leadership

Today, 6th of December the Republic of Finland celebrates its 92nd Independence day. The year 2009 has also market the 70th anniversary for the beginning of Winter War. Finland held firm against vastly superior numbers of the Soviet forces, causing them massive losses in their illegal attack against Finland.

Finnish Winter War soldier with a machine gun
CC Attribution: Matti Mattila@Flickr

Some of that fighting spirit still remains and has recently seen itself realized in the middle of this economic crunch - perhaps most notably in the increased effort and more positive attitude towards entrepreneurship and grass root sources of economic well-being for Finland.

Over the past months and weeks I have had many good conversations among friends, professionals and with people that care deeply about the state of this nation and its future. Those conversations have sparked a few radical and highly idealistic ideas I'll open up for discussions and debate here.

The problems

Problems are always a decent starting point. After all if there are no painful symptoms the cure is less likely to get developed. Finland today is experiencing at least these symptoms:

• Short-sighted politics is hindering true long term sustainable change and development.




• Politicians are always waiting for "the next elections" and frequently using that as an excuse for inaction. Most recently this precise excuse has been cited as a rationale to do nothing about innovation policy and esociety issues.




• Finland in 2009 seems to be a country of little strong opinion, little true action and truly getting things done. We seem to be about writing plans, memos and organizing committees that have very poor net impact on reality. Lots of movement and hazzle, but very little measured net change towards the better.




• There seems to be very little true transparency and accountability, especially in politics, but also in our courts and different areas of public service.




• Our politicians create more, and more complex, laws all the time; yet the problems they are aimed to fix seem to grown and linger in there. Doesn't this make the effect of laws quite questionable in the current system? What exactly are they good for if they don't solve the problems they were supposed to solve?




• Finland has a few taxes that arguably cost more to administer, oversee and inspect than they actually produce in tax revenue. Apart from being just plain stupid; this is also a problem that hinders growth and prosperity.




• There are additionally even more taxes that place such a heavy tax burden on various activities that it starts to limit overall growth; so instead of producing more tax revenue for the state (which should be the idea), they actually produce less.




• The sources that would create more wealth and prosperity; like growing companies, new ideas, innovation, entrepreneurship, are not currently truly supported and are not seen as champions of society; instead they are something that Finland in 2009 over-regulates, inspects, taxes to death, and apparently tries to make sure that no success would be possible.




• There are numerous areas of over-regulation where the jungle of rules and intervening by society is absurd and starts to sound "pretty Kafka".




• Is the role of government to maximize its involvement in everything? Stick its costly and official fingers in every pie it can find? Or should the role of government to let those societal elements more eager to grow, change, prosper and radiate well-being around them to do so freely? Stay out of their way and get involved in as little as possible?

Radical ideas

Idea Number 1

Let's get rid of using "the next elections" as an excuse forever. Here's how we can do it:


Finnish Parliament House.
CC Attribution: Miemo@Flickr

Currently Finland has 200 members in the parliament. They are elected every 4 years for an unlimited number of terms. Changing this naturally would require changing the constitution, but let's ignore that hurdle for now.

200 parliament members can stay. They get elected 100 members at a time every 5 years for a term of 10 years. Nobody can ever get elected for a second term. Ever. No exceptions. The first 100 to go would be selected by their parties (or alternatively: at random) after the constitutional change.

This would create a parliament that has a "junior" group and a "senior" group. The seniors will always head out permanently after their unique and one-time-only term of 10 years. There would be some serious circulation in key posts like Speaker of the parliament, chairmen of different committees etc.

Nobody could ever again use "the next elections are coming" as an excuse, because there would not be re-election, not for them anyways. Also in combination with this unique 10 year term each parliament member would be required to state their objectives and goals in getting things done for each year. This would mean answering: what positive things they want to get done for Finland? What kind of end result they desire to achieve that benefits the nation? Do note that "increasing taxes" is an invalid objective; as it doesn't necessarily lead to anything, and increased taxes can result in less tax-revenue (not more). These would be goals, desired outcomes and true end-objectives, not the means, mechanisms or petty ways of getting there. Strategy, not tactics. Vision, not micro-management.

