StartUp Dilemma – 3 (When to Stop Doing Everything Yourself)

Last week I got a call from the founder of an ex vendor partner. She is CEO of a customer software and apps development company that is roughly 10 years old. She basically called me for a ref check on a key hire. They are now 65 people, want to expand geographically – not just from a sales perspective, but also wants to open an entity in the U.S., is thinking of maybe creating an employee stock option plan; and ofcourse is beginning to think of exit options – not necessarily now, but atleast consider a possibility in the very distant future. On the HR side, she is saying while she does have a solid core of early employees, she is thinking of hiring senior talent, and of offering her employees benefits that will make her competitive in the market.

So far, her way of dealing with all of this was to do it herself. She said – she’s read more books on finance and accounting now than she ever did before, and she has even attended conferences about company structure etc.

Now ofcourse she has finally realized it’s high time she stopped stretching her own self thin enough to do everything, but more importantly, its stopping her from focusing on what she really should be doing – business development!

Her question to me, as we were discussing this issue, was – what is the right time to start hiring “support functions”. Is it a waste of precious money to get someone early on when you can so easily do it yourself – specially, as in the case with a lot of start ups, you are self funded! Familiar, right?

My advice/ experience as follows:

a) In the beginning in many cases you will deal with these issues yourself. But, it would be prudent to get some degree of expertise in these functions you don’t really consider important – the expertise could be friends and family if you are lucky. But if you are not, talk to as many people in your network to get different points of view. Most importantly, contract some degree of expertise to an expert service provider – you don’t have to hire; but you can outsource – if you don’t need full time help, you could use a project based, or a consultancy model. But think of what can happen if you don’t:

i. Enterprise structure: In our case, we were 4 partners, with very different citizenship statuses (should it be statii?) – In the beginning, we just created a Delaware LLC on our own, and had one of the partners appointed as the defacto “CFO”. Thank god we figured out soon that we didn’t want to do this – and contracted out to a small but respectable accounting firm both in India and the U.S. Otherwise, at exit, we may not have been able to exploit the full valuation due to a problem in what was “seed money” – we faced a hotly debated issue on whether sweat equity was considered enough investment! Uff!!!

ii. Funding/ ownership status: More in the U.S., there are restrictions on what type of funding allows what kinds of benefit – hopelessly complicated to folks not in the know, and you want to make sure while you take angel/ seed money you are getting the right bang for the buck

iii. Tax Breaks: A decision we didn’t take in the beginning – because we thought – why hurry/ we are too small/ its not worth it – came back to haunt us very often. This was the registering of our entity under the then prevalent STPI – if we had done it at the beginning, we would have saved us a lot of cash in tax breaks – as it happened, when we did finally get advice, we kept resisting it – and when we finally made the conversion, we could only do it for a small part of the entity – and it was too little too late (the STPI law expired soon thereafter anyway)

iv. Perfect Book Keeping: Thanks to having hired our CA firm on a retainer and over a cple of years having bargained for a dedicated resource on our account, we had our financial books in perfect order. When we did finally start/ hire our finance department, this resource was one of the first people we took onboard – he remains with us still – and so our history was intact in people as well as ofcourse documentation

v. Finally, during exit : As our acquiring company was undertaking accounting due diligence, our financial MIS/ processes and books were in perfect order – so much so, that a company 150 times ours in size, and an expert at financial services processes to boot had to confess that we beat them at the process game!

The most important part in all of this was – we never – really never, struggled with the boring details of audits and books – we just left it to the experts. Ofcourse, it’s important to therefore get the RIGHT experts – in our cases, our partner was a firm of really experienced accountants, who kind of “took us under their wings” and pretty much mentored us on all aspects. More importantly, realizing the stage of startup – their retainer fees for us was smallish. – it grew as we grew, so it wasn’t entirely charity!

Some 3 years down the line, when we were like a hundred people, we figured – like the CEO who had the problem to begin with – that we did need to take our finances inhouse. Here there was not only accounting issues, but we really wanted to start using our money effectively. So, we started our finance department – our CFO essentially helped us invest wisely, got the accounts streamlined; put in place super practices for sales invoicing in the U.S. as well; helped us quasi – start a financial services business; helped set up our employee phantom stock option plan; in short – became a friend, philosopher guide. In addition, he was the first person outside of the partners that knew of the potential acquisition – and he pretty much single handedly navigated those waters. He made many fans in the process amongst the investment bankers and in the acquiring company ☺. Again, we were maybe fortunate in the person we had join us, but he ensured that we never took the load of “non core” activities.

A similar story can be told for all our support functions – in the beginning we used the services of agencies for Hiring; of a consultant for devising some initial HR process including appraisal ones; and of-course did our own ‘welfare” programs such as they were :). Year 2 we hired the HR Manager – and almost overnight we became almost a copybook HR entity – we started developing documented processes; started formal programs of welfare and engagement/ motivation; in short, became a “company” and not just a “startup”. Our HR folks also helped set up our third service division – which needed hiring of 100 people within a month, thus catapulting us from a small start up to an SMB! And then worked out a really innovative outsourcing solution for ramp up and down headcount – repeatedly! A practice which is still in place.

