Business strategy

How to founder: a VC’s guide to thinking like a startup leader in bigger companies

- September 15, 2023 5 MIN READ
Steve Jobs
The tech guy who invented the 'it begins in your garage' school of startups, before going on to something much much bigger.

What is a founder? Generally, we mean a person who starts something.

But what does it take to start something? What do founders actually do?

I believe it is the behaviour of a founder that makes it possible to deliver something that most people consider impossible.

In this post, I will break down those characteristics and suggest some ways that an institution can adopt them.

When does an institution need to be a founder?

Institutions often start new ventures, but they rarely behave as a founder.

Corporate venturing, university spinouts and our own Venture Science approach all involve starting a venture with an organisation. Institutions can bring enormous advantage to a new venture, but they can also hold it back with their approach.

Founders hold the stubborn, relentless belief in an idea that runs so deep that no one can stop it, even when no one appears to want it.

That moment when everyone else will let an idea die, founders will take the next step. They give a shit.

The challenge is bottling that and getting it into an institution.

Why bother? I can hear you asking. And it is the right question because the road to this Utopia is littered with dead startups who tried.

However, it is very difficult for a stand-alone company to get the instant momentum in the market that an industry founder can deliver or the depth of scientific capability and resources that a research founder can bring.

These partnerships don’t fail because the founder is an institution. They fail because the founder doesn’t behave like one.

What do founders do?

#1 – Founders start a lifelong mission

When a founder starts a venture, they intend to see it through. They can imagine doing it for the rest of their life. They know they are stepping into a long journey.

Institutions are optimised to do a deal and focus on maximising the value of that moment. They might allocate teams to be a part of the project, but they are often fleeting and temporary. They move through the project and move on from the project. They are often motivated by incentives that sit outside of the startup.

Design Solution: Design institutional commitment to be ongoing. House the work in a part of the business that will not drag the startup in and out of favour or focus because of matters outside of the startup’s control. Give the startup time to be weak and unproven and measure progress differently to BAU. As long as the startup believes it is making progress, then it needs to continue, and the institutional founder needs to be helping it. Assign one person who is incentivised to commit long-term to the venture.

#2 – Founders don’t give up when it gets difficult

Every – single – venture has periods of existential doubt where any sign of success is impossible to see or too far away. Founders stay in the arena because they know this is the work. The success of the startup is the most important driver. Nothing else in life.

Institutions tend to place employees in the task. There may be many of them that flow in and out of the project. If the startup dies, they will move on to the next project. No skin off their nose. They will say that they care, but actually, it doesn’t matter.

Design Solution: Design institutional team commitment around individuals who gain from success and feel the impact of failure. Make it matter. Don’t smear the accountability too broadly across a team, and avoid temporary teams. Consider direct equity in the startup for these individuals as well as any parent institution ownership. Shine a bright light on those individuals to emphasise their accountability. It is not OK to be busy on something else when a venture is in trouble.

#3 – Founders are happy to change path if it is a better way to achieve the mission

Founders don’t know how to get there when they start the journey, but they are constantly optimising for the fastest, cheapest way to get the biggest impact before the runway ends.

Institutions like contracts with milestones. When a milestone is discovered to be not valuable to the future success of the startup, the institutional founder resists. The same is true of finding a better way. A cheaper, faster way, perhaps. That doesn’t matter (or isn’t noticed (let alone hunted for) because of the contract rules.

Institutions also treat a venture like a business unit that ultimately reports to the parent. It can’t do that. The venture needs to act in its own best interest. It can’t carry an institution or limit its ambition to a slice of some other strategy.

Design Solution: Don’t create rules that say the startup needs to align its plan with an institutional founder. If there are ongoing services (paid or otherwise), define them as you would an employee in the venture. This will be more like, “Your mission is X – do what you can to get there in the fastest, cheapest, most impactful way” than “Deliver X by February, or you are fired.”

#4 – Founders put their reputations on the line

There is nothing more motivating than having your reputation on the line. If something stays hidden and fails, that person can move on. A person who is in the arena very publicly cannot fail. Keeping a project in stealth makes it easy not to deliver.

Design Solution: Have the most senior person in the institution, such as the CEO or the DVCR in a university, celebrate the experiment that is the start of this venture. Be excited about the mission. Be clear that it might fail, but you are committed to trying.

#5 – Founders replace themselves

A founder’s first responsibility is to the venture, not to themselves. If a founder is holding back the venture, then the founder needs to get out of the way. With individuals, this is reasonably straightforward. If a CEO/Founder is getting out of their depth, they can hire better people into the roles. Often, institutional founders find themselves slowing down a company in places. Or rules passed down from the parent start to crush the tiny venture.

Design Solution: Be constantly looking for situations where the institutional founder is causing more costs, slower progress and governance that is too heavy for a tiny company and get out of the way quickly if that is what is required. That might mean stepping off boards, finding a better first customer or finding a cheaper supplier of research services, for example.

#6 – Cofounders are there for each other

There should not be a hierarchy among founders. Founders admire and depend upon each other. They know that this venture needs the unique capabilities of each other. When the design of a company makes one more important than the other, tensions rise, and the enthusiasm and determination in the others will wane.

Institutions are often the origin of some of the team members, and still consider them to be their ‘boss’. That is a power dynamic that is unhelpful. Institutions are also often a source of funding, so behave like they are the founder that is more important than the others.

Design Solution: Design this into the culture. Don’t allow these power dynamics to settle in. Have a conversation with each other and make sure the right individuals from the institutional co-founder are positioned as described in the points above.

#7 – Founders are owners

The first moment of venture-fueled innovation was when Fairchild Semiconductor was founded. Eight researchers from Stanford University were made owners by their first investor, driving their behaviour to create the first successful semiconductor company. It was a new market with no customers, a new technology that no one understood, let alone believed in or wanted. An impossible mission that owners feel motivated to complete.

Institutions resist allocating direct equity to the team working on the venture. Usually, a conflict of interest is raised as the reason for this because the individual will prioritise this project over others. Well… exactly, that’s what we want.

Design Solution: Allocate direct equity in a new venture to the key team members who must be accountable to the venture for the venture to succeed. I know it is painful, and people will complain. But this is material and not a detail that you can design around.