They would have a scorecard and each year they would be evaluated by an independent party (not answerable to the parliament) on how they did. After the term of 10 years is up the permanently ousted politician would receive a permanent final evaluation on how successfully the objectives were completed in reality: and since this is a unique term, the politician would have a one time chance to get things done, and if that doesn't happen then its going to show on a permanent irrevocable record. Ineffective and useless politicians that get nothing done can currently just "weasel out" the backdoor and there's nothing to really hold them accountable in our society. This would force plenty of things to be transparent and the success of each parliament member would be on permanent public record.

Additionally the scorecards would exists for each political party: the successes and accomplishments of their members would be summed up, evaluated as a group, and published as a permanent public record. This would make the performance and ability to get things done transparent between parties; and I'm sure the most successful ones would increase their fan-base, while those who get nothing done year after year would be weeded out like the useless bladders of hot air that they are - and political groups that can actually contribute to the success of this nation would replace them.



Idea Number 2

Taxes should increase the size of "the pie" for us all. Optimize and maximize the whole; maximum prosperity, maximum well-being, maximum wealth, maximum happiness for us all. Taxes should not crunch and limit the size of "the pie", cut growth, increase complex administration at the price of everything else etc.

So why not instate an all-governing tax law that contains a mechanism that ensures successful taxation?

Here's how we could do it:

Removing any tax would require 50% simple majority in the parliament.

Establishing any new tax would require 2/3 majority.

Every expense, account, cost, etc that is spent by the government to administer, oversee, inspect, analyze, etc any tax would be mandatory to get accounted to every tax in our nation. This would include all imaginable costs: including the costs of the parliament creating a tax, down to the cost of maintaining statistical information related to a tax. All costs would have to be accounted and assigned to all taxes: so we would know at all times exactly how much each of our taxes costs to upkeep and how much tax-revenue it produces.

Creating this report of costs vs tax-revenue per tax would be run every quarter, or alternatively every 6 months. If any tax would be on the red (it costs more to maintain than it produces) for two periods it would automatically get cancelled and nullified forever. The costs associated with it would have to be assigned to burden other taxes; or the officials would need to get rid of them all together.

This way our society would never stubbornly upkeep irrational taxes that produce less than it costs to have them in the first place. Also a public high quality statistic on all taxes made in this manner would open up taxation to more political debate and the bad taxes that clearly don't work would get taken down pretty quick. Exposing the upkeep cost of each tax would also incentivize discovering more efficient ways to keep the system running.

Additional means to chop down bad taxation would include giving the president a strike-option-veto on tax laws. This would mean that the president could approve tax laws only partially. He/she would have the power to overstrike any useless text from the new tax law, and approve only what's left there. If the parliament would not like this, they would always be able to easily cancel the law (with 50% attending majority in a simple vote, on an ordinary day).



Idea Number 3

When something gets created as a law the politicians and officials have a clear objective in mind; "what's this law trying to solve?". When the process rolls onward is there a mechanism that would check in retrospect did the law actually yield the intended result? There isn't. No checks and balances, no followup. Just more laws piling up.

Each law should have an inbuilt set of metrics when it gets created. Surely each time our officials and politicians know for certain why they are creating the law in the first place, right? The objectives should be apparent in each case. Laws are typically there to protect society, citizens, to fix a problem, to accelerate or limit, etc.

Creating a set of metrics for laws should not be all that complicated. Following up on how did the law actually impact those metrics - that's very complicated. However gradually changing the entire system towards this kind of accountability should surface more reliable and realistic objective ways to make this kind of assessments. Perhaps we could indeed check if a law is leading to results it was intended to accomplish.

If a law would successfully reach less than 25% of it's metrics it would get automatically cancelled forever. Written into history as a failed law, and added into the public record of all the politicians who created it - linking the accountability for creating bad laws to the people that decided to pass them anyways. LexKarpela and LexNokia anyone? Who's accountable for those piles of manure?

If a law would fulfill more than 25% of it's metrics, but less than 75% it would automatically go for a second iteration round. The law would re-enter the parliament and it would be obligatory to fine-tune it to be better, and fulfill its set of metrics more successfully.

