Mission-centric Organization and Culture

Most startups don't give much thought to organization and culture, and if they do, it may have something to do with Friday beer bashes, refrigerators full of soft drinks, or an iconoclastic founder. Entrepreneurs and their investors tend to assume success means they must transform themselves as quickly as possible into a large company, complete with all the accoutrements of a large-company organization and culture: a hierarchical, command-driven management style, process-driven decision-making, an HR-driven employee handbook, and an “execution” mindset. The result is typically a bureaucracy imposed way too early. Such a system stems from the belief that imposing order and certainty on a disorderly, uncertain marketplace will result in predictable and repeatable success. (Paradoxically, pursuing order and certainty as a goal from the beginning would have meant the startup would never have gotten off the ground.)

In this final stage of Customer Development, the CEO, executives, and board need to recognize that with the uncertainty of the mainstream market still ahead of the company, just mimicking the culture and organization of a large company can be the beginning of the end for a promising startup. Consider what happened to BetaSheet four years after Mark left. With BetaSheet's early and visible success, the board was able to hire a traditional CEO experienced in the pharmaceutical business. She arrived just as the sales team missed its numbers. Customers were simply not adopting the product as rapidly as expected. The new CEO cut back the sales staff dramatically and replaced the VP of Sales. Then she looked at the rest of Mark's management team and replaced them one-by-one with a new team of experienced sales, marketing, and Product Development executives from much larger companies.

After that rocky start, sales and the company continued to grow for the next 18 months. BetaSheet's once radical ideas garnered acceptance in the pharmaceutical industry, and revenue was once again meeting plan. The board and investment bankers began to talk about an IPO. However, unseen by the BetaSheet management team, dark clouds were gathering on the horizon.

As large BetaSheet customers understood how strategically important this drug discovery software was, they began to set up their own in-house groups to provide it for themselves. Further, BetaSheet's new market creation activities had not only educated customers but also helped competitors understand how lucrative this new opportunity could be. Finally, while early customers were enthusiastic and supportive, revenue wasn't growing at the rate early sales successes had predicted. At the same time, new competitors and existing companies were starting to develop and offer similar products.

Internally, things were also changing. Not only had Mark left the company, but after 18 months an exodus of the most innovative engineering and sales talent began. The word among employees was that initiative and innovation were not appreciated; all decisions needed senior management approval. It became understood “not going by the book” was now a career-limiting move at BetaSheet. Moreover, by the third year, infighting between Sales and Product Development, and between Sales and Marketing, was almost as intense as battles with competitors. The BetaSheet departments each had their own agendas, at times mutually exclusive. New products never seemed to make it to market as priorities changed monthly. The sales decline, which began in year three, became a rapid death spiral in the fourth year. By its fifth anniversary the company shut its doors.

For a startup on such a fast track the BetaSheet story is depressing, but it's not unique. Replacing entrepreneurial management with process-oriented executives who crater the company happens all the time. The problem is that most founders and investors seem to have no alternative for organization and culture than the extremes of startup chaos and corporate rigidity.

In this chapter I propose a third alternative. As it grows, a successful startup moves its company organization and culture through three distinct stages (see Figure 6.3).

The first stage, which spans Customer Discovery, Customer Validation, and Customer Creation, is centered on the Customer and Product Development teams. The second stage happens in Company Building: The organization becomes mission-centric in order to scale up and cross the chasm between early and mainstream customers. When the company grows larger, it becomes process-centric to build repeatable and scalable processes.

Experienced executives understand process, but few of them understand what it means to be mission-centric. To make the transition to a large organization and cross the chasm, your startup must become an agile company, one that can still respond with entrepreneurial speed, but do so with a much larger group of people. Creating that agility requires a written and widely understood corporate mission that drives the day-to-day operations of the departments and the employees. As you'll see in Phases 2 and 3, this mission-centric mantra must pervade the culture of the entire company.

For the organization to grow, these transitions must occur. If the members of the founding team want to continue their tenure with the company, they must also make these transitions. They need to recognize the shifts in emphasis, embrace them, and lead the change in management style. At BetaSheet, Mark failed to understand this evolution, and both he and the company paid the price.

Transforming the Customer Development Team into Functional Organizations

If you've followed the Customer Development model to this point, you've already built your first mission-centric team. In Phase 3 of this step you will transform the mission-oriented culture of the Customer Development team into departments organized to execute and support the corporate mission.

Don't mistake this as building departments that then invent missions to justify their existence. Too many startups interpret growth as a call to build, staff, and scale traditional departments according to a cookie-cutter model (thinking all companies must have Sales, Marketing, Business Development) rather than building a structure from a clear strategic need. In contrast, in the Customer Development model, the next step is to add a layer of management and organization still focused on the customer-centric mission, not just on building departments and headcount. You want to achieve a management system and departments that communicate and delegate strategic objectives to the staff so they can operate without direct daily control while still pursuing the same mission.

This can be achieved only if executives are selected because they share the same values, not just because their resumes show lots of experience. At the same time, this next layer of management needs to be made up of people who are leaders in their own right, not just yes-men to a charismatic founder. As leaders, they transmit the company's vision to all the people who help carry it out. I learned this principle early on in my career, when I took over as VP of Marketing at SuperMac, a company just exiting Chapter 11. I asked my department managers what their mission was. Their responses were disconcerting. Our head of the trade show department responded, “My mission is to set up our trade show booths.” The other managers gave the same kinds of answers. The head of the public relations group said he was there to write press releases. The leader of the Product Marketing Department said his job was to write data sheets and price lists. When I pressed them to think why Marketing was going to trade shows, or writing press releases or penning data sheets, the best I could get was “because that's our job.” A lack of clarity about mission is always a leadership failure. Soon thereafter, I began to educate my staff about their mission. It took a year to get a department of people who understood their business card title might be their daily function, but it wasn't their job. The mission of Marketing at SuperMac was to:

• Generate end-user demand
• Drive that demand into our sales channels
• Educate our sales channels
• Help Engineering understand customer needs

These four simple statements helped Marketing organize around a shared mission (which we all recited at the beginning of our staff meetings). Everyone else in the company knew what we in Marketing were going to do all day, and how to tell whether we succeeded. You'll see how the Customer Development team morphs into mission-driven functional organizations in Phase 3.

A. Transitioning from Earlyvangelists to the Mainstream in a New Market

In a new market, the motivations of early buyers and mainstream customers are substantially different. The earlyvangelists you've targeted in Customer Validation want to solve some immediate and painful problem or, in the case of companies, gain a large competitive advantage by purchasing a revolutionary breakthrough. The majority of customers, however, aren't earlyvangelists; they're pragmatists. Unlike earlyvangelists, they typically want evolutionary change. Consequently, the effort you have put into building a repeatable and scalable sales process for earlyvangelists will not lead you to volume sales. Visionaries will put up with a product that doesn't quite work; pragmatists need something that doesn't require heroics to use. Further, pragmatists do not care for or trust the visionaries as references. Pragmatists want references from other pragmatists. The chasm between earlyvangelists and volume sales to mainstream customers occurs because these two groups of customers have little in common.