The same was true of IT, infrastructure and admin support – sporadically outsource in the beginning (we had an all-jobs-man-Friday for the longest time – not very highly skilled but really handy at miscellaneous jobs from getting generator diesel when the power was out (with deadlines of multiple daily reports looming large, and not world class bandwidth, this was our biggest nightmare – how often have we had to cart all folks with USB keys to Cyber Cafes!) to chasing down defaulting carpenters; to arranging bribes to policemen; to fixing transport arrangement for guests; and to finding new office space each time we grew out of the old one – he was invaluable!); but then hire first one, then another, specialised resources till we had a fully functional admin department towards the end. We did have a vendor sponsored resource for IT just like Finance, who soon became our first IT hire! Infact, our head of Ops was probably our first “non-core” hire – we got him when we were maybe 40 – 50 people and had started experiencing the beginnings of growing pains in a people business. Over time, the number of odd jobs this poor gent carried out was astonishing (he got such variety at his job, that it may have spoiled him forever from working at a more staid/ structured environment 🙂 ) – he created valuation spreadsheets when the first few investors started sniffing around (at that time, we had no interest in any kind of fund raising (see post on when to acquire funds here) – but did need to show “professionalism” – so poor Prashanth did that, to moving a few offices, to setting admin and ops processes in place – to getting our first functional process documentation – which later led to our getting the ISO certification; and in general being a good sounding board apart from providing enormous entertainment with his mean dance moves on the party floor!

The good news, the kind of folks that made up the senior guys in these functions became very much our core senior management – they were/ are ALL without exception the kinds you need helping you in an entrepreneurial venture – all wear many hats; all can be generalists as well as specialsist; all are clearly domain experts; but can spot and take on myriad roles. This dynamism/ ability to work – nay thrive in, an unstructured atmosphere – is what after all you need as you grow a start-up!

So, from my perspective, if you are running a start-up, specially one wbich is people intensive i.e., in the services area; and specially if you live in a country where services are not formidably expensive (but even if you are) – just as you have client milestones – set yourself up with milestones for first outsourcing , and then hiring teams for support functions. In our case the milestones seem to have been 50 people/ 100, then 200 and 400..

After all, you yourself have code to write, teams to build, clients to persuade – a dream to fulfill – that’s why you became an entrepreneur – NOT to figure out how to balance balance sheets (mine never did – even in Accounting class in B School!!!)

Coming back to the lady who called me, I think she will finally hire the guy but as a part time resource – her business doesn’t necessarily have the requirement and the spare cash for a full time resource; but she will still be better off than trying to solve for all these activities herself…

Playing to Your Strengths? Really?

I came across this article from the CEO of Gallup Jim Clifton about how his dad advised him to “follow his strengths”, saying “Your weaknesses will never develop,” he told me, “while your strengths will develop infinitely.” This mantra was then a big reason for his success. Apparently this also allied with the Gallup Strength Finder, a tool that has been used across enterprise for a lot of psychographic profiling.

You know, I actually agree with this in general – to be successful, it is important that you work in an area of your strength – this will a) make you work well, b) enable you to give your best to your organization, c) make you happy, and finally d) be the incentive to become even better at it – like the Gallup CEO above said.

But I think to do the above you first need to take a simple step – this sometimes takes a LOT of time even though it shouldn’t – it is finding out what a person’s strength is. It is something that education should direct you towards finding, but very often doesn’t really.

I wonder about this thing fairly often – my kids go to umpteen classes – Dance, Hindustani classical vocal, Western classical guitar/ piano, Tennis, Swimming, Drama – really, they try everything. And this by the way is a continuously rotating thing – in the last 8ish years we have tried skating, basketball, art, soccer, ballet, robotics, chess – what have you. Many of these we give up because the kids protested loudly – it was such a struggle to send them to those classes every week – they would call at really inconvenient times at work – and whine and whine and whine! Others we gave up because it was not sustainable to take them way out logistically.

But what was clear – or started becoming clear was that my kids really did NOT like certain things – and more often than not those very classes were skills they were not good at/ showed no signs of developing. Ofcourse, they very often did not like some things they were good at as well! And herein was my dilemma – should I keep encouraging them to go to classes that they showed promise at (dance and drama for my older one and skating and swimming for my younger one), or atleast kept them at classes that they weren’t good at, but I thought were good for them – till atleast they acquired a threshold level of dexterity at those. I think most parents deal with this, specially if u throw in the “like” equation on top of the “good at/ good for them” one.