Also there could be a system that would followup the net effectiveness of laws all the time; and when the world changes (as it so often does, with absolute certainty), the laws that would start to loose their effectiveness would get flagged, become visible, and would get iterated with less resistance to change.

Trust me, Finland does not need laws that don't function as they are intended. Laws that don't produce the desired good outcome for us all. Laws that exists only to complicate, cause problems and slow us all down. There needs to be transparent accountability and scientific validation of the theory that creating laws actually matters and changes things towards the better. We have all the science to do this if we want to, its just a matter of willingness to be accountable and transparent.

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Getting rid of short-sighted politics always waiting for "the next elections". Automatically getting rid of taxes that produce negative results and of laws that don't work as intended would be great. It would open up society to highly develop in its ability to adapt, compete, and cope with the inevitable change. Perhaps even a society that cares more about optimizing the whole, reaching very beneficial goals and ideals - and cares less about the petty politics and things of small importance.

For example: it is far less important that a paper factory worker gets to keep his job stubbornly forever, no matter how much the world has changed around him - and far more important that he is allowed every fair change in society, gets to live a healthy fulfilling life with plenty of opportunities to do something else besides just slack around in a paper factory.

..Perhaps ideas are not quite dead yet. What do you think?

Happy Independence day Finland!

Startups need to develop at a quick pace. They often exists in semi-chaotic environments where things can change overnight and multiple separate areas need to be quickly considered and decided upon daily. What's the best way to manage your startup in a way that it is most likely to produce results? I have found something called Agile Management to be very useful.

Google already finds over 53,000 entries for "Agile Management" and there seems to be reasonably good documentation and writings about the idea floating around the interewb. I'll try to summarize what Agile Management means for me:

It is primarily ideas-strategy-action-people -oriented ongoing process that is very flexible and can quickly turn attention towards the areas the startup needs to focus on.

Some startups run their management cycles by 24 hours; there is a meeting every 24 hours, and separate objectives for the next 24 hours, this week, this month, this quarter (very rarely "this year"). All of them "rolling" which means that at least the near-future objectives can frequently change and go towards the direction where results are needed.

Traditional management models often fail at startups due to being too stiff, slow paced and "fixed in their ways". If there is a management meeting once every 2 weeks or once a month, that not quite enough to be agile and react to situations in a nearly satisfactory level that's required of startups. While Agile Management allows for fast paced reaction and change in priorities, it also allows for very active & successful followup on longer term goals and objectives.

(These dudes have it figured out, whiteboards + standing up is the way to go:)

CC Attribution: Sagolla@Flickr

Couple of good principles I have found useful in startup Agile Management:

1) Separate meetings for operations and strategy. Mixing the two will only get you confused and blurs the clarity of both. Have a separate meeting, separate agenda, a separate whiteboard, and have all of your people in a correct state of mind to think about either long term strategic things or short term operational priorities - but not both mixed together.

2) Do the opposite of "outside the box" = "inside the box". Thinking "inside the box" is actually a lot more useful than overdoing it and trying to be too freeform in your idea flow. Thinking "inside the box" means defining the box: time frame, budget, objective, way of working etc. People tend to be massively more productive when thinking and operating within certain parameters and assumptions. Without any limits people just tend to come up with a heap of unfocused stupid ideas and nothing really productive and concrete.

3) Always focus on decisions, not on discussions. Everybody in your team can talk and speak the same language, right? Then let them do the discussions between meetings and when ever they like during the work day. But when in meetings and when running the Agile Management process, the focus should be solely on getting decisions done.

4) Prioritize all of your work. One of the "secrets" of getting a lot of focused work done with Agile Management is placing priorities on everything you do decisions about and work on. This way you can actually measure tradeoffs and allocate resources based on some realism. A good measurement for priority is: value-at-stake, which means that some decision will have either positive or negative value at stake (examples: if we do this we get €€€, if we don't do this we loose 4 of our best people), and if it is large either way; that should be near the very top of your priorities anyways.