In a new market, the gap between visionary enthusiasm and mainstream acceptance is at its widest point (see Figure 6.5). The width of the gap explains the hockey-stick sales growth curve often seen in a new market: a small blip of revenue in the first year or so from sales to earlyvangelists and then a long, flat period, or even a dip, until the sales force learns how to sell to a completely different class of customers and Marketing convinces pragmatists your new product is worth adopting.

In addition to the long hiatus until sales take off, a new market has the most serious sales risks on either side of the chasm. On the near side of the chasm, finding a repeatable sales process for earlyvangelists might succeed all too well. Your sales organization might become content with the relatively low level of repeatable business. In fact, the sales force may exhaust the visionary market by selling to all potential earlyvangelists without having prepared to learn the new sales roadmap for reaching mainstream customers.

The risk on the other side of the chasm is that you may never get there. Mainstream pragmatists in a new market may see no reason to start adopting your product. Especially in tough economic times, few customers want to be innovators if they can help it. When spending is tight, new companies with innovative ideas find the mainstream a formidable and sometimes impenetrable customer base.

There is another risk as well—your competition. After years of investing in educating a new market about the benefits of your product, your startup could lose to a “fast-follower”—a company that enters the market, piggybacks on top of all your market education, crosses the chasm, and reaps the rewards. Usually, startups lose to a company that has implemented a fast-response organization and is learning and discovering faster than they can.

While these risks may sound catastrophic, they don't have to be. The biggest danger is not understanding the characteristics of new-market customers—or worse, recognizing them but refusing to risk changing the sales model that has produced your earlyvangelist sales in order to go after the volume customers. That can be a first-order tragedy for your investors and company.

To reach mainstream customers in a new market, your company must devise selling and marketing strategies that differ from those used in an existing or resegmented market. For example, rather than simply hiring lots of salespeople to capture hordes of customers (as in an existing market), you must find the sparse population of earlyvangelists and use them to gain a foothold in the mainstream market. Rather than spending large sums on a branding campaign (as in a market you are trying to resegment) to an audience that is not ready to listen, you need to use the few yet potent earlyvangelists to woo and win the mainstream market.

Two of the best-known strategies are (1) “crossing the chasm” by finding niche markets ¹ and (2) creating a “tipping point.” ² These strategies are summarized in Table 6.1.

While both strategies have been widely discussed, their implementation by startups has not always been successful. My contention is these strategies work best when applied in new markets, not all markets. Chasm-crossing and tipping point are best suited for converting a small cadre of true believers into a mass movement. Chasm-crossing builds upon initial earlyvangelist sales by targeting your sales force to focus on a single reference market, application, industry, or company type (the niche), then selling to the mainstream economic buyers. These mainstream buyers need a “whole product” (a complete solution). Tipping point strategies work differently (they are sometimes compared to how epidemics spread). They capitalize on the observation that just a few “right” people can create a change in customer and market behavior. That once a critical mass of these right people endorse a product, particularly one that is “sticky,” mass adoption can occur at an exponential rate. When the tipping point strategy is applied to a company or product, the goal is to artificially create the herd effect by managing customer perceptions of an inexorable trend.

B. Managing Sales Growth in a New Market

For years venture capitalists have realized startups in new markets take an extended time to reap the rewards. VCs refer to these startups as having a hockey-stick rate of sales growth. As illustrated in Figure 6.6, while there may be a blip in sales revenue from earlyvangelist orders, in a new market sales can be close to zero during the first few years. Revenue accelerates to exponential growth only when the company successfully educates customers, creates new sales and channel roadmaps that reach mainstream customers, and has the staying power and resources for the long haul.

Besides being a sobering predictor of life without much revenue, this sales growth curve sets several important parameters for a startup in a new market with no sales revenue coming in:

• Capital requirements: How much money will the company need to raise until revenue starts coming?
• Cash flow/burn rate: How does the company manage its cash and burn rate?
• Market education/adoption plan: How much education will it take, and how long will it take for the market to grow to sufficient size?
• Hiring plan: If infinite marketing dollars will not affect demand in a new market, why and when does the company need to staff a marketing department? The same question applies to the sales staff. If revenue is not elastic based on the number of salespeople in the field (but rather depends on the creation of the market), why and when does the company staff the sales organization?

The implication of these questions is that in a new market Company Building is all about husbanding resources and passionately evangelizing and growing the market until the market grows large enough for sales revenue to appear. Your experience of selling to earlyvangelists during Customer Validation will help you answer, “How many of these early customers can your company really find in the first few years?” That question will help you set your sales revenue and expense model, and give you a feeling of the cash needed until the “hockey stick” sales curve driven by mainstream customers kicks in.

One last risk in entering a new market is the market itself turns out to be a chimera. In other words, there may simply not be enough customers past the initial early adopters to sustain a large business. Worse, most companies don't find out they were wrong until years later when they are out of money. By then it is too late to reposition the company. Some examples of new markets that never materialized are home dry-cleaning products, low-fat substitutes for snack products, “smart cards” (credit cards with a computer chip in them), the artificial intelligence market in the early 1980s, and the pen computing market in the early 1990s. Therefore before selecting a new market as a positioning choice, entrepreneurs and their companies ought to look at their projected burn rate, look deep into the eyes of their investors and cofounders, and make sure this is the path everyone agrees to travel together willingly.

C. Moving from Earlyvangelists to the Mainstream in an Existing Market

In an existing market, the chasm between earlyvangelists and mainstream customers is small or may not exist (see Figure 6.7). That's because the visionaries and pragmatists are the same type of customer. In an established market, all customers will readily understand your product and its benefits.

There is no long interregnum as the sales organization learns a new sales roadmap and a new class of customers gets educated. The only limits on sales growth are market share and differentiation. The absence of a chasm is a signal that this market is ripe for exploitation and relentless execution. The challenge is while customers may understand your product and benefits, they may not understand why they should buy your product rather than one from a familiar existing company.

This is where positioning ³ and branding ⁴ come into play. Positioning and branding are well-known strategies for differentiating companies and products. At times these two words are used synonymously, which is a problem since they are different, and the difference matters. In an existing market, where market share is the objective and there is little distinction among competitors, the fastest and least expensive way to differentiate your company and product is to establish positioning, or value (i.e., everyone knows why your product is better and wants it) rather than pursuing branding (everyone knows about your product and thinks your company is wonderful). Positioning can be considered successful when customers not only recognize the product or service but can recite its attributes. When positioning is executed correctly, it creates end-user demand for the product. For example, Starbucks is the No. 1 place for coffee is the Starbucks positioning. In contrast, branding works best when you are resegmenting a market. Starbucks is a great company and treats its employees well is Starbucks positioning the company. Spending money on branding in an existing market may mean potential customers know who your company is, but still end up buying from a competitor.

D. Managing Sales Growth in an Existing Market

In an existing market, Customer Validation and Creation should have already proven there are willing customers who understand your startup's unique advantages. Hopefully, Marketing has differentiated the product and is now creating end-user demand and driving it into your sales channel. The sales organization is scaling to reap the rewards. If all goes well, the graph of year-to-year sales in an existing market is a nice straight line (Figure 6.8). And the table you put together is a standard sales and marketing forecasting and hiring plan.

