Beware hiring of the Corporate Managers, especially the 50y+ ones that you most commonly tend to contact you spontaneously, in the Start-up -context. Typically they are suggested to be hired on your board, as the VCs typically want to strengthen the team with some seasoned expertise. Geoffrey Moore describes one (and only one) use for corporate managers – if they are from the target customer company or industry, they can act as successful sales managers for acquiring the first successful sales. However, they bring with some unexpected and harmful backage that the entrepreneurs should be aware of. I would not recommend to use the corporate managers for any other task than for the one described by Moore. Here are some reasons why:
Failure to Fail
The problem is that while the start-ups should be capable of failing fast, the middle-aged corporate managers often have worked their whole life in a culture where failing is not tolerated, especially in the upper-management. Thus, they will to the end and also afterwards disagree from having made any bad decisions, or changing their opinions even though the objective data would show the opposite. In the large corporations the vast resources enable the managers to dismiss their mistakes silently, but for the start-ups the consequences can be dire indeed as their resources are thin. The habit gets the worse the older the manager is. Finally they trust only into their ”instincts” and dismiss all other information. In my personal example the hired-in corporate management insisted of using the just acquired funding for a large advertisement campaign on the launch, in direct contradiction to the original marketing plan, which was used to rise the funding in the first place. Due to the hastening of the launch, it happened in the middle of the holiday season and in the wrong media, with no effect. Too bad that the investment was spent out in a record time. The board had even more bolder and aggressive ideas of wasting the money even faster and to even more inefficient targets, but they couldn’t be implemented due to the cash crisis.
Lack of Functional Skill
The second problem with the corporate managers is that they have customized in having a large support organization (payroll, accounting, marketing, sales, R&D) to which they can delegate their tasks to, and assume that these functions hold sufficient expertise to perform their tasks adequately. However, the start-ups are different. Most often the only expertise you have is what the entrepreneur has between his ears. By introducing the corporate manager, the costs can quickly sky-rocket beyond any reasonable level sustainable for start-ups, especially when the corporate managers have to use outsourced resources. The problem lies within the assumption of the corporate managers that they can use the outsourced accountants as they have used to utilize their in-house counterparts, delegating every smallest detail without ever gaining full understanding what the task actually consists of. The outsourced accountants are extremely happy, as they can start to invoice the start-up at high rates (60-150 EUR/USD/h) for performing routine work that should be paid at 10-20EUR/USD/h).The large support volume of the large corporations enable them to provide in-house support functions with lower cost than by hiring them from outside. Too bad that this is way too expensive for the start-ups.
Disregard of Details
One common habit for all corporate managers is their lack of interest in detail. This is actually the essence of management – a manager should not be an expert in the given field, but to hire the right experts. The large corporations and public organizations practice management daily – and hire experts and consultants for high fees to solve their specific problems. Also the education is nowadays tuned up to fulfill the needs very specialized skill needs of the corporations. If you are an accountant, it makes no sense to know anything about IT-systems or marketing.
This is, however, not the case for small companies. An entrepreneur who disregards the small print in the term sheet, or trusts an inexperienced or a wrong lawyer, even when paying sizable fees, will in the end pay dearly for his ignorence. Timmons, Spinnelli and Zacharikas calls this phenomenon in the magnificent book ”How to Raise Capital” as the Legal Circumference. An ignorant corporate manager will sign deals that are not only very difficult to live with, but also create tight limitations and constraints on future choices, which is potentially disastrous. Entrepreneurs simply cannot rely on attorneys and advisors to protect them in this vital matter, but have to put their skins in the game. A corporate manager on the other hand will thrive to avoid all responsibility.
Taking for Granted
The next shortcoming is closely related to the previous one. By having lived in a large corporate organizations, someone else has built the structure of the company to function long before the manager joined the organization. The start-ups are a blank sheet – on the first day of operations you don’t have payroll, accounting, bank accounts or even idea exactly how each of these necessary processes should be organized. Neither do the corporate managers, they have always lived in a world, wherein all the processes have existed and been functional. They have never given a though to the idea, how they they are actually organized, as the processes have worked well enough for so long time that nobody remembers anymore, how they were setup initially. Too bad for an entrepreneur, who wants to delegate this task. You simply can’t. You will have a hard time finding anyone, who would have even a slightest idea, how the basic processes should be bootstrapped from the scratch. Especially do not ask help from the corporate managers or outsourced accountants/lawyers/other specialists, as they are not experienced in these questions.
