When Corporate Execs Advise Startups

I regularly get introduced to a career corporate execs that has an interest in mentoring or advising startups. Oftentimes, it is because the executive recently retired or is planning to retire soon and is thinking about what they should do with their available time. After exchanging small talk to get to know each other, I often ask “Do you feel like you can be helpful to startup founders?”  At a minimum, the question causes a puzzled look, and sometimes an indignant response like “What do you mean?  I’m the (insert big title) for (insert big corporation).  I am responsible for (insert something really big) and (insert major accomplishment).  For sure I can help startup founders.”

I’m sorry, but they are naive in this regard and that doesn’t mean they can’t be helpful in some way.  In this article, I will share my thoughts and experiences related to corporate execs advising startups.

What’s the Problem?

Of my professional career, 14 years were spent in Fortune 500 enterprises and for more than four of those years I served as a senior vice president.  Corporate execs are unbelievably smart, driven, seemingly immune to stress, and able to make lots of important decisions that most people have never seen before.  They also have experience overseeing programs and initiatives at a very, very large scale and with potential for huge impact.  With all of that said, you might be surprised that one of the first things I tell them after learning they want to advise startups is that they might actually do more harm than good.  This phenomenon is most specifically related to corporate execs that have never worked for a true startup or early stage company (up to about $5M in revenue).

Below are some of the ways I would describe large enterprise organizations:

• Standard policies and practices are built for extremely high levels of scale, predictability and legal compliance
• One of the most important KPI’s is the company’s share price
• Engage in seemingly endless planning before deploying an army of resources to an initiative
• The rate of acceptance for, or admission of, failure is almost non-existent
• Expert systems, expert talent to run those systems, and almost unlimited amounts of data to feed the systems is abundant
• Employees never think about where funding for their paycheck comes from or how much cash is in the bank
• Ladder-climbing mentality causes selfish and politically-motivated behaviors

In contrast, below are some of the ways I would describe a successful startup:

• Move fast and instinctively, with minimal planning
• Unbelievably flexible, to the point of changing huge aspects of the business plan in a matter of days
• Every employee knows the company’s cash fume date and has a survival-mode mentality
• Every employee wears multiple hats (roles/functions)
• Success of the mission is the only thing that matters, versus success of an individual
• Are able to accomplish things with unbelievably small amounts of spending
• Are hugely passionate about the problem they are solving and how it will change the world

Could the two lists look any more different?  Can a successful executive that served all of their career in a large enterprise environment possibly help a startup?  Well, the answer is yes, but a somewhat guarded yes, which I will explain later.

Some corporate execs feel like overseeing the launch of a new product line, creating a new division (or even a subsidiary), integrating a startup their company acquired, or expanding into a new country is like starting a startup.  It isn’t, not even close.

Some corporate execs have spent time working for what they describe to me as a startup or really small company.  But I usually learn that the company they’re referring to generated $50M or more in revenue.  It’s true that is VERY small compared to $5B – but nowhere close to a startup.

Breaking the News to Them

After telling a corporate exec they might actually do more harm than good, they either ask me to explain or they pretend to accidentally spill their coffee on me and walk out.  If given a chance, I start my explanation by describing the dramatic difference between the two lists above.  With that alone, they usually see where I’m going.

Then I tell them there are certain things they might suggest to a startup founder that are exactly opposite of the best advice in the startup world.  I might provide an example in which they would propose extensive market research and months of planning, whereas I would propose quickly building a crappy MVP or prototype and getting it in front of some prospective customers for discovery and feedback.  Or perhaps I describe a situation in which they would suggest putting a marketing agency on retainer, whereas I would suggest spending very small amounts on a variety of social media campaigns to test different messaging and validate the target audience.

