Seed funding and Ontario politics

No matter what your personal political convictions or choices are, if you are a technology entrepreneur you need to be paying attention to what is being proposed, if anything, by the major parties in the current provincial elections in Ontario. What is at stake here is the dismal state of capital funding for high-tech startups which has dropped down by a factor of 10 over the last decade.
What is the essence of difficulty with seed funding? It all has to do with risk and risk management. It goes without saying that at the seed stage risks are enormous and, what is worse, they are hard to mitigate. For all practical purposes, it means therefore that the risk will stay high and is unavoidable. Now, on the other hand, many, though certainly not all, innovative early-stage companies hold an allure of “changing the world” and bringing high financial pay-offs to their investors.
Certainly from the societal standpoint it is a good thing to create and invest in innovative companies. In fact, there seems to be some hard economic data for Canada, which indicates that “40% of new jobs is created by young companies which make up about 4% of businesses.” Clearly, finding a workable mechanism which would ease the pain of raising seed funding and provide practical incentives to investors, should result in increased new business formation and therefore significant economic benefits which would contribute to the prosperity of all of us.
So, what is happening on the political stage in Ontario in this context? Well, it appears that just about the only proposal to address these issues is coming from the Liberals. Glen Murray, the Ontario Minister of Research and Innovation, recently proposed
the “angel investment” incentives program which would offer tax credits for individuals contributing seed capital to fledgling startups. The details are somewhat vague and will need to be worked out but, as an example, someone investing $100,000 in a startup could get a 25-per-cent tax credit.
Apparently, this plan is modelled on a similar one which has been in operation for 10 years in British Columbia and has proven to be successful while costing the province something like $30 million a year.
If implemented sensibly and within a reasonable time this plan could really make a difference and help immensely. It would provide incentives to people willing to take a risk – and seed funding new companies is all about risk management and sharing.
To illustrate principles, let’s say I need to raise $0.5M for my startup. If I go to you and ask you for the whole $0.5M or just a $100K chunk, even assuming you have the means, you are going to ponder this and agonize over the decision endlessly. However, if I go and ask you to invest $10-15K, you are going to spend far less time worrying about it and will be much more predisposed to take flight. Thus by employing this tactic, an entrepreneur will likely raise their $0.5M because the risk is shared among many investors and each of them does not risk that much individually.
This is exactly how I had raised angels financing for ATMOS Corp by bringing in about 20 private investors, each of whom on average contributed anywhere between $10K and $25K. The beauty of this approach is that nobody is going to lose sleep and the entrepreneur gets his/her objective accomplished. In fact, this is the same principle in action that powers the IPOs and syndicated VC rounds, albeit in a smaller scale. It works, therefore, use it. Of course, there are some pitfalls to watch, such as government regulations, accredited investors requirements etc., but these can be navigated around.
The key in seed funding is to incentivize and reward risk taking. It is disappointing that other political parties are not paying attention to this important issue. The current Ontario Liberals proposal is addressing this need well. Let’s hope we shall see it implemented without much delay.

A Word (or two) to the First-Time CEO

CEO signThe challenges facing first-time CEOs are numerous and are rarely discussed – it’s not a job that most folks train for. We have shared several posts with practical pointers on the topic in this blog before. Below is another take from an experienced practitioner.


Note from Paul: The post below was authored and submitted by Jill Ram.

* * *

First time CEO? Take heed. How you behave, the image you project, the values by which you govern yourself, they’re all part of the recipe for success – or failure.

My father is a wise man. He once shared an expression with me that has remained at the forefront of my thoughts with every company I join: A fish always rots from the head. In other words, whatever a company’s successes, failures, or dysfunctions, they stem from the top. Show me a CEO and I’ll tell you exactly how a company is run and how its culture reflects it.

The CEO can single-handedly define the culture of a company. How he behaves, reacts, composes himself – even in the seemingly least noticeable of moments, the passing comments he makes, the way in which he interacts with employees, the level of empowerment he bestows on his people, the importance placed on accountability, performance, efficiency, and communication, all of it defines him. Since it’s inevitable that the CEO’s conduct permeates every crevice of the organization entrusted to him, in effect he or she defines the culture of that company.

