From founder to CEO, from Series A to Series B
What looks like an evolution from a Series A to a Series B startup to a VC, often looks like a personal growth journey from being a founder to being the CEO to the leader.
Speaking to a partner at a London-based VC the other day, I realised how we’re seeing startup evolution from two different vantage points. As a coach, I see founders growing into the CEO role. As an investor, he sees Series A startups growing to a Series B1 level. These two processes are closely interconnected.
Explaining the counterintuitive nature of transition from being a founder to being a CEO, I said: “What got you here won’t get you there”. What I meant is that the mistake I see many founders make is doubling down on what has worked for them at the early stages, but these exact behaviours and habits will prevent them from being a good startup CEO.
“Exactly!”, he replied, “What got you to Series A won’t get you to Series B!” He explained that he sees founders he invests in double down on practices that got them to Series A without realising that it’s not how you get to Series B.
As Steve Blank puts it, a startup is a temporary organisation in search of a scalable and repeatable business model. A founder builds this temporary organisation and makes sure it finds that business model.
The job of a founder is to make sure that the company survives and validates most of its assumptions about that business model. To do this, early stage founders often:
move very fast, prioritising learning and adapting to everything else
manage intuitively, without relying on perfect reporting tools
ignore management and technical debt that can be repaid later
lead sales personally
are involved in every decision in the business
work in an unsustainable manner
communicate ad-hoc
This isn’t a mistake. It is important to move fast and ruthlessly prioritise, knowing that out of ten things on your to-do list five are critical and you only have resources to do two. That’s the nature of building an early stage startup, which requires a certain approach and a certain management style. There’s a reason early stage startups don’t write expenses policies longer than five words before product-market fit.
A mistake, however, would be to double-down on this approach once there’s a certain degree of product-market fit around Series A (or equivalent for bootstrapped companies). It’s tempting for founders to keep working even harder, micromanage even more, avoid hiring more experienced talent and disregard establishing proper metrics and processes. After all, that’s what’s been working so far.
What got you here won’t get you there
At some point, the founder needs to start taking the role of a CEO. This involves not only learning new skills and adopting new behaviours, but also deliberately letting go of behaviours that no longer serve the business.
At first, a founder moves fast to learn fast. Startups that don’t respond and learn quickly, die. Changing strategy every Monday is normal. As the business grows, changing strategy every Monday leads to chaos. To keep moving fast with a larger team, the business needs structures and processes in place that will support it.
At first, a founder manages intuitively. They are inseparable from what they are building and how they are building it. The founder imbues their startup with their values. As the team grows, the founder who keep managing intuitively becomes a bottleneck. To keep managing well, the team needs to agree a shared model of how the organisation is supposed to operate and manage it together.
At first, a founder incurs technical and management debt keep moving fast. There’s no point in writing perfect code if the app isn’t around 6 months later. As the business grows, it will be necessary to stop creating more tech and management debt and repay existing debt.
At first, a founder leads sales personally. There’s no sales playbook yet, and it’s critical to learn from the customers directly. At some point, sales will need to be delegated to the sales team. If it doesn’t happen, the founder becomes a bottleneck, stymying the growth.
At first, a founder is involved in every decision in the business. They should have an opinion on product features and sales process, but also on every small detail, because every small detail will influence how that part of the business works as it grows. As the business grows, the founder will need to delegate more and more, keeping clear focus.
At first, a founder often works in an unsustainable manner. They’re the first person to agree that wellbeing is important, but they also know that taking a company off the ground usually requires a big effort. As the business grows, this needs to change to a sustainable, productive rhythm.
At first, a founder communicates ad-hoc. The team is small and it’s enough to answer questions when they arise. Big decisions can be taken with two thirds of the team staying in a pub after last orders. As the business grows, the founder needs to develop clear communication cadence, reinforcing and clarifying what’s important all the time.
There a countless such examples. What is healthy and helpful at the early stage of the startup’s life cycle becomes problematic and unhealthy as the company keeps on growing.
This is counterintuitive to many founders, especially first-time founders. They often feel resistance to doing things differently because they know it wouldn’t have worked earlier. They may feel safe to stick to what they know is working. Yet, it’s important to recognise that what got you here won’t get you there and start making a conscious shift towards taking the seat of the CEO.
From founder to CEO
The job of a CEO is to build and run a business that builds a product, as opposed to the job of a founder who usually works directly on the product. Fred Wilson’s framework, the best definition I’ve seen so far, captures it well. The startup CEO:
Sets the overall vision and strategy of the company and communicates it to all stakeholders
Recruits, hires, and retains the very best talent for the company
Makes sure there is always enough cash in the bank
DALL-E’s vision of what Series A and Series B feel like to a founder CEO.
To excel at these three things, startup founders need to make a deliberate and counterintuitive choice to gradually start doing things differently. Often it starts with building a proper senior team and spending more attention on vision, strategy and communication, so that it is possible to delegate effectively. This necessitates building shared metrics and operating models, and also planning for a longer time horizon.
The outcome, which very roughly corresponds to Series B, is a company that has validated its biggest assumptions, knows what it’s doing and is doing it reasonably efficiently. At that point it’s ready to keep growing, to do its work on a much larger scale.
This is a Series A to Series B transition, or founder to CEO transition. At Series A stage, the founder is mostly operating as a founder and a little bit like a CEO. At Series B stage, the founder is mostly operating like a CEO and a little bit like a founder.
The joy and challenge of being a founder CEO is that the job is constantly changing. The moment we feel we know what we’re doing, things change again. This is normal. In fact, it’s a sign of progress: precisely because we learn how to navigate one stage of growth, our startup moves into the next one, making us feel like we’re out of our depth again.
As ever in life, the answer is not so much to avoid discomfort, but to learn to face it with curiosity and openness, without feeling like it’s not supposed to be happening.
Someone wrote a good deck recently arguing that the entire “unicorn factory” with universally agreed milestones like Series A and different investors specialising in different parts of the process is already obsolete. I think this argument is worth reading, but these terms are still widely used and understood, so I’ll stick to them here to illustrate the point.