Inability to Adapt
Due to the lack of true understanding and lack of expertise of domain skills, the cost of hiring a corporate manager will be high – since he is an expert in management. Thus he will utilize his only skill, and delegate everything regardless of the cost. What the start-ups really need instead is experts, who have the domain skill (accounting, legal, coding) and can contribute his skill in exchange to stock options or any other non-monetary ways than by paying in cash. Hiring a manager to manage the outflow of the cash is suitable only for large corporations that can bare the overhead. The corporate managers are truly unable to operate in an environment, where every cent matters. Thus, the entrepreneur should never let his eye from the efficiencies of every detail of the operation, unless it’s so profitable that you can sustain the overhead-waste of large corporations (revenue less than 2M EUR/USD). Although the managers might benignly be offering their help to the start-up even for free, the managers are unwilling to learn any skills that would make them actually useful. Instead of wasting your time in talking with the managers, who can’t perform any valuable work, look for skilled specialists, buy some books and learn the basics of litigation/tax law/marketing by yourself. Because nobody else will do it for you, and you don’t have the money to hire a specialist for every task, unlike the large corporations.
Lack of Commitment
The corporate managers have accustomized themselves also to the habit of not having responsibility of anything. Rather than being risk taking (as an entrepreneur by definition has to be), the managers are risk-awerse, trying to identify personal risks and continuously finding ways to distance personally from potential consequences. From the entrepreneur’s point of view the corporate managers are like rats, who eject themselves overboard immediately if some danger can be perceived. For example in CMAX, the VCs demanded of hiring a new board member. However, the chosen board member after first accepting the task and having paid for the task, communicated after receiving the up-front (government allowance grant) payment that he is not really interested in having any formal position in the company, but would rather be a non-voting advisory board member.
The chairman of the board (also a 50y+ corporate manager) performed a coup by agreeing with the minority shareholder VCs to dismiss the entrepreneur and the CEO (which was accepted by the entrepreneur in belief that the work load would easen) and starting to manage the company (by the corporate management-style as described above). However, as the lack of functional expertise, the true cost of delegation and the inability to adapt became evident, the entrepreneur had no choice, but to force the dismissal of the previous board and taking control of the company once again. The lack of commitment is not something that a start-up needs. Ultimately the captain is required to steer the ship around the rocks. I suggest that you arm the mouse-traps well in advance and get rid of the corporate rats before they eat up your grain-stock permanently.
Never Let a Corporate Manager to Pitch for Finance
The one more disastrous failure came after the coup, when the corporate manager participated the funding pitch. By being ignorant of also this functional expertise area, he slipped to use the potential funding for advertisement and sales. Unfortunately the funder was a government agency that was prohibited from granting funding for any kind of marketing activities, and this critical funding application was denied. The entrepreneur, who had successfully raised 8 previous funding rounds had to sit on the side in disbelief of the performance of such a stupidity, trying to unsuccessfully to save the loss. The teaching of this story is that due to the lack of commitment, lack of any kind of domain expertise except for the management/delegation skill, the managers are simply unable to perform the story telling required for a successful pitch. The financiers are very good at discovering the applicant has actually no idea what he is pitching for, yielding only quick disapprovals of applications.
The habits of the corporate management are very difficult to change. The entrepreneurs and the corporate managers are two different breeds that live on the different sides of the Chasm (you know, the Geoffrey Moore’s one). The entrepreneurs are the visionaries and the technology enthusiastics, while the managers are the pragmatists and conservatives, not believing anything that is not referred to them by other managers. Thus the managers are viewed are actually a stubborn flock of self-referential sheep, who are very disastrous to be involved in any start-up -company. Instead of hiring corporate managers, you should staff your board with other seasoned entrepreneurs, who have actually been crossing the chasm before, and know the travel on the both planes. Be warned.