If I really want to prove the point, I present one or more of the following questions:

• How should the founders divvy up the company’s equity in the beginning?
• When should a startup that initially formed as an LLC consider converting to a C-corp?
• When should a startup consider creating a traditional Board of Directors that includes a non-employee on the Board?
• How much should a pre-seed startup pay a full-stack developer in both cash and equity compensation?
• How does a startup know when their first product is complete enough to call a v1.0 and start generating revenue?
• What time horizons are appropriate for strategy and planning?
• How can a startup introduce a goal-setting process with appropriate KPIs?
• What does a “management system” mean during the startup stage and when should it be first implemented?
• When should a startup hire their first sales professional? How about their first marketing professional?
• What milestones should a startup strive for to be considered ready for an institutional seed round? How about for a Series A?
• How should a startup figure out how big their stock option pool should be?
• How many formal advisors should a startup have and how much equity should each be granted?
• What valuation cap is reasonable for a $500K seed funding round?
• How close to GAAP standards should a startup follow with their financial reporting?
• Faced with running out of cash in 2 months, should a startup immediately plan a layoff, launch a fundraising campaign, or dramatically drop the price on some outstanding customer proposals to bring in some near-term cash?
• How should a founder go about firing, or parting ways with, a fellow co-founder that is either not pulling their weight or causing major disruptions to the company?

These are extremely common questions that mentors and advisors get from startup founders. I’m truly not trying to insult the corporate exec, but I’ve found that I have to be very direct in my dialog. Otherwise, the overachieving exec won’t fully hear what I’m saying, and some startup out there is going to get some bad advice – or at least conflicting advice versus what they’re hearing from experienced startup advisors.

It’s Not a Totally Lost Cause

There are definitely things a successful, seasoned corporate executive can help a startup with. Much of it relates to providing reflections from the corporate side of the table in order to benefit a startup that sells their offering to enterprises or aspires to partner with them. Below are some examples. A corporate executive usually knows . . .

• … how enterprise organizations go about evaluating and purchasing technology solutions
• … how enterprise organizations conduct acquisitions and subsequent company integrations
• … about the complexities of manufacturing and supply chain strategies
• … how to navigate a regulatory agency (for regulated environments)
• … a lot about the major players in their industry
• … about the major trends in their industry
• … various executives throughout their industry that could be interested in a startup’s solution

You get the idea.  I’m not sure if the items on the list above are worthy of giving the career corporate executive equity to join the startup’s advisory board, but I hope this article will better inform both parties about the potential synergies and opportunities for value delivery.

What About Hiring Them?

If you find yourself considering a career corporate exec for an executive role in your startup, you’ll obviously need to set expectations about compensation that is way, way, way less than they made before and includes equity in a company that might not be worth anything in the future.

The key incremental risk that results from actually hiring a seasoned corporate exec, versus what I’ve already written, is the risk of negative impact become much higher. An advisor can only inflict damage if the startup actually implements the instance of bad advice they gave. Instead, if the corporate exec is a company executive, they have authority and the ability to take action on their own. Some might be capable of adjusting quickly to the difference between the world the startup lives in and the one that consumed 20+ years of their career. But even then they will be learning a lot along the way. That means a good amount of the experience level the startup is paying for won’t actually be useful for a while.

The startup would still get the benefit of the items in the “might know” list above. They would also get the benefit of general wisdom, problem-solving skills, negotiating skills, job candidate interviewing skills and the like. Those things are definitely beneficial, and should be balanced with the lack of experience in startup mode.

The Hybrid Corporate Exec

Some seasoned execs that spent 20+ years in large corporations also spent time in startups and really small companies. Maybe they started out that way early in their career and gradually progressed to larger and larger companies. Or maybe they spent the first 10-15 years of their career in large corporations before joining a startup that was successful enough to be acquired by a large corporation.

A hybrid corporate exec that spent time in different sizes of companies, different industries, different roles and/or different types of technology products, can be an amazingly beneficial asset to a startup. But they’re hard to find.

Summary

Nothing in this article should cause anyone to conclude that a career corporate executive is anything but highly accomplished and smart as hell. Instead, I just want them and the startups that are considering some formal relationship with them to have an eyes-wide-open conversation.

As you can probably imagine, I will now be sending this article to career corporate execs that I get introduced to in advance of our meeting, so as to avoid getting hot coffee spilled on me.

For more information on selecting an advisor, compensating an advisor or maximizing value from an advisor, read my 3-part series here.