If you're lucky enough to be in this Market Type and at this stage, scaling means worrying about:

• Capital requirements: How much money needed until cash flow break even?
• Hiring plan: Can the company scale rapidly enough to exploit the market?
• Product lifecycle: Your nice linear sales curve is true only as long as your product remains competitive. Are there follow-on products in your pipeline?
• Competitive responses: Most competitors will not stay unresponsive forever. What happens when they respond?

In an existing market, then, Company Building is about pursuing relentless execution and exploitation of the market, while simultaneously being intensely paranoid about your product lifecycle and the responses of competitors. (Think of the myriad car manufacturers who began producing SUVs after the Chrysler Minivan created a mass market in the 1970s.) The density and intensity of this Market Type means the linear upward sales curve can easily reverse direction.

E. Moving from Earlyvangelists to Mainstream Customers in a Resegmented Market

A resegmented market strategy lands your company somewhere between a new market and an existing market. Although the chasm between earlyvangelists and mainstream customers is not as wide as in a new market (Figure 6.9), it takes time to convince mainstream customers that what you have defined as unique about your product or company is a compelling selling proposition. As a result, in the early years, sales may be low.

There are two chasm risks in this Market Type. First, is the seductive nature of sales to early adopters. In this Market Type, there are sufficient visionary customers to generate revenue, albeit at a small scale, to make the company think it has built a scalable business model. The reality is the company is skimming a low volume of sales from a competitive existing market. Crossing the chasm in this Market Type means attracting masses of mainstream customers who need to be educated to what's new and different about the way you've redefined the market. In other words, you have some of the same issues as a company entering a new market. However, instead of using niche marketing and tipping point strategies as you would in a new market, you use branding and positioning to reach mainstream customers. It is here, in a resegmented market, that all the conventional wisdom about branding and positioning is actually valid. Marketers use these tactical tools to differentiate their company and product from those in an existing market. For example, in the home appliance market, Subzero, Miele and Bosch created a new segment of kitchen appliances: high-end and feature-laden. Consumers (at least in the U.S.) were perplexed about why they should pay exorbitant prices for what were “just” refrigerators, washers, and dryers. However, after some time, adroit marketing and positioning took hold, and these previously mundane appliances turned into status symbols. Similar examples of successful resegementation can be found across a wide variety of industries: Starbucks transforming the 49-cent cup of coffee into the $3 latte; Dell turning commodity personal computers into build-your-own, custom-designed products; Perrier and Calistoga turning water, the ultimate commodity, into a high-end purchase that costs more than gas.

This litany of success stories brings us to the second risk in a resegmented market—resegmenting an existing market typically is expensive, and companies require sufficient capital for seeing an adroit marketing and positioning through to completion. While there may be a ready existing market for your company to reach and resegment, your messages need to be heard above the cacophony of the incumbents. Startups that resegment typically underestimate the dollar and time commitments necessary to make a lasting impression on the consumer psyche.

In Customer Creation, I pointed out that one of the key marketing mistakes is having an ad or PR campaign that lacks an underlying positioning strategy. Having a positioning strategy is the prerequisite to branding. Too many VPs of Marketing choose a branding campaign when they cannot even articulate a position. Branding is expensive, time-consuming, and designed to elicit a visceral reaction. The key in a market you are resegmenting is to use positioning to establish the value of the new segment and create demand for a product. Then you can use branding to reinforce the value of that segment and grow demand exponentially into the hockey-stick part of the sales curve.

To reiterate: Branding and positioning strategies, while widely popularized, have been misused by many startups. In a new market, these strategies are expensive and deadly (they were the sinkhole for most dot-coms). They are critical, however, in a market you are resegmenting. In a resegmented market, you use branding and positioning to turn a small cadre of early evangelists into a mass market, yet have the customers in that mass market believe they remain a small, elite group.

F. Managing Sales Growth in a Resegmented Market

Sales growth in a resegmented market is a complicated balancing act, since it combines the sales growth models of new and existing markets. The good news is there is an existing market of customers who will readily understand what the product is. This allows the company to immediately generate some level of sales even amid stiff competition. However, these early sales should not be confused with success. The company won't achieve explosive sales growth until the market understands and adopts its resegmentation. The result is the sales curve shown in Figure 6.10. The sales-growth issues that need to be managed in a resegmented market are these:

• Capital requirements: How much money is needed until cash flow break-even?
• Market education costs: Can the company afford the continued cost of educating and creating this new segment?
• Positioning and branding costs: Unlike a new market, a resegmented market offers a clear target to be different from. This positioning and branding are costly. Is there a budget?
• Hiring plan: Can the company balance early sales without overhiring before the ramp appears?
• Market evaluation: What happens if resegmentation doesn't work? Most startups end up in the land of the living dead. How do you avoid it?

In short, Company Building in a resegmented market is similar to Company Building in a new market. It is about husbanding resources and passionately evangelizing and growing the new market segment until the segment is large enough for hockey-stick sales revenue to appear. As with a new market, one of the risks is the new segment can be a chimera. In this case, you're left trying to make it against multiple competitors in an existing market with a product that isn't significantly unique.

A. The Board Reviews the CEO and Executive Staff

When you reach the company-building step, it's time for the board to look inward and decide whether the current CEO and executive staff are capable of scaling the company. To get here, the company needed people like Mark at BetaSheet: passionate visionaries capable of articulating a compelling vision, agile enough to learn and discover as they went, resilient enough to deal with countless failures, and responsive enough to capitalize on what they learned in order to get early customers. What lies ahead, however, is a different set of challenges: finding the new set of mainstream customers on the other side of the chasm and managing the sales growth curve. These new challenges require a different set of skills. Critical for this transition are a CEO and executive staff who are clear-eyed pragmatists, capable of crafting and articulating a coherent mission for the company and distributing authority down to departments that are all driving toward the same goal.

By now, the board has a good sense of the skill set of the CEO and executive team as entrepreneurs. What makes the current evaluation hard is that it is based not on an assessment of what they have done, but on a forecast of what they are capable of. This is the irony of successful entrepreneurial executives: Their very success may predicate their demise.

Table 6.2 helps elucidate some of the characteristics of entrepreneurial executives by stage of the company. (Looking at this table, what should the BetaSheet board have done about Mark?) One of the most striking attributes of founding entrepreneurial executives is their individual contribution to the company, be it in Sales or Product Development. As technical or business visionaries, these founding executives are leaders by the dint of their personal achievements. As the company grows, however, it needs less of an iconoclastic superstar and more of a leader who is mission-and goal-driven. Leaders at this stage must be comfortable driving the company goals down the organization, and building and encouraging mission-oriented leadership on the departmental level. This stage also needs less of a 24/7 commitment from its CEO and more of an as-needed time commitment to prevent burnout.