5) Make decisions stick and focus on followup. Agile Management is a fantastic process for followup; you can followup on everything important with a 24 hours cycle if you like. Once a decision has been made, followup up on it and actively review its progress. This avoids the classic startup mistake of knowing what should be done, but being incapable of executing it due to poor followup and focus.

What is a good way to keep track of every issue using a 24 hour time cycle? Post-it-notes on a wall-board is one of the best methods.

CC Attribution: Zarch_ManchesterUK@Flickr

Muxlim, RunToShop, and many other companies use this tool constantly. Having a shared space and everything visible on the wall there for everyone to see is far more efficient than any CRM/ERP/Project software or application you could possibly use. It is faster, easier and people will like using it more.

One way to "configure" it is to do a wide row for each person in the team, up to as many you like. And then do a column for different phases of the work: (a) Awaits decision, (b) Work not started yet, (c) Work in progress, (d) Waiting followup and review, (e) Work reviewed and done. You may want to add a column "Work on hold/hindered" in there as well, to see if something is not progressing. With a bid enough board you can also divide the work into categories, for example: Technical production, Legal and HR, Financing, PR and marketing, Launch operations, etc etc. Some also use color-coding for different categories of work, or separate colors for people, etc.

Creating a "post-it-board" like this will allow everybody to see the overall big picture of what's going on any time they like. Everyone sees when work is getting done, when somebody might need help, or when decisions are needed in order to get something done.

CC Attribution: Geodog@Flickr

What should a startup team spent their time on then?

Startups typically do not have to worry much about things like: Extensive reviews of operations, administrative issues, financial policy, litigation, community service and social responsibility, etc.

As a startup it makes perfect sense to outsource everything (as much as you can) to do with finances and administration stuff. Have a good (and agile) law firm there to help you from day one as well.

Bigger operational reviews you should do between meetings - not during them. What does a "standard" Agile Management meeting look like then? It is usually a team of people standing in front of the wall-board full of post-its.

i) The team goes through all the items that require decisions starting from the most high priority decision and progressing downwards towards the less important stuff.

ii) After that the them goes through what has been going on during the last 24 hours and updates the board on work that has started, completed or requires some group action. Everybody basically tells what they have done and are going to do - and how it affects the work of others..

iii) After this the team can do review and followup of the past important points and declare some work to be finally complete and done.

Repeat that every 24 hours and you will have a management machine that can quickly refocus its energy and effort into anything developing your startup might require. Startups don't have much use for wasted paper like written business plans on what do to for the next 12 months. If you have ever written such a paper, dig it up and see how much of it turned out to be true exactly as you wrote over a year ago - my guess is that it can't be a whole lot, or then you might be managing a firm that is going nowhere.

Agile Management and building your company and team to be reactive, quick on their feet and eager to jump on the really important work that really needs to get properly done = is the best business planning procedure you can ever do. Guiding your startup by a mechanism like this one does not necessarily guarantee success, but it will guarantee that all the important things get attention and if you fail, you will absolutely know why you failed and what was done in trying to avoid that.

In part I of the series I wrote about Disaster Teams, how to recognize them and a bunch of implied stuff on what to avoid and fix etc.

Now it's time to examine Success Teams.

In many ways startups are very different from large corporations and have a lot more demanding goals and objectives in place. A startup can never be happy with growing the business by 10-15% annually, like a large corporation would. Startups are about opportunity, seizing it, and winning your place in the market and in the minds (possibly hearts as well) of your customers. Startups embody the very spirit of General Douglas MacArthur's slogan "there is no substitute for victory". Startups are there to "Get Real or Go Home" and thus need to have excellent fast moving teamwork in place.

Startup teams should be about things like attitude, values, goals, objectives, motivation, trust, learning, courage, energy, intensity, competence, superior judgement and good communication (emphasis on feedback).

They should not be about: micro-management, processes, business plans, formal matters, profit and loss statements, reports, politics, non-action, vague visions and missions, long hours and exhausted managers, strict roles and responsibilities.

Success Teams are often full of leaders. There isn't just one central person responsible of leadership: everybody leads, and they lead to every possible direction: their own teams, colleagues, their bosses, partners etc.

