How to Not Get Fired by Investors, Tips on Building Deeper Relationships from a Stanford Professor - Tactician: #00108

If you don’t want to get fired as CEO, just wear a series of increasingly ridiculous disguises to work.

‘Was that the CEO, or a very business-savvy pirate?’

How to Not Get Fired by Investors

• Why Read:

  • Valuable insights for startup founders on when CEO replacement is justified, maintaining control, choosing trustworthy VCs, evaluating VC track records, maintaining transparency, demonstrating irreplaceability, and avoiding requests for additional funding.

• Featuring:

  • Jason M. Lemkin, Founder at Saastr

  • Link: 

    • “Dear SaaStr: When Do VCs Try To Replace Founders as CEOs?”

Key Concepts and Tactics:

1. Recognizing When CEO Replacement is Justified:

   • Point: Understand that being replaced as CEO may be warranted if you seriously underperform or someone else can lead the next stage better.

   • "First, if you really screw up, shouldn't you be replaced? Second, if you don't end up being a great CEO in the long-run, shouldn't you be replaced when someone can do the next stage materially better than you can? This will make you more money as a shareholder, no?"

2. Maintaining Control by Limiting Equity Sale:

   • Point: Avoid selling too much of the company to maintain de facto and legal control.

   • "Don't sell too much of the company. This is key tip #1. Roughly, you will give away control in proportion to the ownership stake you sell. If you only sell 20–30% of the company, because you don't need that much capital … you'll remain in de facto and legal control. If you sell 90%+, you won't remain in control. Which is fair. It's not your company anymore."

3. Choosing Trustworthy VCs for Your Board:

   • Point: Conduct thorough reference checks on individual VC partners before bringing them onto your board.

   • "Pick VCs on your board, especially early-stage VCs, that you trust. This is different than 'nice'. This will go a long way. If you have options, if more than one VC wants to invest in you — do reference checks. For real. On the individual partner, not just the firm."

4. Evaluating VC Track Records on CEO Replacements:

   • Point: Research how often Series A-B-C VCs you're considering have replaced CEOs in their portfolio companies.

   • "Look at the track record of the Series A-B-C VCs you bring in. How often do they replace CEOs? It's not necessarily truly a negative if they replace many CEOs, just understand what you are getting yourself in for."

5. Maintaining Transparency with Your Board:

   • Point: Be transparent with your board to avoid surprises that could spook VCs.

   • "Be very transparent. Don't hide stuff from your board. This >>spooks<< VCs. Every VC has lots of companies that unperform and even fail. But a surprise — that spooks people. Simple hack — send out a "flash report" the very first day of every month telling everyone how you did last month, the good and the less good."

6. Demonstrating Irreplaceability as CEO:

   • Point: Prove that no one else could do a better job leading the company, even if it struggles.

   • "Be better than anyone else. Even if the company struggles, if the board doesn't believe anyone else could do a better job, they won't replace the CEO, 9/10. Sometimes, it's just a B+ idea and/or a B- market."

7. Avoiding Requests for Additional Funding:

   • Point: Refrain from asking for more money from VCs, as this often leads to CEO replacements.

   • "Don't expect — or ask for — another check. This is key tip #2. The most common reason CEOs get fired is a third check. An unexpected check. VCs having to write another check into a company they don't want to write another check into. This creates huge stress at the partnership level for VCs. They don't want to write another check into their struggling companies. If you don't ask for anymore money — the CEO's job is a lot safer."

Tips on Building Deeper Relationships from a Stanford Professor

Why Read:

• Techniques for startup founders to build deeper connections, improve communication, give constructive feedback, and embrace failures as opportunities for growth.

• Interview:

  • Lenny Rachitsky, Author, Lenny’s Newsletter and Lenny’s Podcast interviews Carole Robin, Co-Founder at Leaders In Tech

• Link: 

  • “How to build deeper, more robust relationships | Carole Robin (Stanford GSB professor)”

Key Concepts and Tactics:

• Practise progressive disclosure and allow yourself to be vulnerable by sharing 15% more than your comfort zone to build deeper connections and trust with others.

  • "So step a little bit outside your comfort zone. If you step a little bit outside your comfort zone, you're very unlikely to freak yourself or the other person out. But you'll know, you'll feel it a little bit, you'll be like, okay, I feel just a little uncomfortable saying this, but I think I'm going to try. And then depending on how you respond, then we settle into a new comfort zone, a slightly larger circle, which is our comfort zone with each other. Then we can go 15% beyond that, and that's how we learn and grow and deepen our relationship."

• Recognize that there are three realities in every interaction - your reality, the other person's reality, and the observable behavior. Stay on "your side of the net" by only commenting on what you experienced, not making assumptions about the other person's intentions.

  • "So there's these three distinct realities. And the trouble we get into when we don't recognize that those three realities exist is we don't understand that we are only privy to two out of the three. So I know what's going on for me, and I know what I did. I have no idea what happened on your end. You know what I did and how it impacted you. So your two are... The only one we share is the one in the middle in common, the behaviors right now, we draw a metaphorical net between reality number one and reality number two to help people understand. And anybody who's ever taken Touchy Feely in no matter which context knows the saying, "Stay on your side of the net." Meaning stick with the two realities you know because we get in trouble the minute we start thinking we know the other person's reality."

• When giving feedback, use a constructive format like: "When you did X behavior, I felt Y emotion. I'm telling you this because Z (desired outcome)." This avoids defensiveness.

  • "So the formula is when you do <insert behavior>, I feel <pull out the vocabulary of feelings> and I'm telling you this because, or I'm hoping the outcome of you knowing this is."

• View failures as "Another F***ing Opportunity for Growth" (AFOG) by actively seeking out lessons instead of dwelling on the failure itself.

  • "Every student who ever took a class from me, every client who I have ever coached, every participant who's ever gone through Leaders in Tech knows that acronym because my question, when something has gone wrong or a person has experienced a failure, my first question is always, so what did you learn?"

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