The industry may dictate the pace at which a company runs, but the culture is the CEO’s domain. And while the economic climate may affect financial success, which may in turn impact the spirit and motivation of employees (especially when difficult and unpopular decisions have to be made), it is the actions of the CEO in those moments that are most impactful. And CEO behaviour does not have any less of an impact simply because a company is profitable. Profitability may allow a CEO and his employees to breathe easier, but it does not decouple the relationship between the CEO’s behaviour and that company’s culture.

Let’s look at how that CEO, maybe you, stepped into the role:

1. A vice-president at a large company does not a CEO at a small company make – necessarily.

I don’t know who conjured up the idea that a lower position in a large company automatically qualifies you to handle a more senior position at a smaller one. Responsibilities aren’t diminished at a smaller company. In fact, they are sometimes broader. So you were a VP before. You had P&L responsibility, you had a staff of over 100, you reported into a senior VP or an executive VP, or even the CEO. But were you ever directly responsible for shareholder value? How about the bottom line of the entire business or defining the company culture? Remember that reporting into a Board of Directors or a long line of investors is a much more daunting responsibility than you’ve likely ever had. All eyes are on you, including those of employees. It’s now up to you to both concoct the Kool-Aid and get them to drink it. Make sure to choose the flavour carefully.

2. You were already working for the company and were promoted to CEO:

I know – you’re still the same person you were yesterday, the day before you became CEO. How could it be that different? But it is. Because the reality is, while you may be the same person, you are now occupying a completely different role. And what employees see is a CEO, not you. What you say in the halls will get repeated everywhere. What you shared with some employees before, you’ll want to think twice about before sharing today. In as much as you trust those employees, you may now want to shelter them from the whole truth. You may have been the VP of Sales or the CFO yesterday, but today, you are the CEO. Remember it every day before you step foot in the office. Your responsibility to the company is greater now than it ever has been.

3. You’re a founder:

Ok, so you created a company from scratch. It’s your baby. You know what’s best. Perhaps. While you weren’t parachuted into the role, much of what is written above applies to you. You may have handpicked many of your employees and know them really well, but remember to draw the line at being their friend. Perhaps you try to foster the illusion of being their friend? If you can master that distinction, more power to you. But never forget that you have a responsibility to lead them. And shelter them.

The greatest advice you can heed as a founder, for as difficult as it may be, is to remove emotions from the decisions you make. Not realistic? Then temper them as much as possible and find that one person on whom you can rely to keep you in check. Oh, and know when to recognize that your company is now a real company and not the fledgling start-up you launched a few of years ago. Your leadership tactics will need to change.

If you accept the challenge of becoming a CEO, no matter how you assumed the role, remember to surround yourself with the best of the best, not yes men who will make you feel like a king. Kingdoms sometimes topple. Or get overthrown.

Know your strengths and weaknesses. Don’t try to run all aspects of the business; that’s what you have a management team for – assuming you built the right team. The right team will be comprised of competent people who will have the courage to tell you the things you don’t want to hear – in the moments you least want to hear them. Lose the ego and learn to appreciate – and act on – their input. Without them, you will never really know what’s going on at the core of your company, because everyone else will be too afraid to give it to you straight. People tell you what they think you want to hear. And if you think you can distinguish between the two, think again.

Knowing whom to trust, knowing when to make difficult decisions, learning to make those decisions void of your emotional attachment to an idea or individual, how you treat your assets, and the image you portray, are all critical to your long-term success and to the company’s. The culture you create, deliberately or otherwise, will have an immense impact on your company’s ability to attract, retain, and harness employees.

Yes, it’s lonely at the top. Make sure you are ready for the spotlight.


Jill Ram is a Strategic Business & Human Resources Advisor with over 20 years of experience leading human resources for a variety of technology organizations in both start-up and mature phases.

Equity Crowdfunding Comes to Ontario – finally!