Here's some elements that I think are important for Success Teams:

1) Complementing competencies and cross-disciplinary skills. A good Success Team is not "one-eyed" and will contain people of different disciplines, having a wide set of competencies. Gaps in knowledge and expertise should be complemented for one, but it is even more important to get differing views, opinions and perspectives on all matter that the startup team needs to deal with.

2) Success Teams don't just placidly agree in total unity all the time: there needs to be a structure of objective critique and challenging. Success Teams are very good at making priority choices and actively choosing to redistribute the few scarce resources the startup has all the time - in order to do this very well a Success Team gets to the bottom of things and questions everything starting from assumptions. The end result is a great understanding of the overall Big Picture for everybody in the team, and an increased ability to make judgement calls and concentrate on the right priorities. Startups concentrating on insignificant details can pretty much ruin the opportunity - whereas smart guidance on priority choices is often absolutely vital to success.

3) Self-organizing and the ability to make on-the-fly choices on priorities is central to Success Teams. In a Success Team all team members have exercised point number 2 there enough to have very good judgement to act on their own, and choose the right priorities. The Success Team leader can often rely on the competence and motivation of his team fully; which is when leadership becomes mostly a game of trust, leading attitudes, values, goals and objectives. What to use as the metric to make priority choices by? "value at stake" - is by far the best metric, when correctly employed.

4) Success Teams talk about the Objective, the Goal and the tangible end result they want to achieve all the time. It is very important to share an understanding of what?, why? between the Success Team. Those two little questions are far more important to startups than how?, who? or even; when?. Knowing the what and the why allows the Success Team to keep all eyes on the desired outcome that leads to tangible results. Success Teams can often rely on team members to get to the objective "on their own" drawing from their own competence. No micro-management is needed and never should be needed in a truly competent Success Team. That doesn't mean the absence of quality control: but rather that every employee is the quality control, all the time. This is essentially about trust and teamwork, which Success Teams build on to achieve great results.

5) While the Big Picture and the Objective might be something that Success Teams talk constantly about, yet they still emphasize the individual (not the collective) which is an important distinction. In economics we have the principle of Marginal Utility and the concept of "decreasing marginal utility"; that teaches us how the most productive individuals of a team are also the hardest to motivate to produce even more than they already are producing. This is precisely the reason why Success Teams celebrate the individuals; they let individual egos shine (occasionally) and get the best (get everything) out of each team member. Playful competition between team members is encouraged, and there needs to be opportunities for solo performances. Solutions are chosen based on merit. Often startups needs creativity and uniqueness more than they need big corporate style efficiency: and this is one of the mechanisms how a startup Success Team can try to assure that creativity trumps efficiency often.

6) Success Teams work close to each other. Physically close. Shared workspaces are important, perhaps a totally open office environment with no cubicles around. Working this way helps in communication, information travels fast when everybody shares the same space. It allows the team to work at a faster pace. Direct dialogue is important to Success Team, as are feelings. Team members need to be OK with sharing feelings, what their "gut instinct" is telling or intuition is saying, etc. Shared space is the best solution for this. Also whiteboards, post-it notes, and well utilized wall space is better than any Google Docs, Basecamp or collaborative software you might come up with. Nothing is as fast as just taking a glance at the whiteboard and having it all there.

7) Success Teams create rules for themselves and they stick to them. Often the kind of rules that I have found useful have to do with decision making, dividing tasks, followup and information sharing. The rest flows quite naturally when you run things based on trust and everybody sharing the same physical space. Ever had "teams" that have meetings lasting 2+ hours, with everybody having a laptop there and buried typing their own stuff, barely listening etc? This is quite common, and its pretty far from the best way to get things done. RunToShop currently has product planning meetings sitting on the floor, often without laptops, just using a whiteboard. Running a Management Team as a Success Team is an entire topic for another blog post on itself. There's tons of stuff you need to encounter there.

8) Active problem solving and discussion is central to Success Teams. When ever there is a problem that should become rather important in everybody's agenda to solve. If the problem happens to be in an area that every team member knows is vitally important in priority regarding the Objective and the Big Picture, then it really should get solved right away there and then. Success Teams actively solve their own problems without any waiting around. There are no Tabus and no "Elephants in the board room". Success Teams rush to help team members and drop everything else instantly if that is required in order to get a high priority problem solved. Success Teams prioritize their work based on value at stake and a big problem quickly becomes a big negative value at stake, so it jumps near to the top of the priority list pretty fast.