Planning is another key distinction. The learning and discovery stage called for opportunistic and agile leadership. As the company scales, it needs leaders who can keep a larger team focused on a single-minded mission. In this mission-centric stage, hierarchy is added, but responsibility and decision-making become more widely distributed as the span of control gets larger than one individual can manage. Keeping this larger organization agile and responsive is a hallmark of mission-oriented management.

This shift from Customer Development team to mission-centric organization may be beyond the scope or understanding of a first-time CEO and team. Some never make the transition from visionary autocrats to leaders. Others understand the need for a transition and adapt accordingly. It's up to the board to decide which group the current executive team falls into.

This assessment involves a careful consideration of the risks and rewards of discarding the founders. Looking at the abrupt change in skills needed in the transitions from Customer Development to mission-centric organization to process-driven growth and execution, it's tempting for a board to say, “Maybe it's time to get more experienced executives. If the founders and early executives leave, that's OK; we don't need them anymore. The learning and discovery phase is over. Founders are too individualistic and cantankerous, and the company would be much easier to run and calmer without them.” All this is often true – particularly in a company in an existing market, where the gap between early customers and the mainstream market is nonexistent, and execution and process are paramount. A founding CEO who wants to chase new markets rather than reap the rewards of the existing one is the bane of investors, and an unwitting candidate for unemployment.

Nevertheless, the jury is out on whether more startups fail in the long run from getting the founders completely out of the company or from keeping founders in place too long. In some startups (technology startups, especially), product lifecycles are painfully short. Regardless of whether a company is in a new market, an existing market, or a resegmented market, the one certainty is that within three years the company will face a competitive challenge. The challenge may come from small competitors grown bigger, from large companies that now find the market big enough to enter, or from an underlying shift in core technology. Facing these new competitive threats requires all the resourceful, creative, and entrepreneurial skills the company needed as a startup. Time after time startups that have grown into adolescence stumble and succumb to voracious competitors large and small because they have lost the corporate DNA for innovation, and learning and discovery. The reason? The new management team brought in to build the company into a profitable business could not see the value of founders who kept talking about the next new thing and could not adapt to a process-driven organization. So they tossed the founders out. And paid the price later.

In an overheated economic climate, where investors could get their investments liquid early via a public offering, merger or acquisition, none of this was their concern. Investors could take a short-term view of the company and reap their profit by selling their stake in the company long before the next crisis of innovation occurred. However, in an economy where startups need to build for lasting value, boards and investors may want to consider the consequences of not finding a productive home to hibernate the creative talent for the competitive storm that is bound to come.

The concepts of mission-oriented leadership and fast-response organization developed in this chapter offer investors and entrepreneurs another path to consider. Instead of viewing the management choices in a startup as binary—entrepreneur-driven on Monday, dressed up in suits and processes on Tuesday—mission-oriented leadership offers a middle path that can extend the life of the initial management team, focus the company on its immediate objectives, and build sufficient momentum to cross the chasm.

B. Developing a Mission-Centric Organization and Culture

The consequence of not having a common mission was clear at BetaSheet. Mark led the company through Customer Discovery and Customer Validation, and he had the scars to prove it. In Mark's mind, he had a singular vision for BetaSheet and was keeping his eyes fixed on where he saw the company going. However, one of his fundamental mistakes was in failing to ensure that his board and executive staff, to say nothing of the rest of the company, shared his vision. The new executives Mark hired to run Sales, Marketing, and Engineering acted like hired guns rather than committed owners. Part of this was Mark's fault in not selecting his hires for commitment to his vision rather than the length of their resume. Part of it was the fault of Mark's board in not teaching him the value of hiring executives who shared his vision. In fact, one of Mark's board members reinforced this lack of commitment in the executive staff by offering up a candidate for VP of Sales whose main qualification was that he was marking time in the board member's office. Finally, part of the problem was Mark should have been communicating and evangelizing his vision inside the company as effectively as he was doing outside. As BetaSheet scaled up, Mark's board, his executive staff, and his employees all could have shared the same worldview. Instead, the end was marked by dissonance not only about style, but about what made the company unique.

Stating Your Corporate Mission

So how do you avoid Mark's error and make the mission part of the lifeblood of your company? At the heart of the mission-centric organization is the corporate mission statement. Most startups put together a mission statement because the executive staff remembered seeing one at their last job, and somehow it felt important. Or perhaps their investors told them they needed a mission statement for their PowerPoint presentations. In neither case was a mission statement something the company lived on a daily basis.

Where does a “lived” mission statement come from? You just finished the long, laborious process of Customer Discovery, Validation, and Creation deriving, testing, and executing your mission. The mission statement you craft now is a further refinement of one you first proposed in Customer Discovery, revisited in Customer Validation, and tested with customers in Customer Creation. The goal of the earlier mission statements was to help customers understand how your company and products are unique. You may have embedded this mission on your company website, and your salespeople may have put it in their presentations. The mission statement you need in the company-building stage is different. It's for you and your company, not your customers. It consists of a paragraph or two that tells you, your board and your employees how you will cross the chasm from earlyvangelists to mainstream customers and manage the sales growth curve. It tells everyone in specific terms why they come to work, what they need to do, and how they will know they have succeeded. And it mentions the two dirty words that never get presented in mission statements that customers see: revenue and profit.

An example of a clearly written mission statement is the one “lived” at CafePress, a company that allows individuals and groups to easily create their own store to sell T-shirts, coffee cups, books and CDs.

• At CafePress our mission is to allow customers to set up stores to sell a wide range of custom products. (Our goal is to make sure they say we are the best place to go on the Web to make and sell CDs, book, and promotional items.) Here's how we are going to do that:
• We are going to give them a variety of high-quality products and good service in an easy-to-use website. (We will know we succeed if an average store sells $45 per month.). At the same time we will help these customers sell by giving them marketing tools to reach their customers
• We are going to do it for what they would consider a fair price (yet maintain 40% margins.) Next year our plan is to grow to $30 million in revenue and be profitable. (Therefore we need 25,000 new customers a month)
• We are going to try to be a good citizen of our community. (We are going to print on recyclable materials, use environmentally friendly packaging, and use nontoxic inks wherever practical)
• We are going to take good care of our employees (full medical and dental) because the longer they stick around, the better our company will become
• We are also going to offer stock options to all employees, because if they're interested in our profits and long-term success we'll all make money

Read this mission statement sentence by sentence. It tells the employees why they come to work, what they need to do, and how they will know when they're successful.

Crafting Your Corporate Mission Statement

Most companies spend an inordinate amount of time crafting a finely honed corporate mission statement for external consumption and then do nothing internally to make it happen. What I'm describing here is quite different. First, the corporate mission statement you develop now is for use inside the company. You may use some version of it to make your customers and investors happy, but that is not its purpose. Second, the mission statement is action-oriented. It is written to provide daily guidance for all employees. For that reason, it is focused on execution and what the company is trying to achieve. If you do it right, your corporate mission statement will help employees decide and act locally while being guided by an understanding of the big picture.

Crafting this “operational” mission statement is a visible sign of the transition in management from entrepreneurial to mission-centric. The CEO uses this opportunity to get commitment and buy-in from all the operating executives (as well as any of the remaining founders who may be in non-operational roles). If needed, the CEO may bring in other employees to ensure the statement is both shared and grounded. The board needs to be involved in the process as well, both to provide input and give final approval.