Canadian-100-dollar-billsThis could be big, really BIG! For entrepreneurs and startup founders this could be a monumental change, potentially opening the floodgates onto the dry and barren land of seed funding. At the very least it should offer new options for cash-starved startups and early-stage businesses. The recently proposed (as of March 20, 2014) Ontario Securities Commission (OSC) new set of regulations provides for

“a crowdfunding exemption that would allow businesses, particularly start-ups and early stage businesses, to raise capital from a potentially large number of investors through an online platform registered with the securities regulators.”

More specifically, this ‘Crowdfunding Exemption’ would allow startups and SMEs to raise up to $1.5M per 12 month calendar year with investors being able to invest up to $2,500 per deal and up to $10,000 per year.

Why is this so important, then? The issue is that under the current Canadian securities laws, startups can only raise money by selling equity in their business to so-called “accredited investors,” who are strictly defined and typically include family members, angel investment firms or venture capitalists. Should you wish to raise funds from a broader circle of individual investors, your company needs to go through a process of stock listing on a publicly traded exchange that is normally prohibitive to a startup.

The advancements in internet technology, however, make it possible these days to approach and raise the required capital in small amounts from a much broader group of individuals. Why is this approach relevant? It all has to do with risk management and sharing. To illustrate the issue let me quote from my article recently published in The Ottawa Citizen.

“Let’s say I need to raise $0.5M for my startup. I go to you and ask you for the whole sum or just a $100K chunk. Even assuming you have the means, you are going to agonize at length over your decision. However, if I ask you to invest $10-15K, you will spend far less time worrying and be much more predisposed to take the chance. By employing this tactic, an entrepreneur will likely raise her $0.5M because the risk is shared among many investors and each of them does not risk that much.

This is exactly how I raised, some time ago, angels financing for ATMOS Corp. I brought in about 20 private investors, with each contributing between $10K and $25K. The beauty of this approach is that nobody is going to loose sleep and the entrepreneur gets his objective accomplished. In fact, this is the same principle in action that powers the IPOs and syndicated VC rounds albeit in a smaller scale. It works, therefore, use it.”

The key to increase seed financing in this country is to implement some practical systemic initiatives. People respond to incentives. If we want to encourage seed funding to enable entrepreneurship and startups we need to create incentives which reward financial risk taking. The OSC proposal is a good step forward to create a viable framework enhancing options for seed investing. The Canadian Advanced Technology Alliance (CATA) led by John Reid should be congratulated for spearheading the industry lobbying effort. Not to rest on laurels, the Angel Investment Incentives initiative should be advocated, advanced and implemented next. With these two in place we would have a really strong system platform to support the entrepreneurial startup culture in Ontario.
Nevertheless, some folks are concerned about a potential for fraud and taking advantage of un-sophisticated investors. Would you agree that the advantages outweigh the risks? What do you think?

The Notice and Request for Comment is available for public consultation on the OSC website and the comment period runs until June 18, 2014.

Forming the Founders Team – Agony and Ecstasy

partnerships_main_imageYears ago my very first startup had a Founders Team consisting of myself and three other colleagues who were fellow engineers with entrepreneurial ambitions. It failed miserably after 6 months of operation. One of the key reasons was that the founders were all very much alike: technical, with little business experience and big on personal ambitions. Several more startups later, here are a few key lessons learnt from forming founders teams:

  • Build your founders team on the basis of complementary skills resisting that certain comfort of having partners who are very much alike; above all make sure that everyone understands and is happy with his/her role –no stepping on each other toes or in-fighting.
  • Go slow with the selection of co-founders; realize you may need certain expertise, reserve the slot on the team, but don’t jump at the first candidate because you are in a hurry.
  • Seek a commonality of values and supporting personality traits rather than pure mastery of skills; you will likely be going through many conflict-ridden situations and spending, on occasion, more time together than in your marriage – make sure you get along!
  • Trustworthy, loyal, helpful, kind” – if you can get all of this and have fun together in spite of all the tribulations, you have found gold – hang on to it!

NOTE from Paul: The guest post below well illustrative of my points is written by Bob Hebert.