9) Startup Success Team concentrates on differentiation a lot. It is a good principle to have separate meetings concerning operations and a separate one concerning only differentiation. All that strategy is or ever was is differentiation, so I'm not even using the word "strategy" here, just gonna go with "differentiation" since that is essentially what matters the most to startups in any case. www.muxlim.com has this way for working: Muxlim has separate meetings for planning operations and a totally dedicated one for differentiation. How often do they meet? Every single day, and at least once a week only for differentiation. Btw, Muxlim should come out with some highly impressive stuff before the end of the year, watch for it.

This list could continue for a while, but I have the feeling that it would go into needlessly precise details quite fast. So I'm stopping here and saving the rest for other blog posts.

Just going to finish with this: startup Success Teams are often agile, constantly changing, iterative, open to new views ideas and total priority changes if the situation or the Objective changes. Writing a multi-phased business plan and stubbornly sticking to it is such a bad idea. Why? because with startups it does not correlate to eventual success at all. If it would thousands of business plan writing consultants would be millionaires already ;)

Teams are extremely vital to any startup. Nothing happens without the people, and nothing much happens without the right people working at a good performance level towards a clear common goal.

For years investors have had a simple formula that includes teams as a central component, many throw around the old slogan that the value of the company is equal to = the magnitude of the pain * the potency of the remedy * the team delivering the remedy for the pain.

So even if you have a big huge acute problem (like the current financial sector turmoil, or Peak Oil) and a brilliant solution to that, it still amounts to nothing without a good team being capable of high quality execution.

We should all know this; that teams are important and that people count, right? Knowing this doesn't help us from occasionally wandering astray and finding ourselves and our startups stuck with a "Disaster Team".

How to identify Disaster Teams? What to do if you end up having one?

In short, Disaster Teams are teams that are certain to remove value instead of add value. Now that's not nearly as simple as it sounds: since it's mostly about potential. Every startup, when properly run, has the potential to produce great results. There's a lot of potential. Yet still what many people (and teams) fail to grasp is that it is equally bad to the owners to loose opportunity to the competition than to directly throw away the owner's money: to the owner it is in essence the same thing. Yet somehow we still always feel worse about throwing money away (or losing money) directly than losing opportunity: and we should not. Think about a situation like this: you invest all of your fortune to a big company X in the retail sector for example. Then company X never goes after any opportunities and you see their competition grabbing their market share left and right, beating them in every turn, outgrowing your company X. To you it is equally worse as would be company X directly pouring money down the drain - and this is more true to startups since they are all about opportunity - and don't even have that much money to really worry about wasting it.

So, Disaster Teams remove value mainly because they are incapable of going after the opportunities, or competently landing them in the startup's favor. Most often the deadliest Disaster Team is your management team or your board of directors. Can even be the group of founders.

Here's how to identify if you have one, and implied ideas on how to fix it:

1) the Team is full of "brothers of faith", having similar opinions, assumptions and views on almost everything. The Team agrees so much it makes you nervous and there's a "cult spirit" influencing decision making, perhaps kept very much alive by a powerful personality in the Team. The really serious part is: the lack of any critique, opposing views and objective thinking. A company that doesn't heed to objective reality (as in facts and proven intuition) and doesn't exercise critical thinking is soon a company that ends up doing hideous mistakes.

2) the Team doesn't organize by themselves. They wait for "the great leader" to appear like Chairman Mao and be directive on what to do with the most important stuff. The lack of the capability to self-organize can only mean a couple of things, and they are all negative: A) the lack of empowerment in the company, B) lack of motivation to take responsibility and make things happen for the benefit of the business, C) unclear and vague goals, vision and perhaps misunderstood objectives, D) political play and a culture of avoiding mistakes. All of those things are extremely destructive for a startup and a Team that has those is seriously gunning for a disaster waiting to happen.