Figure 6.11 shows a rough template for drafting a corporate mission statement based on the one for CafePress. As you write (and rewrite) your mission statement, remember there are no right and wrong answers. The litmus test is this: Can new hires read the corporate mission statement and understand the company, their job, and what they need to do to succeed?

Keep in mind a mission statement for a company executing in an existing market will be quite different from a company in a new or resegmented market. In an existing market, the mission statement reflects the goal of straight-line sales growth. It describes how the company executes relentlessly to exploit the market while remaining paranoid about product lifecycle and competitors. In a new market, the company mission statement reflects the hockey-stick growth curve, and it emphasizes husbanding resources and passionately evangelizing and growing the market. In a resegmented market the mission statement describes the branding and positioning work necessary to create a unique and differentiated image of the company.

Following Through

The corporate mission statement is essential, but it's just a start. The mission-centric culture must embrace the entire company, not just the departments dealing with customers. For this reason the executive team needs to make an intense effort to ensure members of all departments feel they share a common purpose. This requires constant communication across the company. In Phase 4, you'll carry the mission-centric process further by having each department craft its own departmental mission statement. These departmental statements will answer the same three questions as the corporate mission statement—why people come to work, what they are going to do all day, and how they will know they have succeeded— in terms of the goals and activities of the specific department.

A. Crafting Departmental Mission Statements

Before you set up Sales, Marketing, Business Development, and other customer-facing departments, you must figure out what these departments should do. That might sound like a facetious statement. We all know what departments do: Sales hires people to go out and sell, Marketing hires a staff and writes data sheets and runs advertisements, and so on. But that's simply not true, because the goals of each department are different depending on the Market Type, as will be clear from the discussion in this section.

Before you formally set up those departments, therefore, it's incumbent on the executive staff to think through what each department's goals will be and to articulate those goals in the form of departmental mission statements. The reason for doing this before you start hiring and staffing is that existing departments tend to rationalize their own existence and activities. Very few vice presidents in the annals of corporate history have ever said, “I think my department and staff are superfluous; let's get rid of all of them.”

In Phase 2 you assembled a corporate mission statement that matched your Market Type. Your task now is to translate that corporate mission into departmental mission statements with objectives that are department-and task-specific. For example, a mission statement for a marketing department in an existing market might look like this:

The mission of our Marketing Department is to create end-user demand and drive it into the sales channel, educate the channel and customers about why our products are superior, and help Engineering understand customer needs and desires. We will accomplish this through demand-creation activities (advertising, PR, trade shows, seminars, websites, etc.), competitive analyses, channel and customer collateral (white papers, data sheets, product reviews), customer surveys, and market requirements documents.

Our goals are 40,000 active and accepted leads into the sales channel, company and product name recognition over 65% in our target market, and five positive product reviews per quarter. We will reach 35% market share in year one of sales with a headcount of five people, spending less than $750,000.

Figure 6.12 shows how the mission statement fits the template provided earlier for a corporate mission statement.

It specifies exactly why people in this department come to work, what they need to do all day, how they will know they have succeeded, and what their contribution is to the company's profit goals. With this statement, I don't think employees will have any doubt about their mission.

B. Defining Departmental Roles by Market Type

Now that you have the mission statements for the departments, you can organize the departments themselves. Keep in mind the underlying risk in simply setting up departments by function. Now that you have a proven process for earlyvangelist sales and departments are being set up, the natural tendency is for senior executives to revert to form. The head of Sales says, “Finally, I can build my sales force”; the head of Marketing says, “Now I can hire a PR agency, run ads, and generate marketing requirements documents for Engineering”; and the head of Business Development says, “Time to do deals.” Nothing could be further from the truth. Each department needs to consider how its role is defined by the Market Type the company is facing. The following discussion considers the roles of Sales, Marketing, and Business Development in each Market Type.

Department Roles in an Existing Market

Until now, the role of Sales as part of the Customer Development team has been to confirm product/market fit, find repeatable sales and channel roadmaps, and secure the earlyvangelist customers and orders to prove the roadmaps and business model work. Now that you have a critical mass of early customers, the role of a sales department is, “Get more of those customers to scale revenue and the company.” That's because only in an existing market are the earlyvangelists and mainstream customers quite similar. Therefore you need to build a sales organization that can repeatedly and reliably execute from a known roadmap. This implies a sales compensation program that will incentivize the correct behavior—no wild swings for the fence, no new market forays, just day-to-day, relentless execution.

Organizing the marketing department presents the same challenges as Sales. Up until now, Marketing's role in Customer Development has been in learning and discovery—searching for new customer segments and niches, and testing positioning, pricing, promotion, and product features. Now Marketing's role shifts from creativity to execution. Since the sales organization at this point is all about repeatability and scale, all it wants from the marketing department are the materials that will support getting more customers. This means Marketing needs to drive demand into the sales channel by providing qualified customer leads, competitive analyses, customer case studies, sales training, channel support, and the like. This shift from strategist to tactical spearcarrier can be traumatic for the individual marketer or small marketing team that literally a month before was leading the Customer Development process, but it must be accomplished if Sales is to grab market share.

As Sales demands tactical execution, there's a danger Marketing will move its creative efforts to either marketing communications or product management. In the first case, the risk is that Marketing confuses its new function with simply being a marketing communications department, hiring PR agencies, branding the company, and so on. If the marketers are more technically oriented, the risk is that they will begin acting like product managers and start developing the Marketing Requirements Document (MRD) for the next product release. Mistakes like these are the natural tendency of creative people who no longer have a creative job. These mistakes are much more likely to happen in the absence of a clearly understood departmental mission tied to the corporate mission.

Regrettably, the dot-com bubble mutated the title “Business Development” into a barely recognizable role. Let's set one thing straight: Business development is not a 21st-century term for “sales.” Any time I find people in a company using it that way I stay far away, since if they are imprecise about this role, they are usually fuzzy about their financial numbers and the rest of their business. The real function of a business development group is to assemble the strategic relationships necessary to build the “whole product” via partnerships and deals so the company can sell to mainstream customers.

The “whole product” is a concept defined by Bill Davidow ⁵ in the early years of technology marketing. It says that mainstream customers and late adopters on the technology lifecycle adoption curve need an off-the-shelf, no-risk, complete solution. They do not want to assemble piece parts from startups.

In an existing market, your competitors define how complete your product offering needs to be. If your competitors have “whole products,” you need the same. In the computer business, for example, IBM is currently the ultimate supplier of whole products. It provides the hardware, software, systems integration support, and all the ancillary software to support a business solution. There is no way a startup just scaling up to compete in this space could offer a whole product. That wasn't a liability in the earlier stages of Customer Development, when the company was selling to earlyvangelists who were happy to assemble a whole product themselves. No mainstream customer, however, is going to buy a half-finished product. Consequently, the strategic mission of Business Development is to assemble a whole product to acquire mainstream customers. This means Business Development is a partnering and deal function, not a sales activity. Table 6.3 summarizes the objectives of each department in an existing market and the main ways those objectives are achieved.