I have been in business partnerships, on and off, for over 30 years. I was thinking about this sobering fact and the challenges of partnerships as I read Paul Allen’s biography, Idea Man, in which he accuses former partners Bill Gates and Steve Ballmer of conspiring to dilute his equity in the embryotic Microsoft. His lament is not dissimilar to the issue at the core of the movie The Social Network where Mark Zuckerberg is charged with reducing his partner’s equity in the company Facebook without involving him in the decision.

Workplace partnerships are forged in times of unbridled optimism and stress tested every single day thereafter. These tests are born of success, failure, personalities, egos, jealousies, greed, market forces, competition and time. And in each instance perceptions of fairness are the scales on which the partnership relationship is weighed.  Does the equitability on which the partnership was founded endure, or do creeping imbalances, real or perceived, corrode the relationship?

Designer Coco Chanel was quite content to give 70% of her tiny fragrance business to her more experienced partner, cosmetics mogul Pierre Wertheimer. However as the Chanel fragrance became an iconic global brand, bitterness over the ‘unfairness’ of their respective equity positions destroyed the partnership and led to years of courtroom acrimony. Similarly, the value which Mark Zuckerberg’s assigned to his administrative and financial partner waned as the business grew and altogether more valuable counsel clamored for his affection. In the annals of successful businessmen, the list of those with at least one partnership they outgrew or which betrayed them is long and illustrious.

Intuitively, one would think that partnerships work best in Gilbert and Sullivan-like scenarios (though theirs broke up) where one partner’s lyrics marry magically with the other’s melodies. The early partnership of Joe Shuster and Jerry Siegel is another form of this where one wove the tales of the Man of Steel while the other’s drawings brought the comic-book character to life. As one person wrote “In such instances we have two masters who are playing a concerto. Neither is subordinate to the other; each gives what is original, but the two, while neither predominates, are in perfect correspondence”.

Such partnerships are common in business where one partner may be the technical or market visionary while the other focuses on execution (at Intel for example, it was said that “Andy Grove was the visionary but Craig Barrett made it happen”). Each partner is master of their domain with limited overlap of sphere and expertise and together the halves become a successful whole. Even these partnerships can be tricky however as the outward facing partner often receives the fame and glory (Think Giorgio Armani and Sergio Galeotti for example. That’s right, Sergio who?) and thus the personality and ego of the less visible partner must be able to cope with the disproportionate sunlight that falls on the other.

Of course for every intuitive rule of fit, exceptions mock the notion of any rule. There are countless examples of successful partnerships that shouldn’t work and others that should have but didn’t. In the end, partnerships resist facile or prescriptive characterizations and even the best ones take tremendous work. Perhaps my barber said it best last week when commenting on the retirement of his business partner with whom he worked side by side, six days per week for 28 years in the same small strip mall. A man of few words, he described their longevity and success as a ‘miracle’.

About the Author

Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements. His post appeared originally on his site.

To Hang In or to Let Go? When to KILL your Startup

Horse dead

“When the horse is dead – dismount” is succinct practical advice sometimes attributed to the famous cavalry general Lord Mountbatten. No matter what its origin, the essence of it is clear: stop agonizing and procrastinating when something ends; the only thing left to do is to get off the horse and move on with your life.

The fact is, not every startup works out; in reality most of them fail. It is a fact of life supported by a mountain of stats data. And yet, it is extremely hard for most people to disentangle themselves from what usually was a significant personal emotional investment. The biggest hurdle to overcome here is what’s known as sunk cost fallacy. It usually goes like this: “We have invested so much (money – if you are financial investor, or life – if you are a founder), we worked so hard, we achieved so much, etc, etc that we cannot possibly let go.”

“If we could only get more funding or bring in better talent, we would succeed!” NO, you would NOT if you missed the market opportunity (assuming there ever was one), the customers are not buying, your team is burnt out and your investors look ready to kill you. Under these circumstances no amount of whip cracking will help; just get off the dead horse and move on to pursue better prospects in your life.

I have been recently involved with a startup whose story perfectly illustrates my points. The founders developed a business plan addressing an emerging market problem which, although initially nascent, appeared to be destined to become a major issue (and therefore a market opportunity) in about a year or so. Theirs was a chance to pioneer a new industry and get all the glory of it.

