Why leadership is a dealbreaker for startups

By Joanna Wyganowska

Leadership and culture are frequently cited topics in the context of a startup or scaleup, but are often too conceptual or misconstrued and limited in practical understanding of the impact they have on company performance.   

A recent research project I undertook independently, exploring how leadership and culture contribute to the sustainable success of high growth companies, reveals that these issues play a pivotal role and need to be better understood by high growth founders and company leaders.

The project involved 14 informal interviews with startup founders, leaders of scaleups, and venture capital investors (most of whom have personally founded companies), currently based in Sydney, including the likes of Blackbird Ventures, Atlassian, HotelsCombined, and Premonition.

Everyone who participated in the research aligned with the view that leadership and culture play a big part in company performance. A small business with weak leadership and a ‘toxic’ culture will struggle to grow or survive. 

Leadership matters – and is often a deal breaker

The role of the leader in a growing company is complex and demanding. In the beginning creativity, innovation, and experimentation are the foundations for bringing a great idea to life. As the business scales other skills become key, including being able to work on the business and in the business.

Underpinning all this is the human side of things, such as the ability to articulate a compelling vision, demonstrate strong interpersonal skills, and develop empathy for others to understand customers, attract investors, build a team, and establishing a solid support network.

When things are moving fast and there is a lot at stake, reflecting on your leadership skills may not seem that important. However, the message emerging from the research is loud and clear, ‘leadership matters, big time, and is often a deal breaker’.

Weak leadership is felt quickly and is frequently a killer of great team and company potential. This means being aware of your strengths and weaknesses as a leader, and making the effort to become more effective at engaging people on an uncertain journey, is actually an investment in the longevity and success of your business.

Those who participated in the interviews shared numerous examples where poor leadership negatively impacted company performance by creating a toxic environment, reducing psychological safety, distracting the performance of talented individuals, resulting in employee turnover, and stalling scalability.

For example, Chris Deere, entrepreneur and previously CTO at Vocus, highlighted “not being open to feedback and needing to be always right” as a big leadership issue that kills team and company performance.

Another common deal breaker shared by Erik Louwerens, founder of PharmEngage, is “not trusting people to do the right thing, to do a good job, and micromanaging”. The fear often experienced by founders to let go of work limits autonomy and the opportunity for people to be stretched professionally, resulting in disengagement.

Arrogance and a lack of appreciation for the value or worth of others in the team, as demonstrated by behaviours such as being late to meetings, playing with a smartphone during conversations or aggressively shutting ideas down, was simply put down to “a lack of empathy and simply not being very human” by Rajeev Gupta, partner at ALIUM Capital.

While Rick Baker, cofounder of Blackbird Ventures, made the point that if you look at some of the most successful companies in recent history, “founders make the best leaders of companies and it’s all about helping them learn to become great leaders”. This strong view reinforces the sentiment that leaders are born and made. If you are new to leadership or struggling with engaging a growing team in a complex environment, getting some expert support may be all it takes to turn things around.

Culture eats everything for lunch

Culture may eat strategy for breakfast, but its appetite is ferocious and if not well tamed, it will consume everything by the time you reach lunch.

Founders play a pivotal role in setting the tone for culture through the values and behaviours they bring into the equation from the very beginning.

The public case of Uber serves as an example of cultural issues evident from the start that were left unaddressed to the detriment of the company. This has resulted in public scandals, affected team morale, damaged the company image, and financial bottom line.

As Sidney Minassian, CEO of Contexti, an experienced founder put it, “If you are not addressing the issues that arise early because you think it’s not a big deal, it will sort itself out over time, or it’s better to focus on the business goal, you are kidding yourself.”

Culture is a powerful beast and the people you surround yourself with and how you work together as a team make a big difference to the company’s success.

Hichame Assi, CEO of HotelsCombined, said, “every new person stepping into the team influences the dynamics and ways of working. This means as you grow, you have to work harder to consciously keep the culture you want alive”.

If you are not consciously managing team dynamics and don’t have an experienced person attracting, developing and retaining talent, or helping people through challenging experiences, sooner or later you are undoubtedly going to run into some big issues.

The good news is that a growing company is in a very unique position to consciously take control of their culture. You just need to make it a business priority and have access to the right support.

The elephant in the room, as pointed out by Brad Lorge, managing director of Premonition, is that “many companies struggle with measuring culture, understanding how to manage culture and having the time and resources to invest in culture”.

If we are serious about investing in our startup and scaleup ecosystem, we need to make it a priority to provide founders and teams with the right support to understand and manage company culture and develop leadership skills. The return on investment is beyond the success of an individual or a company, but rather the future of our economy.

Joanna Wyganowska is a registered psychologist, leadership coach, organisational development specialist and human-centred designer with over 15 years professional experience. Joanna has worked on strategic initiatives across various industries and company levels, from senior executives all the way to the coalface with miners. Joanna supports the development of high growth leaders, activates high potential teams, and co-creates humane culture. 

Image: City of Melbourne/ That Startup Show /Photographer Wren Steiner