The Key to Ongoing Leadership = Trustworthy Execution

For high-potential startup entrepreneurs who raise money from investors to pursue their dreams, there is always this trepidation in the early stages about the idea of selling part of your company to investors to get the fuel you need to build and grow. You wonder just how much your new investors will seek to grab control of this thing you are pouring your heart into. You seek to figure out how to retain control of the company’s direction and your own position as founder-CEO. Yet the keys are often not what you think.

Owning the majority of the stock of your startup won’t protect you as CEO. Voting control won’t save you. Even an employment contract isn’t enough. All of these “control mechanisms” that seemingly would keep the leadership power in your hands.

That is an illusion.

Once investors are in your company, even for a minority stake, as long as you are not self-sustaining (aka cash-flow positive/profitable), your investors have a pivotal say in the leadership of your startup. As my attorney in one of my first startups told me when I raised my first round, “Now, you know you can be fired, right?”

The next time you are raising money (typically at least every 12-24 months), it may come in the form of:

• A condition to close on the terms of your next round of funding
• Terminating your employment under whatever provisions exist (with or without cause) in that employment agreement you negotiated
• Constant pressure to step aside completely or into a different role in favor of someone better suited to the next phase of the company’s development

The truth is that as long as you need your investors to keep going – and make no mistake, even if you get some new investors interested, they will be looking to your existing investors for an endorsement and your existing investors will have to sign off on the new raise – whatever control you think you have is never as absolute as you might once have thought. If they want you out, they will find a way to make that happen.

So, what does work? What will keep your investors backing you and your company?

Execution. Your performance in creating the thrilling growth the investors were hoping for, month-after-month, year-after-year. As the CEO, you and your team need to come up with smart plans and then execute on them to realize the potential of that business dream you sold those investors. First, this is getting a great product built, then launching it, and then growing your revenue as fast as you possibly can. 

• One startup I led was the fastest growing in history in its space for several years. That led to great support from both existing investors and powerful enthusiasm from potential investors that allowed us to pick and choose who we wanted to add to our cap table.
• Another startup took longer than struggled to translate pilots into paid deployments, causing angst amongst investors and difficulties fundraising.
• A third startup established a steady cadence of clients, however, the rate of growth was uninspiring, which put pressure on existing investors to keep extending the runway as the firm was trying to get enough runway to overcome external market headwinds.

Trustworthiness. After superb execution, investors are watching your behavior for transparent trustworthiness, willingness to collaborate, listening to their input, avoid drama and chaos, and other such markers of someone who is good to work with.

• At one startup, we had to ask a co-founder to depart because he would consistently overstate the truth, undermining the ability of the team to establish credibility with partners, potential customers, and prospective investors.
• A group of investors decided to jump on board a new startup when a devastating market shift forced us into a clear-eyed decision that our technology wouldn’t be able to compete. Because of the integrity with which we conducted wind-down process, those investors said they had known the risks, and appreciated the quality of the leadership and wanted to back our next startup because they trusted us.
• At another startup, long-standing investors wouldn’t support the company on further fundraises because the new CEO wasn’t credible. The startup ended up in a fire sale when the runway ran out.

Unique Contributions. While a key strength of an organizational leader is their ability to build and lead an excellent team, having the strategic vision to see around corners and identify opportunities, deep knowledge in your space, and strong business relationships are all reasons for investors to value what you have to offer.

• The ability to sell a story to potential team members, investors, clients, and partners was critical to getting new ventures off the ground and growing. This is an essential complementary skill that startup CEOs can bring to a sharp technical team – and without it, the venture may never get off the ground.
• A startup leader needs to be prepared to decisively change direction when the current path proves unworkable, such as bringing manufacturing in-house from a failing contract manufacturer, changing marketing leadership when needed, and swapping out a team leader who keeps repeating costly mistakes rather than learning from them.
• In the earliest stages where founder-led sales are establishing the foundation of a sales playbook, the passion and ability to create a trust-based relationship can prove essential to attracting those very first early-adopter customers who are willing to take a chance on a brand-new innovation.

Ultimately, the key to maintaining your role as company leader is your ability to generate value. That value is measured in the team you build, the speed at which your organization moves, the competitive advantage and commercial adoption velocity you generate, the rate of revenue growth, and the capital efficiency with which you create. These are the things that make investors confident that they have bet on the right jockey (CEO) riding the right horse (company). A lack or diminishment of those things raises questions about whether the potential disruption of a CEO change might be worth it to achieve better execution.

So, if you are ambitious and building something exciting, the best way to retain your leadership role is to make sure that you never become a constraint on your organization’s growth and to keep proving that over and over as you lead better than anyone else could. That is what convinces investors to keep backing you – and cheering on your momentum.