They managed to raise some modest angel funding that allowed them to toil for about a year initially, investing their sweat equity and some cash of their own to develop a product prototype. At this point they attracted a $2M seed investment from a Toronto-based VC fund.

The experienced founders executed well, built a strong development team and launched the first product before the year was over. Good product reviews arrived and a couple of early-adopter customer purchases materialized. The CEO was walking tall, receiving inquiries from top tier VCs such as Kleiner Perkins, Sequoia, NEA, etc. A substantial funding round appeared to be a sure thing. However, during the second year of operation sales were slow as the market was taking its time to develop. Consequently, venture capitalists were in no hurry to jump in and adopted a wait-and-see attitude.

With the high burn and dwindling funding prospects, the seed investors started to worry. I remember going to Board meetings and hearing remarks like: “We may have to do a reset”, “The only thing a VC can do is replace the CEO”, and such. Sure enough, the founder-CEO was asked to find her replacement and the expensive $60K headhunter-led search started.

When a company is still in the startup mode, searching for a winning business model, as opposed to being in the execution mode, replacing the CEO is rarely a good idea – unless, of course, the existing CEO is clearly incompetent. There is a major difference between a non-linear skillset of a founding CEO with his vision, passion, and commitment, and a hired-CEO with his usually linear execution skills. Such a change is a major and costly disruption in the life of a young startup. If nothing else, it takes about a full one-year business cycle for the new CEO to fully understand the realities of his business. In addition, with the departure of its CEO the company loses an enormous amount of the painfully accumulated company specific business experience.

With the new face put on the company, the VCs provided additional cash support by twisting some arms in financial circles to close a new investment round of $3.5M. With these resources in hand, the team embarked on the second-life journey. However, in spite of the new face, talents, cash and the energy, the market readiness has not changed. Fast-forward through a few heroic-effort but modest sales, high burn, etc and 3 years later the company is again running out of money.

At this point, everyone is exhausted and out of ideas for what to do next. The horse is dead but it is so hard to admit it! The sunk cost fallacy is raising its ugly head: we invested so much, right? It is so hard to admit a mistake and let go. Thus, the company is put in a dormant state: most employees laid off, the hired CEO stays part-time while pursuing other income opportunities, the original investors write it off mentally but still keep it on the books, the most recently sucked-in investor has no clue what to do so lets the ship drift, barely keeping the lights on for appearances just in case…

But wait, that’s still not the end of this story. After a year of this malaise, the original founder-CEO gets approached to see if he could step back in and see what could be done with the company. Another restructuring follows with $0.5M new funding to see what could be done. More heroic sales efforts come with some modest results but the market still isn’t there. Finally, all the key members of the crew quit to pursue better prospects in their lives but the controlling investor hires yet another expensive sweet talking miracle-maker who promises resurrection and the recovery of that sunken cost…

Technology startups are not mature proven-viability companies that could be “management engineered” and played with. They are essentially experiments in market or technology. Their founding premises and hypotheses need to be quickly tested and verified before large amounts of money are deployed. If the business model fails repeatedly, abandon ship no matter what the sunken cost is.

Innovate, Adapt, or Die

Innovation“Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you lead them, and how much you get it.

This quotation from S. Jobs was floating through my mind as I perused the enjoyable read of the recently published “Adventures in Innovation: Inside the Rise and Fall of Nortel” by John Tyson. The book is a fascinating personal account by one of the key R&D executives who has been there for most of the ride since 1966 until 2001, almost the end. There are many facets to his story but at the heart of it is one of universal interest to anyone in the high-tech community: the eternal tension between creativity and innovation on one hand, and the need to maximize revenue and profits.

It does not matter whether you are a start-up or a billion dollar company. All for-profit organizations powered by innovation experience this built-in tension. There is nothing wrong with it, quite the opposite. Its existence is healthy and helps to right the ship as it sails through turbulent waters of the forever changing business seas – as long as it is constructive, kept in balance and supported by the trust and mutual respect of the members of the crew.