Department Roles in a New Market

For Sales in a new market this is a confusing time. The hard-won lessons learned in Customer Validation are not transferable, since the mainstream customers are not the same as the earlyvangelists you've been selling to. Therefore, even with an infinite number of salespeople, sales revenue will not scale without a change in strategy.

A real risk for a sales department in a new market is to continue to believe that earlyvangelists represent the mainstream market. Earlyvangelist sales cannot provide the hockey-stick growth curve that will turn the startup into a large company. At this stage earlyvangelists sales shouldn't be discouraged (they provide the ongoing revenue), but they should be thought of as a segment the sales department must outgrow if the company is to succeed. As discussed in Phase 1 of this chapter, the task now is to use the earlyvangelists as a “beachhead” into a narrow market segment or niche, or as the fulcrum for a tipping point.

The job of Marketing in a new market is to identify the potential mainstream customers, understand how they differ from the earlyvangelists, and come up with a chasm-crossing strategy to reach them. The danger here is that Marketing will act as if it is in an existing market and begin heavy demand-creation spending or worse, believe it can accelerate customer adoption by “branding.” In a new market, there is no demand to create. Until the mainstream customers are identified and a plan to affect their behavior is agreed upon, spending infinite marketing dollars will not change sales revenue. In this Market Type, marketing is still a strategic function focused on helping Sales find the mainstream market, not on demand-creation activities.

The role of Business Development in a new market is to help Sales and Marketing bridge the perceptual gap between a company that is of interest only to earlyvangelists and one that makes sense for mainstream customers. Business Development does so by forming alliances and partnerships that are congruent with the “beachhead” markets being targeted by Sales. The goal is to make the company appear more palatable to mainstream customers by building the “whole product.” Table 6.4 summarizes department roles in a new market.

Department Roles in a Resegmented Market

A resegmented market requires strategies and departmental missions that combine the features of departments in existing and new markets. For this reason, departments in this type of company can sometimes feel and act schizophrenic. You start competing in an existing market where competition is fierce, with the goal of uniquely differentiating the product into a space where no one currently resides, but where you hope lots of customers will follow. At times Sales may act like it is in an existing marketing while Marketing plans new-market tactics. This confusion is par for the course, but requires close and frequent synchronization of missions and tactics.

The sales department in a resegmented market follows two tracks: selling to customers in an existing and very competitive environment (with a product that has fewer features than the competition) while simultaneously attempting to find new customers, as if in a new market. However, unlike a new market where the move to mainstream customers was predicated on chasm-crossing or tipping-point strategies (i.e., niche-at-a-time or epidemic), in a resegmented market Sales is counting on Marketing to use positioning and branding to “peel off” substantial numbers of existing customers by creating a differentiated segment. One of the risks is Sales becoming beguiled by the existing customers in the market you are attempting to resegment. Continuing low-level sales to address these customers is just a part of the sales strategy. Sales executives must remember the real goal is to change the perception of the current base of customers in order to create a new, much more valuable market segment—one where your product is the market leader.

The same temptations face Marketing, as the sales group will be pressuring it for demand-creation activities in the existing market segment. While some demand creation is necessary, Marketing's primary objective should be to find the way to uniquely differentiate the company and its product into a new category—taking a large group of existing customers with them. As described in Phase 1 of this chapter, branding and positioning are the appropriate marketing tools for differentiation. Similarly, Business Development needs to find the unique partnerships and relationships that constitute the “whole product,” required to differentiate the company from other vendors. Table 6.5 summarizes department roles in a resegmented market.

A. Implementing Mission-Centric Management

In 1982 Andy Bechtolsheim, a graduate student at Stanford University, built a computer out of a readily available commercial microprocessor and an operating system designed by AT&T and enhanced by students at U.C. Berkeley. Bechtolsheim's design was lean, powerful, and unique. While it was less powerful than the existing minicomputers, it was affordable enough to be used by only one person. Bechtolsheim's computer also had the ability to connect to other computers through a then-new network called Ethernet and included TCP/IP, now known as the Internet protocol suite.

Stanford University licensed Bechtolsheim's computer design to anyone who was interested. Bechtolsheim and a fellow graduate student, Vinod Khosla, formed one of the nine startups that licensed the design. The company relentlessly pursued business deals (it signed a $40 million OEM deal in its second year) and created new versions of its computer at an astonishing pace. Within six years the company's sales had grown to $1 billion, and the eight other licensees disappeared from the market. Twenty years later Bechtolsheim and Khosla's company (eponymously named Sun, after the Stanford University Network) had become a $15 billion company.

What differentiated Bechtolsheim and Khosla's company from the other entrants in this new market? Was it, as some would argue, a clear case of first-mover advantage? Not really. While Sun had the benefit of having the computer's designer as a founder, all the other startups had innovative and competent technical staffs. Sun succeeded, I believe, because it focused relentlessly on its mission and built an organization that could execute faster than its competitors—so much faster that Sun's decisions looked like a blur to its competitors.

Mission-centric management is the foundation on which agile companies like Sun build fast-response departments. Unlike relatively inflexible, process-driven management, mission-centric management deals better with the two fundamental problems a startup continually faces: uncertainty and time. For a small company, precision and certainty are unattainable in most competitive or customer situations. Consequently, the company and its departments must build on what is attainable—speed and agility. Mission-centric management offers the flexibility to deal with rapidly changing situations and exploit fleeting windows of customer and market opportunity. It builds a system in which even Type A executives can cooperate (at least to the extent of coordinating their efforts) yet executives at all levels get what they would kill for at most companies: the charter and latitude to act with initiative and boldness.

Mission-centric management tactics support decentralized decision-making. Once in position, this type of decision-making results in an agile, sped-up, and informed decision-making process that makes a company flexible, cohesive, and responsive—in other words, a growing company that kicks butt.

Creating mission-centric management requires a conscious shift in thinking on the part of managers and employees. The process begins with the departmental missions you created in Phase 3. Beyond those, mission-centric management has five unique parts:

• Mission intention
• Employee initiative
• Mutual trust and communication
• “Good enough” decision-making
• Mission synchronization

Let's consider each of these in turn.

Mission Intention

Earlier in this chapter I described the mission statement as a paragraph or two that lets you and your employees know why you come to work, what you are going to do, and how you will know you've succeeded. Yet that description of the mission only details the tasks to be done. In reality there are two parts to any mission: the tasks to be accomplished and the reason, or intention, for executing those tasks. A task statement describes what action needs to be taken (“We are going to reach $10 million in sales with 45% gross margin this year”), while the intention describes the desired result of the action: “$10 million in sales is our cash flow break-even and 45% gross margin makes us profitable. Both are of equal importance to us this year. Do not sacrifice one for the other.” Of the two, the intention is more important. While a situation may change, making the task obsolete (your sales group can't make the $10 million in revenue), the intention is more enduring and continues to guide the company's actions (“Let's see, we are trying to achieve cash flow break-even and profitability. If we can't make $10 million in sales, how much do we have to cut expenses to still achieve cash flow break-even, and what effect will that have on profitability?”). For mission-centric management to work, you need to ensure the intentions of all missions (corporate and departmental) are understood, not just by a few key executives, but by everyone, top to bottom, in the company. At this point in a company's life, disseminating the intention of the corporate and departmental missions is an important way of leading the organization. Accordingly, it is a prime responsibility of all executives.

