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, 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 share price
- Engage in seemingly endless planning before doing anything important
- Acceptance of failure is something that rounds to zero
- 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 cash fume date and has a survival-mode mentality
- 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 money
- 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 expanding into a new country is like starting a startup. It isn’t, not even close. Some have spent time working for what they describe to me as a “small company”. But I usually learn that, to them, “small company” means $50M or even $100M in revenues, which is very small compared to $10B – 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 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 is likely advice they might give a startup that is based on their experience and success, but that is exactly opposite of the advice I would give. 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 prototype and getting it in front of some prospective customers for 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’ll present one or more of the following questions:
- How much should a pre-seed startup pay a full-stack developer in both cash and equity compensation?
- What milestones should a startup strive for to be considered ready for a Series A?
- How should the founders divvy up the company’s equity in the beginning?
- How should a startup figure out how big their stock option pool should be?
- What valuation cap is reasonable for a $500K seed 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 proposals to bring in some near-term cash?
I’m truly not trying to insult them, but I’ve found that I have to be very direct in my dialog. Otherwise, the overachiever in them won’t fully hear what I’m saying and some startup out there is going to get damaged.
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 either sells their offering to enterprises or aspires to partner with them. Below are some examples. A corporate executive probably 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 startups’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’s WAY less than they made before and includes equity in a company that might not be worth anything in the future.
But the main thing that changes versus what I’ve already written is the stakes are much, much higher. An advisor can only inflict damage to your company if you implement bad advice they might give you. As 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 you live 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 you will be paying for won’t actually be useful.
You would still get the benefit of the items in the “might know” list above. You would also get the benefit of their general wisdom, problem-solving skills, negotiating skills, job candidate interviewing skills and the like. Those things are definitely beneficial, so make sure to balance that with their lack of experience in startup mode.
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.