Avoiding the Five Mistakes First-Time CEOs of Venture Backed Start-Ups Most Often Make

Congratulations. You’ve landed your dream job as the new CEO of a venture capital-backed startup. Now what?

Beyond the rigors and stresses of running any business, growth-focused VC-backed startups have their own unique and highly challenging issues.  That’s one reason CEO turnover is higher than in established businesses.

Over the last two decades, I’ve served as the CEO of three VC-backed software companies and currently serve as a board member, investor or advisor at nearly one dozen startups. So I know first-hand how difficult the CEO job can be. In particular, there are five mistakes that newly minted CEOs most often make—I know; I’ve made them all:

Not moving fast enough in removing and replacing a weak member of the senior team

It’s always a tough call to let a senior member of the team go, especially so if you made the hire. Move quickly when someone is not working out. Own it. Move on it. Learn from it. It is critical to fix this mistake because A players hire A players and B’s hire C’s. Don’t let your B player bring in more subpar employees.

Inaccurate sales forecasting

This is the number one reason start-up CEOs get fired. Yup, it got me. Once. 

Different functional groups are involved in the quarterly sales forecasting process and can have their own self-serving perspectives. Find a way to secure a grounded, fundamental truth about where sales stand.  Not marketing’s truth. Not sales’ truth. Not finance’s truth. Instead, get a firm grip on reality as expressed through real, verifiable numbers, and consistently communicate those numbers to the board throughout the quarter so that you can manage their expectations.

I’ve found what works best is having a head of sales operations – reporting directly to me – to work with sales, marketing and finance to develop and adhere to strict criteria that must be met for all deals that are forecast to close in the quarter.

Sales, marketing and finance all look through different lenses when it comes to sales forecasting. Find a way to get to that all-important single version of truth and avoid surprises. Without it, your tenure will be short.

Underestimating the importance of culture

The CEO sets the culture of the company. And what I see in a lot of early stage companies is a culture of fun. Funky places to work that are different from big companies – complete with ping pong tables and espresso machines. Fun is fine, but successful startups adopt a performance-driven, results-oriented culture.

For me, the best way to create and foster a healthy culture was to appoint a VP of Culture. This role was different from the Head of People or VP of HR. The head of culture spent every working hour of every day laser-focused on culture. Did our team understand and believe in our goals; were we communicating openly and effectively; did they know that what they were doing really mattered?

A performance-based culture teaches the company how to win and how to react when you lose. Learn from losses. Be clear with your team, your board and your customers about your vision of the company’s culture and clearly articulate why that culture will accelerate success.

Inappropriate use of ‘cut and paste’

You may have secured the CEO role job because you were an outstanding marketer, product manager and/or sales VP. Understand at the outset that the problems you are likely to encounter as CEO will be new ones specific to your company.  

Applying learnings from previous companies can set you up for failure in your new role. Inappropriate use of ‘cut and paste’ can happen in any function. For example, the cash-rich compensation plan that motivated your staff at the old company will not work in the new one if what your most valuable employees really want is a chance to pick up their kids from school twice a week. 

Review, rethink and revise the ways you plan to drive success in the new company—keeping what worked in the old one only when it truly fits.

Ineffective board management

I would argue that the most arduous task facing a new CEO of a VC-backed startup is managing the board of directors. Be patient. It takes time to get good at managing a board and you probably won’t be good at it at first. You’ll likely be surprised by the kinds of questions you get in the board meetings. Make the time to understand each board member’s priorities and you will flatten the learning curve more quickly.

Put yourself in the investor’s shoes. What might make them nervous about the business? Are we growing fast enough? Are we churning too many customers? Are we spending too much money to acquire each new customer?

Finally, get a really good independent board member or two who’ve been CEOs and know how hard your job is. Avoid bringing on board members who are hell bent on burnishing their resumes. Find experienced leaders who’ve been on the firing line who can help you learn what it takes to balance multiple constituencies and understand the perspectives of all the people on your board. Most importantly find someone who will level with you and tell you the truth.

Harry Truman is credited with saying, “If you want a friend in Washington, get a dog.” Board members are not often your friends, but if you make a concerted effort to understand their priorities, you will become a more effective CEO and, quite possible, have a long tenure in the job.