This tension, between, as Tyson calls it, “pinstriped executives driving sales and white-coated lab engineers pursuing ideas for products a decade away”, is not difficult to maintain in balance as long as both camps talk to each other and the top leadership listens. But it is easy to stop listening as sales grow through the roof, the stock price is exploding and you are in the midst of a wild binge of acquisitions and hiring waves.

Putting R&D spending under the control of the operating businesses focused on immediate products and profits carries a huge risk that research will become just another cost, rather than an investment in the future. In the battle between the operating, money-making arm of the organization and the R&D operation, the scales are tipped towards the former. At the end it will win this unless there is a strong structural protective cocoon around R&D and the enlightened top leadership which does not waiver. Arguably, Nortel collapsed because the conversation stopped  between the two camps.

In one of his recalled stories, Tyson asks Scrivener, Nortel’s CEO at the time, about managing business strategy and tactics. It is instructive, that as CEO he owned the strategy and the vision, and considered the operating and marketing plans to be tactical. Consequently he advised aspiring executives to learn to manage the strategy and delegate the tactics. Even more memorable, when asked for his planning horizon, he answered: “10 years.”

Now, this is truly mind-boggling stuff in today’s business environment when very few business leaders have the guts to think that way without quickly giving up to the pressures of short-term expediency. In terms of planning with 10 years horizons, well…, possibly, just possibly the Politburo of China might be able to afford it 🙂 And yet, one feels this inner itch, a tiny voice whispering that he was right and that’s the way to do it…

When a CEO loses it and falls prey to the short-term expediency rather than viewing R&D as long-term investment, that delicate tension balance will break-down and the internal fighting will start over marketing as an expense versus an investment. This leads to a waste of a lot of money, resources, and time. Ultimately, the collapse will be in sight.

Under these circumstances, there is only one more potential saviour: the enlightened, competent Board of Directors which takes seriously its fundamental responsibility to proactively set the strategic direction of the company. However, if the Board allows itself to become too remote from the corporate culture, shielded by executives who consider the directors a necessary evil, it will turn itself into ineffective caretakers as in Nortel’s case towards the end when “Board members were little more than well-meaning, part-time sophisticated  contractors who were well compensated to meet the minimal legal requirements.”

There are many valuable lessons from Nortel’s story – the biggest tragedy in Canadian high-tech – which are worth pondering to help other tech organizations, Blackberry and re-modeled NRC come to mind, avoid snatching defeat from the jaws of victory. After all, “Those who do not learn from history are doomed to repeat it.”

Vaporizing VC Interest

Note from Paul: “Hear no till you hear yes.” This is a realistic way to gauge progress in your VC fundraising efforts.

Anything's Possible

Nearly every week, I receive an email from one of our portfolio founders that reads something like: “Hey, Eric, great news! We just got out of a meeting with Dave from AwesomeVC and he loves what we’re doing. I have a good feeling he’s going to lead our Series A round.”

Not long after, a few more superenthusiastic emails follow about the high probability that other VCs are also very interested and how the founder expects to wrap up the round quickly and painlessly.

Then the balloon deflates. One by one, the VCs pass on the round, and the founder has to break the news to the co-founders, employees, and existing investors. He’s completely dejected, his team is now concerned about running out of money, and his initial investors fear they may have funded a dud. How could he have been so wrong about the interest level of the VCs?…

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Angel Investment Incentives – Blueprint for Ontario

There is no point in re-inventing the wheel. The existing time-proven British Columbia Equity Capital Program (BCECP) provides excellent blueprints to be adopted by the  Government of Ontario following its election promises (see this post).

The program provides individual investors (angels) incentives by way of a refundable tax credit when they invest in eligible small business. The highlights of this program include:

  • 30% refundable cash credit (good as cash) with a maximum of $200,000 investment for a maximum annual tax credit of $60,000 per individual investor
  • Ability to invest directly, or in a holding company known as a Venture Capital Corporation (VCC), which in turn can invest in one or more eligible businesses
  • RRSP eligibility for VCC shares which can drive max tax savings up to 74% !
  • Hassle factor – low; apparently administration of the program is fairly smooth with a minimum of red tape

More details on the BCECP program can be found in this succinct overview.

