From my participation on a number of startup boards and constant interaction with founders in our investment fund’s portfolio, I have observed that many founders are struggling with the soft skills required to effectively run and build their business.
And this is not just my own observation. According to Noam Wasserman, author of The Founder’s Dilemma, 65% of startups that fail do so due to ineffective management from the founders, not product or marketing problems.
So what’s the difference between a soft skill and a hard skill?
Hard skills are easy to understand and relate to the skills and knowledge needed to perform a job. These skills, such as marketing, programming, selling and financial management, can be gained through training programs, education, certifications and learning on the job.
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Soft skills, on the other hand, are the people skills, character traits, social cues and communication skills needed for a person to be able to journey through their environment, work well with others and get the best out of others.
It is much easier to learn hard skills than to truly acquire the soft ones. This is more evident with first-time founders, who dedicate most of their energy towards acquiring hard skills, believing that the soft ones will just be there when needed.
What founders — particularly first-time founders — find hard to understand is that in every stage of the startup life cycle, in order to succeed, you actually need different skills. For example, once you learn how to pitch and raise capital, scaling up a business requires totally different skills. Unfortunately, these skills cannot be developed in one day or one month; they necessitate a multi-year journey for founders.
Many board members in my network often complain about the lack of soft skills they witness amongst startup founders. These soft skills include: assessing people; listening; building high performance teams; conflict resolution; understanding the basic concepts of leadership; and the differences of leading versus managing.
Perhaps even just the ability to assess people is one of the major soft skill deficiencies that plagues many startup founders in Australia. Startups struggle or collapse because of disputes between founders, or simply hiring the wrong people. This happens because founders lack the skills or awareness to know which people are the best, and then how to motivate them. One of the fast-growing startups for which I have been on the board had close to a 50% failure rate in hiring, resulting in a huge turnover of staff. Why? Because the founders had never learned how to properly recruit nor had a developed sense of hiring for cultural fit.
So where are these soft skills learnt?
A large number of startup founders are leaving university, working for a few years in graduate roles and then beginning their startup. In their few years of working they will have had the opportunity to observe how their manager and other managers performed, but it is unlikely they would ever have been given the chance to manage people themselves. Additionally, given their relatively junior status, they would probably have had no opportunity to hire, let alone fire, other people. Furthermore, they would also have had little opportunity to undergo the comprehensive corporate training that is so important in the early years of one’s professional career.
I remember my own experiences as a young first-time manager and the struggles I had in managing my first group of direct reports. Learning to manage people is usually most effective as “experiential learning” and best done within an organisation where the employee has a number of role models from who to observe best practice around managing and leading. This problem is compounded by entrepreneurs leaving university without a detour through another company and without any opportunity to either observe or practice the soft skills highlighted above.
One of the most devastating experiences for a founder is being removed from their own business. Boards usually take this action for three major reasons: the business fails to meet its growth targets over an extended period of time; the founder exhibits behaviour that is considered gross or serious misconduct; or the founder loses the confidence of the board in being able to lead the business. Simply, they didn’t have the skills required to manage the teams they have built. Sometimes, in well-funded and fast-growing startups, the board preempts this issue by encouraging the chief executive to install a management team of more experienced employees that sits around the chief executive and provides the foundation required to help the organisation perform more effectively from a people perspective.
It’s “the peter principle” playing out for startup founders. This famous concept in management theory was formulated by educator Laurence J. Peter and published in 1969. It states that “in a hierarchy, every employee tends to rise to his level of incompetence”. Within the startup context, I suggest that many founders will build their business to the point where they are incapable of responsibly managing it to a larger scale.
I believe that many Australian founders themselves know they would like to be more effective in their own business. Back in 2015, I surveyed 50 startup founders across the country asking them what skills they thought they would like to improve on to help grow their business. The number one response, by a very high margin, was “guidance on building and managing high performance teams”, which encompasses many of the soft skills I have discussed above.
So how does a founder improve their soft skill set?
If the startup already has a formal or advisory board installed, the founder should seek mentorship from the board’s members. They will probably have had extensive business experience themselves and will be a good “sounding board” to help the founder. External HR experts that understand ‘lean startup’ principles could also be of value. There are a few ‘lean’ HR consultants who are building up practices specifically focused on helping startups with talent development, culture and scalability (such as Dr Zivit Inbar from DifferenThinking). There are also numerous long-established corporate training courses that traditional businesses have been sending their staff to for decades.
Startup founders need to be cognisant of their own development opportunities, and take action ahead of realising they are incapable of leading the very organisation they have built.