Deadly Sins: Doing a Bad Job of Raising Money
A start up CEO usually has to fill an incredible array of roles before the operation becomes viable. This is especially true of Engineer CEOs who end up spending 90% of their time coding and the other 10% actually running the business. A serious problem which I have seen in many start ups that Proactive International has worked with, is that start up CEOs either forget what a CEO is actually supposed to do, or, never knew what they were supposed to do from the beginning.
Raising money is one of those forgotten responsibilities. The deadly sin of doing a bad job of raising money shouldnt be viewed as the same as running out of money. Running out of money is a strategic planning and accounting problem; doing a bad job of raising money is a behavioral problem.
Many new CEOs have no idea what they are supposed to do. The site ManagementHelp.org defines this role as “the singular organizational position that is primarily responsible to carry out the strategic plans and policies as established by the board of directors.” But look at what many new CEOs do, day-to-day. In start ups, they are often not directing and organizing management operations, but down in the trenches and being the management or implementer in several divisions (sales, product development, marketing, etc). Operationally they are too close to the bone and forget that they must be crafting the long term operational strategy. As a member of a small team, a startup CEO may be required to wear more than one hat. But its also easy for them to forget to immediately pass along that hat and get back to what a CEO is supposed to do.
There are a great many Macintosh only vendors out there that never quite get this; the CEO never really evolves into what he should become, and the company perpetually stays at a start-up size and with start-up troubles. This could be the result of the company effectively becoming a leisure company. A leisure company is one that exists only to serve the annual needs of a small group, typically a family. These kinds of companies plan their release schedules around some personal event, like a summer vacation. There are so many reasons a leisure company can fail, and doing a bad job of raising money is one of them. Ill cover leisure companies in more detail in the future, because they are facinating and its incredibly easy to become one. But as to this particular deadly sin, leisure companies tend to be run like a home expense account, which means they arent driven towards an exit strategy. Therefore, the CEO may do whatever they can to limit risk; instead of embracing risk and challenge and raise the funds needed to keep expanding and hiring to take the company to the next level, they keep within the household budget and often turn around and tout that as a virtue. The problem with this is that it reduces short term risks, but if a prolonged period of misfortune plagues the company, they tend to just hunker down and not look to other forms of risk that could otherwise carry them out of their downturn.
This article now available in a revised form on The Technology Tribe.