I think what I ended up doing probably works for parenting just as it does in corp life – you give everyone exposure to all business functions – so u allow them to test all, and you get a chance to evaluate their inclinations at it (I’m talking freshers here obviously). This is why “management traineeship” in most orgs is a fairly successful one year program. Then you slot folks according to their interest and aptitude.

This allows them to find out what they are good at, and then build on it. One also has to recognize that the more u rise in the hierarchy, you need to have atleast a working knowledge of many functions whilst you keep your specialization active. This is what I had referred to in my earlier blog on focus vs. multi-tasking. Typical corp journey makes you first a generalist, then a specialist and finally a generalist again! (On multi-tasking btw, my 7 year old Achchu has caught on like fire! The other day sitting at the pot executing bodily functions 🙂 before school in the morning – she said “mom, why don’t u change my T shirt while I’m pooping – see we will multi task then!”)

I see this in my aerobics class also – Niru sets up a routine that basically through the week works each set of muscles in a particular, pre determined order – they’re not all done the same day, they aren’t even done in the same sequence, and as I wrote earlier, she varies her routine EVERYDAY (in two months I have yet to see her repeat something – I guess that’s what a true artist does!). But she does work every muscle individually – and THEN builds some up more than the others — the “threshold level of competence; with a view to attaining strength in others” principle.

Look at how academics runs it – most higher level studies have a “core” level – basic knowledge, and then an “elective” level – where you specialize!

What spices up this from time to time is if u throw in a little bit of change – at Gillette we used to have a program of Job Rotation where folks sat at any other employees desk for – hmm – actually I forget how long. I think it was a month.. The idea was, one cross trained a bit, changed the routine of one’s work, and more importantly, developed empathy for the “other guy’s issues” – so it facilitated team work and collaboration. Pretty nifty I thought.

I remember seeing an old Hindi Movie – I think it was called Nayak – where a common man gets to be the Prime Minister of the country for a day. Ofcourse, being a Bollywood movie, he got to perform all kinds of miracles despite insurmountable odds, but the basic premise really was job rotation.

Then ofcourse you have the actual/ real job rotation – my earlier company Genpact was pretty good at this. The head of infrastructure and admin, as an example, had never done it before in her life – she was a lawyer. There were senior folks in HR from business and vice versa. And ofcourse everyone was/ had been – in sales (that’s my next post btw – so watch this space). In that space, maybe it made sense – as one of the HR folks once told me – we are all BPO people – we made this industry, we grew it, and that’s all we understand ☺. Like most home-grown business, early pioneers pretty much have to wear many hats at different times – sometimes many hats at the same time. But the concept is the same.

In our entrepreneurship journey, we kind of took turns at doing both these – but at different stages of our lifecycle. In the beginning, all four of us did everything – sometimes all together, but we certainly consulted one another on every single thing! This was very inefficient probably but great fun and also immensely comforting – remember we were all first time entrepreneurs, with NO clue about what to do – so there was comfort in consensus. As time elapsed, and we became comfortable with each other and also with the whole entrepreneurial thingie, we graduated to our areas of respective strength – Debjani the eternal striver and super networker/ convincer to Business Development, Kyung the troubleshooter and Mr. Client Man to Account Management, Shoma the meticulous process person and executor par excellence to all admin etc support functions and Media Monitoring, our division that was very process oriented; and yours truly into making something out of nothing – i.e. creating solutions where none exist – both in research and information support services divisions.

It doesn’t work in some situations by the way – think Sports – and what would happen if your quarterback was made your goalkeeper – or, as we see very often in India at moments of desperation, when the 7 down/ bowler/ allrounder is sent in to bat at 2 down! There IS something to be said for specialization and making sure you win competitions!

Where it does work ofcourse is the outsourcing industry – this was the very fundamentals of the industry – concentrate on your strengths, and outsource the others. I am sure most of you have seen this funny parody of 12 days of christmas – you should be Indian to appreciate many of the allusions) (specially focus on the 9th day for context), but for those that havn’t, enjoy!

And then not to forget there is the SWOT! I think all Marketing 101 techniques are great – even though simplistic, they really apply to most situations, and can help analyse even contemporary problems. SWOT was one construct we used a lot in our initial days as a business research company. Ofcourse, we always had difficulty finding the “O” and the “T” – we essentially ended up making up really obvious/ simplistic stuff but couched it cleverly – like “macro economics ordain that marginal utility of xyz product is diminishing so there will be a competitive share of wallet participant that will usurp this fm its leadership position” – just kidding – this sentence made no sense, did it ☺?

But all said and done, there is immense merit in finding out stuff you are good at – and then working in that area to hone it further. Now, the problem arises when what you are good at is not what you like doing (and vice versa) – I think that’s what triggers many start ups and alternate careers….book writing anyone? (that’s my future career, you know ☺ )

If all above is true, isn’t it a pity that most performance appraisals focus on weaknesses and how to improve them rather than strengths and how to “make them develop infinitely” ? Is it time to abolish the bell curve? Your vote?