While mission-centric management relies on the executives to explain the underlying intention of the corporate and departmental mission, it leaves employees as free as possible to choose how the missions get accomplished. For example, the sales department might put together a sales plan to reach the goal that says, “We will achieve $10 million in revenue with 200 new orders at an average selling price of $50,000 with a cost of sales of $2.7 million.” The idea of intention implies once employees understand the thinking behind the mission, they can work collaboratively to achieve it. Think of intention as the answer to the aphorism, “When you are up to your neck in alligators it's hard to remember you were supposed to drain the swamp.”

Intention also goes a level deeper. Imagine that the head of Sales and the other department heads, seeing they may not make the revenue number, understand the consequences and have contingency plans in place. “If we fail to make $10 million in revenue this year, we can't keep spending like we are on a $10 million revenue plan,” should be an automatic consequence of intention in a mission-centric department. Of course, this requires implicit trust and high-bandwidth communications among the executives, an issue we'll take up a bit later in this section. The alternative is the finger-pointing that happens in other startups. “Well, Marketing did what it was supposed to, why should we have to cut our budget?”

By making the mission intention widely known across the company, the CEO and departmental VPs exercise leadership not by providing explicit directives and detailed directions, but by sending out broad guidance. In this style of management, all executives and employees down the line have the ability to exercise full authority and apply their judgment and imagination. ⁷ The higher an executive sits in the corporate hierarchy, the more general should be the supervision he or she exercises, and the less the burden of detail. The CEO and VPs should intervene in a subordinate's actions only in exceptional cases when irreparable harm is imminent.

In summary, mission-centric management maximizes low-level initiative while achieving a high level of cooperation in order to obtain better results. This is the antithesis of micromanagement. It requires entrepreneurs to think clearly about who they are, who they have hired (and why), and how well they have communicated this policy. Mission-centric management turns into a corporate debacle when executives believe they're managing this way and employees believe the opposite—they should wait for executive direction because they will be punished if they make a mistake. To avoid such failures, the company leadership needs to communicate the mission-centric policy clearly and consistently—and act accordingly.

Employee Initiative

One reason for BetaSheet's demise was the imposition of top-down management. After Mark's departure, all new ideas had to be vetted by committee, sent up the organization for approval, then passed back down to the employees for implementation. It's no wonder the best second-and third-level managers and employees soon followed Mark out of the company. The new leadership at BetaSheet was operating under the assumption that once the company achieved a certain size, a hierarchical command and process-driven organization would suffice to help it grow larger. Unfortunately, BetaSheet's unique, new market was immediately crowded with competitors who could see the opportunity BetaSheet had pioneered. And the employees who could have saved the company with innovative and creative product and market ideas had long since left.

Success in a startup is all about searching, finding, and exploiting ephemeral opportunities. This is possible only when all employees—not just the founders—take initiative. Employees must accept that taking initiative and acting on their own authority is part of their implicit employment contract. Simply showing up and doing the job is characteristic of work in a process-centric organization but anathema to a mission-centric one.

The mandate to show initiative does not mean employees are free to act any way they please. In fact, it places a special responsibility on employees to (1) always keep the mission and intent in mind and (2) coordinate their actions within their departmental and corporate missions. Conversely, delegating authority to employees does not absolve the CEO and department executives of ultimate responsibility for results. They must learn to articulate their missions and intentions in such a way that employees understand the objectives without feeling restricted in their freedom of action. Executives must be adept at expressing their desires clearly and forcefully without micromanaging—a skill that requires practice. Creating a culture of employee initiative depends on selecting, hiring, and retaining employees who work best in this type of environment. You do not have the basis for fast-response departments if you hire (or tolerate) employees or executives who wait for orders, believe they must do everything by the book, learn never to tell the boss anything that will make him or her uncomfortable, or are used to being superstars who never have to cooperate with their peers. At this stage of your company's life, your competitors or your own inertia will soon put you out of business.

Mutual Trust and Communication

A successful mission-centric organization demands mutual trust and confidence in the abilities and judgment of employees and executives. Executives trust their employees to perform their missions competently and with minimal supervision, to work in concert with the overall intention, and to communicate news about customers, competitors, success, and failures between the various departments. (Good news should travel fast, but bad news should travel faster.) Employees, meanwhile, trust executives to provide the necessary leadership and support them loyally and fully, even when they make mistakes. This is a big order in a startup, where in some cases large egos and equally large political agendas seem to be the norm. Mutual trust and communication simply cannot exist in an environment where an admission of failure or a request for help is looked down upon as a career-limiting move, or where information is hoarded as a source of power. For cooperation to be maintained, the company must establish a culture of quickly removing employees or executives who do not earn the respect and trust of their peers.

Trust has a flip side; it must be earned as well as given. Since a mission-centric department is decentralized and spontaneous rather than centralized and coercive, discipline is not only imposed from above, it must also be generated from within. In order to earn executives’ trust, employees must demonstrate the self-discipline to accomplish their missions with minimal supervision and to always act in accordance with the mission intention. Executives and managers, in order to earn employees’ trust, must demonstrate they will support and protect employees as they exercise initiative.

A great side effect of mutual trust is its positive effect on morale. Trust increases the individual's identity with the company, department, and mission. Employees in this type of company not only wear their company T-shirts with pride, but talk incessantly about the organization's prospects and achievements.

“Good Enough” Decision-Making

Gen. George Patton said, “A good plan violently executed now is better than a perfect plan next week.” The same is true in your company. Most decisions in a small company must be made in the face of uncertainty. Since every situation is unique, there is no perfect solution to any customer or competitor problem, and you shouldn't agonize over trying to find one. This doesn't mean gambling the company's fortunes on a whim. It means adopting plans with an acceptable degree of risk, and doing it quickly. In general, the company that consistently makes and implements decisions rapidly gains a tremendous, often decisive, competitive advantage.

Timely decisions also demand efficient meetings with the agenda and deliberations limited to the issues at hand. It's painful to see an executive staff meeting that should be focused on making a quick business decision sidetracked by every HR, legal, PR, and Product Development objection. In every company a reason can be found not to do anything. Company cultures that allow the sideshows to derail the decision process don't make rapid decisions. Naturally, there are situations in which time is not a limiting factor, such as long-term strategic, engineering, and product planning, and you should not rush these decisions unreasonably. That said, strive to cultivate a culture of tightly focused meetings with clear decision-making objectives. The result should be a “Good Enough” decision-making culture.

Mission Synchronization

Even with well-written mission statements and the best intentions, a mission-centric process can fail without a way to formally keep departmental missions synchronized. Mission synchronization is akin to the synchronization process that the Customer Development and Product Development groups employed during Customer Discovery, Validation, and Creation. In those steps Customer Development and Product Development teams regularly updated each other about the realities of the marketplace and the product schedule and features. Together both teams could react to customer needs by shifting Product Development or business strategies to accommodate those realities.