As a support document for the policy-makers there is an excellent recent study published by the Ministry on the effectiveness of the BCECP program.

A program like this implemented in Ontario would do wonders to re-invigorate our stagnating high-tech ventures, resulting in great economic benefits for everybody. There was an initiative earlier this year involving Terry Matthews of Wesley Clover and Bruce Lazenby of Invest Ottawa to have this included in the last provincial budget but it fell through. Now is the time to try again.

So, what are we waiting for? Let’s push our elected politicians to fulfill on their promises and provide support for startups, small business, and new ventures.

Start-up CEOs Attributes – Hard Lessons

If you were an experienced hang-glider pilot could you fly a Jumbo Jet? Of course, not. Surprisingly though, some folks hesitate when asked: would the reverse be true? Actually, in my younger days I was a glider (motor-less aircraft) sports pilot. It took a lot of professional training and practice to master that skill. Later on, after many years of being away from this sport, I went to a local flying club for refresher flights with an instructor. While spending a day at the airfield I bumped into another trainee, a former F-15 fighter pilot. I was awed: “Gee, it must be a piece of cake for you to fly gliders!” I said. Only it wasn’t. “Hardly anything from flying fighter jets is applicable, I have to un-learn a lot and develop entirely different skills – it really feels awkward.” 

NOTE from Paul: The guest post below is written by Bob Hebert and originally appeared on his site.

I spent time recently with a prominent venture capitalist who has reflected a fair bit on the talent issue in the start-up game.Our discussion focused to the importance of certain attributes for start-up CEOs and how easy it is to misjudge their importance. To this VC, start-ups are like clay of varying grades which, in the hands of talented artisans, sometimes become art of considerable value. The creative process by which that art emerges however is a blend of inspirational, improvisational, experimental and professional activities. The finished product often bears little resemblance to what was envisioned at the outset. The irony of the start-up game is that detailed blueprints get funded while decidedly non-linear alchemy is often where the money is at.

The art of managing start-ups is the ability to feign being in total control while figuring out the company’s technological and market sweet spot (in real-time). This requires the ability to manage stakeholder expectations, implement scalable processes, manage people etc while trying to stay alive on the marketplace autobahn. These are decidedly different skills which organizations nonetheless seek to find in one CEO.

Because execution skills are more linear and easier to evaluate in candidates than the entrepreneurial je ne sais quoi, and because start-ups and their investors are often overly optimistic about the compelling logic of the blueprints they have funded, there is a tendency to skew selection decisions towards execution and scaling skills at the expense of the more entrepreneurial skills required to position the company to be scaled.

The VC spoke of the painful experience of hiring one person who had an impeccable track record of building the Canadian subsidiaries of large US or international tech firms. Because the person had launched these subsidiaries from scratch, she considered herself a ‘start-up’ person. And because several of these firms had become runaway successes, she had the swagger of someone who attributed at least some of that success to herself.

However, as the VC came to realize, this person had never taken raw technology and built a company from it. She had never really contemplated or adapted business models, searched for markets for a new technology or developed ‘go-to-market’ strategies in no-name start-ups. Instead, this person had always been handed technologies with large referenceable accounts in hand, well developed positioning statements, messaging and collateral. Her job was always tactical and full-steam ahead execution. This was a totally different game.

The VC talked of how he has learned that CEOs must be akin to entrepreneurial scientists. They must develop hypotheses, experiment, validate via feedback, adjust, shift and go forward, fast. With so many potential paths before them, they benefit by an entrepreneurial nose that will draw them to where the real opportunity is, and they must move fast while adjusting just as quickly. While company building, execution and scaling are important, without these other abilities the CEO will pick a path and die of starvation on it.

About the Author

Robert Hebert is the founder and Managing Partner of StoneWood Group Inc., a leading executive search firm in Canada. Since 1981, he has helped firms across a wide range of sectors address their senior recruiting, assessment and leadership development requirements.

