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Startups embody a nuanced and mostly unexplored aspect of organizational performance. A promising business venture meets a typically young yet fervent workforce, resulting in the intersection of entrepreneurship and the demand for strong leadership. But startup teams require more precise leadership characteristics of their management than those of established corporations, as they typically have limited human and financial resources, less experienced employees, flat hierarchies and high time pressure.
So, how do effective startup CEOs tailor their leadership methodology to optimize company performance?
1. Formulate and nurture a clear vision
Behind every successful startup is a philosophy, a reason that company exists and a purpose it serves. It’s the foundation of the firm, providing alignment, direction, focus and unity. However, while anyone can produce a great idea, very few people know how to carefully curate that vision from its inception.
The most important step in nurturing a company vision is communicating it to the workforce simply, clearly and often. This is essential to making employees at all levels feel connected to the company and their individual work. It also reassures low-level team members that they’re making an impact, thereby boosting morale, productivity and positive company culture.
Reinforcing the company vision also protects the startup against burnout and lack of passion — two reasons behind the 5% of failed startups, according to a study conducted by CBInsights. A strong vision generates meaning and purpose for team members. As workloads accumulate and challenges grow, that meaning supports both leaders and employees through uncertainty.
Moreover, there eventually comes a time for delegating responsibility and leadership roles, at which point founder-CEOs will ask themselves, “Who understands this company, where it’s going, and what it needs to get there?” Without a strong vision permeating the company, delegating leadership is akin to establishing pillars with unstable foundations, opening the door for failure and collapse.
2. Embrace strategic failure
The most experienced startup leaders I’ve worked with understand that failure is inevitable. And rather than avoiding that failure, they willingly confront it on their terms because no one learns from success.
Strategic failure can play a key role in one of the most important aspects of maintaining a startup. CBInsights reports that one of the primary causes (38% of cases) of failure in venture businesses is a lack of funding. Investors may exit for a myriad of reasons. But ultimately, it comes down to faith in leadership, making it vital for inexperienced founders to test their pitches in the field and instill that faith in themselves and the startup vision.
One common mistake young founders often make when searching for funding is pursuing the biggest investors with the most capital from the starting gate. Instead, they should start small, pitching to as many minor investors as possible. While this process will most likely lead to repeated failure, it also gives young leaders insight, experience and confidence at lower risk. When the time comes to pitch to the investors that matter most, they’ll be prepared because they made failure their friend.
3. Eliminate the ego
Another major hurdle for young founder-CEOs is eliminating their ego from the startup equation. Many have labored over their ideas for years and are used to carrying 100% of the responsibilities, to the extent that every task and decision becomes personal. But once the company is up and running, it can no longer be solely about them. And that inflated sense of individualism can generate disharmony and team problems — the reason behind 18% of startup failures.
Since most startups work with limited human resources, being a team player is crucial to leading a motivated workforce and successful venture. Great startup leaders learn early to suppress their ego and accept that they can’t do everything. Rather than hoarding responsibility, they share it. They establish concrete managerial hierarchies to avoid contending egos, but they also treat employees at every level like co-entrepreneurs, allotting responsibility and demonstrating trust in their team.
Once the ego is gone, only the company will remain. And a company is only as good as its workforce, from the C-level executives to the analysts and assistants. It is then the leader’s duty, especially within a startup, to invest in his or her employees. This requires adopting aspects of transformational leadership, a methodology first introduced by James Macgregor Burns in 1978, which includes an element called individualized consideration. Leaders that adopt this quality embrace mentorship, attend to the needs of each employee and actively facilitate growth and development. In other words, great startup leaders enhance company performance and culture by optimizing the potential in every follower through personal engagement.
Today, most entrepreneurs neglect to consider and contextualize their leadership practice, perhaps because the topic seems trite or insignificant when weighed against greater startup quandaries like product efficiency and market alignment. But successful startup leaders know better. They devise and nurture a clear vision, embrace strategic failure and stifle their egos. They take responsibility for their influence and use it to positively impact employees, investors and organizational performance. They understand that startups are extremely delicate structures, and every move they make can mean the difference between growth and failure. Every move they make falls under leadership.