and disappointing. Others may disagree, but I believe avoiding those rules makes success both harder and unethical.
8) Don’t blend the personal and the professional too much
One of the worst mistakes I’ve ever made was to get romantically involved with a client. Back in a lonely period of my life, I let someone manipulate me for her own interests. This woman lied to every organization involved in a government project, our company included, so she could inflate her personal brand. The result: her contract was canceled, many people got fired, and many clients were disappointed.
Side note: This woman is considered a “young leader in science” in her country by their media and other institutions that don’t know or care to uncover how she got ahead in her career.
Having a fling with this person clouded my judgement, and brought unnecesary stress to my team and my relationship with my partners. However, I believe I would have not made such a stupid mistake if myself and our company would have structured more room for personal space.
To be fully immersed in a professional project can stress us in our personal life. I remember a discussion with a partner I was living with where he told me he didn’t like that every time he came home I was working on the same table.
When there’s no space for a personal life, we judge people’s professional self because of how they behave outside of work. In my past company, people were criticized because they drank or did drugs in their free time, or because they kept working late at night when others were sleeping or having dinner, or because of who they wanted to hook up with, etc.
When there’s no space for a personal life, people risk making poor professional decisions. This is one of the things that I believe the corporate world to have gotten better than the startup world so far.
9) Don’t take communication for granted
A very successful business man once told me “trust has half-life of 12 days.” If one doesn’t nourish the relationship often, trust gets “cut by half” every 12 days. Sebastian and I had a similar revelation years ago when we said that good will lasts for about two weeks.
I’ve seen this effect in all my past startups. If my partners and I were too lax about the frequency and intensity of our communication when we had to spend a significant time away from each other, everything would go to hell. With every trip, we would lose some trust and good will.
*When communication is bad, it’s hard to have everyone on the same page. If they feel there is a gap in information or someone’s presence, they fill those gaps with their imagination. *People start assuming someone is no longer motivated, or is not working hard enough, or that important decisions are being made behind their back, etc. Eventually, everyone starts running different agendas.
If it’s not clear by now, I’m skeptical of remote teams for most startups. My suggestion is to see each other plenty and talk often, if for no other reason than fueling your trust in each other.
10) Don’t underestimate the complexity of a person’s life
People are more than a title or a set of skills. They are more than what you see and hear working next to you, debating projects and the future of the company. They think and feel more things that you will ever know. We are only allowed see a small portion of someone’s thoughts, values, relationships, and other elements that influence who they are and how they will act next. No matter how much you want to read people, some things will remain hidden from you, and you have to deal with it.
I’ve learned that you can’t control people with formulas or models. Leading with vulnerability, owning our mistakes, accepting the complexity of human relations, and being resilient when (inevitably) some partnerships don’t work out, are the only things I’ve seen work if we want to develop many long-lasting, mutually beneficial, and honest professional relationships.