3) Disaster Teams also often act illogically and chaotically. People drive their own agenda to separate directions and there's no shared values, attitudes or goals that would drive the behaviour "in the background". Disaster Teams frequently do counterproductive things that might for example optimize the part, not the whole. Startups should almost never use corporate tools like the Balanced ScoreCard, unless you are being super smart in implementing it. With the BSC it is easier than commonly perceived to create a Disaster Team that only looks at the card as a guidance on what to do = this is deadly. If you have them implemented now, consider putting them through the shredder quick, while you still can.

4) Disaster Teams don't stick and adhere to rules (even their own) and they may play inner politics more than seizing actual opportunity out there in the market. Almost any political game with startups is a huge-vast negative and will end up hindering or hurting you. The classic example of a Disaster Team not sticking to rules is the classic act of escaping responsibility and changing decisions (often without telling) when the times comes to implement them. Also a repeated non-delivery on an agreed and clearly important task is a classic.

5) Disaster Teams meet infrequently and sometimes even rarely (less than twice a week is "rarely" in startups). How often should a management team meet? = every single day, all of you, face to face.

6) Disaster Teams only communicate when they have to. Sometimes a person in a Disaster Team only communicates when he needs to get his own job done. Otherwise he just shuts up and avoids sharing information or openly discussing anything. Any gaps like this in your team communication can mean prelude to disaster. Communication goes both ways: all team members will have to be willing to share and discuss anything and everything about their "domain" and stuff.

7) The Team wastes each others time and does not focus. Everybody has a laptop in team meetings, everybody has their cell phone turned on. Half of the Team is out on customer calls or in other meetings, etc. Those are rather obvious signs, but this is even worse: having a Disaster Team that repeatedly wastes everyones time by for example acting out a stupid procedure of reporting everything area-by-area jointly in a meeting. Meetings are NOT for sharing information or even for discussing. They are primarily for making decisions and coordinating the execution you are about to act out, and Disaster Teams will not get that.

8) One very obvious "tell-sign" of a Disaster Team is the inability to deal with its own problems. Sometimes this comes full with a culture of actively building Tabu's and skeletons in the closet. There should not be anything you cannot discuss with your management team. Funding? talk about it. Cash balance? talk about it. Problems with your latest customer delivery? talk about it. Its topics, items and issues arguing - it's not people arguing (I hope, or then its an instant disaster right there), so no topic is Tabu and you as the startup leader will need to be able to discuss even your own shortcomings, mistakes and actions to take to improve your own performance.

Part II will be on Success Teams then.

Many startups will encounter the Freerider problem during their evolution at one point or the other. I have encountered it myself in several companies; it is more common than people realize. It is also very rare to hear anybody talk extensively about these kinds of problems and people seem reluctant to elaborate on how they have solved such issues.

In brief a "Freerider" or "Free rider" is somebody who doesn't quite pull their weight in startup and they are more of a problem than a solution in the path of the startups development.

This kind of problem can arise from any number of circumstances, including:

1. Multiple founders typically with equal (or near-equal) share, some (or one) of which start slacking and underperforming,

2. Co-founder that founds a company with you, but then leaves or is somehow occupied with other tasks not really contributing at all, but still getting the benefits of your hard work.

3. One cause can also be hard-to-verify-n-deal-with personal problems, such as drugs or alcohol abuse and underperformance as a result of that. If this keeps on going long enough you might end up with a Freerider owner that's also on drugs.. not a very happy place to be for a startup.

Founding and developing startups isn't always rosy and groovy, and since people are just people they will have their serious shortcomings occasionally. You could also argue that the kind of personalities that establish startups are far from "risk free" in terms of unexpected bumps in their lives, and are certainly not immune to overdoing the classic "sex, drugs and rock'n'roll" routine up to a point where it starts to hurt the business. How many dot-com "millionaires" you saw repeating this same pattern in the crazy old days? I lost count, and the joke wasn't as funny as it used to be pretty fast.