Impressed by Matthews and his Tech Lobbying Efforts

Canadian high-tech has always struck me as politically naïve and immature. Perhaps it is due to the nature of engineering work requiring a bit of an introvert personality, focused on hard data and attention to details in a narrow technical field. It could be that the mantra “If you build it, they will come”, the ethos of “Building a better mousetrap”, the frontier-like spirit of fierce independence and self-reliability, all by themselves admirable characteristics,  make it a bit short-sighted if not isolationist when it comes to the realization that their industry is not an island and it makes sense to pay attention to a broader world around advocating, advancing, and protecting its interests in the larger society.

 Whatever the reasons, the fact is that the tech community or so-called knowledge workers in Canada do not have a formidable political lobby  of the likes of the infamous Maritime fishermen, automotive unions, or the Prairie farmers. Arguably, organizations such as CATA or ITAC are supposed to provide the industry representation and advocacy, but the overall sense is that they are only partially effective.  As a result, not only is the country’s knowledge economy, competitiveness, and productivity not advancing as fast and reaching a desirable height on the world scene as they should, but, even more worrisome, when the trouble comes – as it inevitably does, even the flagship companies of the likes of Nortel and BlackBerry are left out in the cold without the support of our own government.

Nortel’s disastrous fiasco often provokes heated debates and I am sometimes asked what I think about it. Not going into the complex details of the underlying decisions that led to Nortel’s collapse, my answer as to the reasons for the ultimate failure in the end-game is that this was primarily due to the own doing of the company senior management, their hubris or political inexperience and naivety. Here we had a Canadian-headquartered flagship tech organization which routinely imported CEOs and executive management primarily from the US, with little or no loyalty and connections to the country. Even worse, the corporate culture was more of a contempt for politicians and government bureaucracy than an astute realization of potentially useful value of cultivating such relationships. No wonder when the trouble came, there was no one in the government willing to throw you a lifeline!

Having recently attended the Tech Tuesday meeting run by Wesley Clover (Terry Matthews organization) at The Marshes Club in Kanata, I am happy to report that finally we see some serious effort to mount a broad grassroots high-tech political lobby. There was a lively crowd of 50-80 high-tech folks doing a little networking by the bar followed by a serious discussion and a debriefing on the voluntary run efforts to bring the tech industry agenda more to the federal government’s attention. Here are the highlights of what’s been achieved so far:

  • After a couple of years of efforts, the infamous double-taxation of US investors in Canada was abandoned
  • Most of the senior government officials at the minister (Flaherty, Kenney, Moore, etc) and DM level were briefed about the tech industry issues and are open to take action given industry input
  • The current efforts resulted in the inclusion in Harper’s recent “Speech from the throne”, a remark to the effect that “The government will release an updated Science, Technology and Innovation Strategy”, which apparently is an important first step for further specific action

Matthews was instrumental in most of the above efforts and it was really heart-warming to see his eager involvement, initiative and leadership. This is exactly the kind of leadership that Ottawa high-tech needs. 

Some of the specific issues and initiatives brought up in the discussion included:

  • Support for the purchase of Canadian tech companies’ products by government, its agencies but also large Canadian organizations such as banks, telecom providers (Telus, Bell, Rogers), etc
  • Angel investment tax credit modeled on the highly successful BC program
  • The issue of more and more restrictive SRED practices by the CRA
  • A need to make IRAP grants non-deductible from SRED claims

 The voluntary task force will keep working at it  over the next 2-3 months, to distill a number of such proposals down to three major initiatives that will be presented to senior federal government officials for inclusion in the government economic action plan i.e. the next budget.

Overall this is a great initiative  and Terry Matthews needs to be commended for spearheading it and providing a very much needed leadership. The ironic part though was that the audience was a totally high-tech crowd and it was pitching to the converted. Nobody thought about inviting local MPs to let them hear directly what their voters need and would like to see happen. And the brutal truth in the world of politics: only votes count!


Why Founders Fail: The Product CEO Paradox

Paul’s Comment: There is no True or False answer to this philosophical question: “Are founding CEOs better to bet on than hired-CEOs?” It all depends on the individual and the context often riddled with conflicts and politics. But the important point is to be aware of those choices, analyze the context with circumspection and while making a decision treat the people involved fair with respect and dignity. The article by Ben Horowitz provides rare insights into the pros and cons of these issues.