Freeriders tend to radiate destructive energy and negative vibes in a startup environment. People who actually work their asses off to get the company flying will (sometimes very strongly) think that it is absolutely unfair and unethical for someone else to be a negative influence to the success effort and still reap a big share of the benefits. You could argue the they are wrong: owners are just owners and would an executive in a public corporation feel bad about working his ass off for a pension fund that's the largest owner of his corp? Probably not. But people are emotional up to the point where it becomes irrational and if there's one thing they feel strongly about its the Freeriding and seeing that every day up close. Quite simply Freeriders eat away motivation from the people who perform the most valuable work in your startup: they are usually the first to feel demotivated. You can compensate this with paying them higher salary or coming up with any tricks you can think of: but none of it really solves the problem until the Freerider is gone one way or the other.

Getting a startup to succeed is hard work and everybody needs to pull their weight nearly 100% of the time. If you have 10 people working for you and 1 of them is a Freerider; then 10% of your entire workforce is slacking and causing the others to be demotivated -> startups cannot handle this for very long and the situations are pretty destructive and unbearable. Also any financier or VC investing in your company will almost certainly find out about your "little personnel problem" there (during the DD phase), if nothing is done about it.

Before taking any definite actions towards a Freerider you should first let him/her know about the problem and allow him the chance of fixing it. There are cases when people just go through a rough personal period in their lives and can recover after a while to rejoin the team in the competent and contributing side. If this fails or isn't possible due to the circumstances present, then it is time for action.

If you end up with a permanent Freerider amongst you, what to do?

A) the situation needs to be resolved asap. The sooner the better. Never wait it out, ever. It's like drinking poison and then waiting that it will probably go away, it won't.

B) In many cases you need to get rid of him/her no matter what. Nothing else will help as much as seeing the Freerider leave for good.

C) buying a freerider out is the most common thing to do: get an investor to buy him out. Get a new partner to buy his share and replace him. Buy his share yourself. Be creative. If the situation is bad enough this should not be that much about price and valuation: the company with a severe Freerider probelm can soon be a company worth zero Icelandic Crowns, and any implied valuation for example is better than zero, right?

D) you need to tell your team that you consider this to be an important problem to solve, and will work actively in solving it. You can even propose that you pile up the money together and buy the Freerider's share jointly.

E) If the Freerider owns less than 10% there might be couple of legal-financial ways to get rid of him: organizing a scheme where somebody temporarily owns more than 90% of the company and then forcibly buying the Freeriders share, after which you can reorganize your ownership etc. This is quite rare and often there's no chance of doing this; as the most typical Freerider, unfortunately, is a co-founder.

How have I solved Freerider problems in the past?

I have fired Freeriders from the company, even founders. Then later tried or succeeded in buying their shares. I have sent people home to do nothing for a few months to recover and give them a chance to rethink their priorities and possibly return to work as a contributing team member (if they are really competent, that's better than loosing them forever). I have also seen cases where somebody isn't pulling their weight fully, and that person gets bought out rather quick, solving the issue and making him/her a normal employee of the startup.

Prevention is far better than reacting to an acute problem that has already caused damage. How to prevent a Freerider problem? Here's a few tips:

i. Talk about this specific problem amongst all owners. Make sure everybody understand what it takes to make a startup successful. Make sure that everybody knows crystal clear that their contribution is expected and vital - there's no such option as suddenly starting to slack or not to perform.

ii. As soon as you see the first signs of this problem; react right away. Talk to people, call a meeting, go talk to the person who looks like he/she might become a Freerider soon. Fix performance issues, re-shuffle responsibilities and roles if you have to. Get the team working, eyes on the ball and motivation high. Don't leave them alone with their problems or "behind" with a mountain of work to climb.

iii. Consider having a vesting schedule even for the founders stock. Some US VCs use this mechanism and it quite effectively solves potential Freeraider problems. There's a good post about that here in the Lightspeed Venture Partners blog.

iv. Consider having a good leaver/bad leaver clause in your SHA (ShareHolder's Agreement) that way you can prevent the "our co-founder just left, and still owns 35% of the company" -problems from happening.

I would love to see more talk about this issue. Usually the only moment where you encounter this topic is when you talk about the new SHA with a VC who is about to invest into your venture. There exists just about nil discussion about the topic, and I'm sure many startup founders haven't even encountered it (yet). I hope to start a discussion by this blog entry.