As you move to a mission-centric process, all departments need to stay in sync and move in concert with the corporate mission and intent. This means synchronization meetings now have three functions, to ensure: (1) all departments still understand the corporate mission, (2) all the departmental missions are mutually supportive, and (3) the CEO understands and approves the way each department will execute its mission.

There's a striking contrast between a synchronization meeting in a mission-centric organization and a staff meeting in a larger, process-driven company. As shown in Table 6.6, in a process-driven company, orders and goals come from the top down, while status reports flow from the bottom up. In a mission-centric organization, synchronization meetings are peer-wise, cross-departmental coordinating sessions that allow the entire company to respond to changing conditions.

B. Creating a Culture for Information Gathering and Dissemination

A fast-response department requires a constant stream of information. In Customer Discovery, Validation, and Creation, the way to ensure that flow of timely information was through personal observation and experience—getting out from behind your desk and into the field to get close to customers, competitors, and the market. Now that the company has grown past its first few customers, executives need three basic views of information to understand what is going on:

• First-hand knowledge
• An overall view
• The view from the eyes of customers and competitors

First-hand knowledge is the “getting down and dirty outside the building” method you've used until now. Executives need to continue this activity even while the company grows. They need to hear what customers are saying, what competitors are doing, and what the sales staff is experiencing. From this view, executives can get a sense of what they can and cannot demand of their people in the field.

In companies I'm involved with this means, first, that all executives (not just the head of Sales) are out talking to customers and the sales channel frequently—at least once a quarter. A summary of everyone's impressions and findings should be circulated widely after each trip. Second, anyone who talks to customers and the sales channel needs to communicate company-wide at least weekly—with both bad news and good. (I prefer the bad news since it requires action to fix. Good news just means that you collect a check from a customer.) Part of the cultural shift that differentiates a mission-centric organization is acknowledging that this type of information sharing goes against the natural sunny-side-up outlook of every salesperson on the planet. “Share bad news?! Are you crazy, I'm not going to tell anyone I lost an account, let alone why I lost it!” Yet, that honestly is exactly what the company needs.

The second picture is a synthesized “bird's-eye view” of the customer and competitive environment. You assemble this view by gathering information from a variety of sources: sales data, win/loss information, market research data, competitive analyses, and so on. From this big-picture view, executives try to make sense of the shape of the market and the overall patterns in the unfolding competitive and customer situation. At the same time, they can gauge how well industry data and actual sales in the field match the company's revenue and market-share expectations.

All this requires having a formal market and customer intelligence function in each department. This doesn't require a full-time dedicated person, just someone who realizes it's his or her job. Your intelligence scouts need to gather first-and second-hand data and issue reports on a regular basis, at least monthly. Intelligence reports should be devoid of political agendas and focus on facts: market-share data, win/loss summaries, customer quality reports, tech support calls.

The third view is of the action as seen through the eyes of customers and competitors. Put yourself in your customers’ and competitors’ shoes in order to deduce possible competitors’ moves and anticipate customer needs. In an existing market this is where you ask yourself, “If I were my own competitor and had its resources, what would my next move be?” In looking through the eyes of a customer, the question might be, “Why should I buy from this company versus another one? What do I see that will convince me to give them an order?” In a new or resegmented market, the questions might be, “Why would more than a few techno junkies buy this product? How would I get my 90-year-old grandmother to understand and buy this product? How would I explain it to her and her friends?”

Think of this technique as playing chess. You need to look at all the likely moves from both sides of the chessboard. This is a game that ought to be played out at executive and departmental staff meetings: What would we do if we were our competitors? How would we react? What would we be planning? After a while this type of role-playing will become an integral part of everyone's thinking and planning.

Of the three pictures, first-hand knowledge is clearly the most detailed, but now that your company is bigger it usually offers a very narrow field of vision. Executives who focus only on this image risk losing sight of the big picture. The bird's-eye view provides an overall image but lacks the critical detail, just as a status report captures only a broad impression of the events in the marketplace. Executives who focus only on this image are out of touch with reality. The third picture is largely a mental exercise limited by the fact that you can never be sure what your customers and competitors are up to. The combination of all three views helps executives form an accurate picture of what is going on in their business.

Even with information from all three views, executives and managers need to remember two points. First, there will never be enough information to make a perfect decision. Second, wherever possible, decisions should be made by the individual on the spot who has direct observation of the situation.

Don't lose sight of the most important element of data gathering: what to do with the information once you collect it. Information dissemination is another cornerstone of agile companies and fast-response departments. Information, whether good or bad, must not be guarded like some precious commodity. Some company cultures reward executives who hoard knowledge or suppress bad news. In any of my companies, that is a firing offense. All news, but especially bad news, needs to be dissected, understood, and acted upon. This means understanding sales losses is more important than understanding sales wins; understanding why a competitor's products are better is more important than rationalizing ways in which yours is still superior. Information dissemination also means confronting the “dead moose on the conference table” issue—the unmentionable subject everyone knows about but no one wants to address. This kind of issue is often personnel related. It could be someone not pulling his or her weight as part of the team, unethical behavior, or any other subject that typically goes unspoken and unaddressed. If problematic behavior appears and does not get dealt with quickly, the death knell is already sounding for your fast-response organization.

C. Building a Leadership Culture

Southwest Airlines started as a small regional airline in 1973. Thirty years later, it was the most profitable airline in the United States. It did not achieve this striking growth through better planes (all airlines had access to everything Boeing or Airbus could supply), nor did it have better or more profitable routes. Southwest achieved its success by building an agile company with the ultimate fast-response departments. Its people worked as a team to turn around planes for the next flight in 25 minutes (their competitors took hours). The company cut costs by listening to every imaginable employee suggestion until the cost of a seat on one of Southwest's planes was 24% lower than on its nearest competitor. In return for listening to employees, the company commanded an unusual degree of loyalty.

All this is to say that Southwest Airlines created a leadership culture. Its managers were focused on inspiring, guiding, and supporting committed employees and encouraging them to perform freely within modest limits. Over time, Southwest became known for employees who exhibited a high degree of independence, self-discipline, and initiative.

Southwest is living proof that with the right culture, employees not only accept responsibility but actively seek it. In this type of company, exercising imagination, ingenuity, and creativity is widespread.

So how do you create a culture of leadership? It takes more than preaching responsibility and initiative. Your company's philosophy of leadership is expressed in the things you do (or don't do) to push responsibility down the organization. For example, trying to micromanage employees slows decisions and kills individual initiative. Attempting to impose precise order on how a project in a department is accomplished stifles creativity and leads to a formulistic approach to business problems. Insisting on certainty and all the facts before you act forces you to pass up opportunities and creates a “no risk” culture. Clinging to preset business plans that have outlived their usefulness destroys the company's ability to adapt to changing circumstances and exploit opportunities as they come. Instead, let your people know that you want them to exercise leadership, and back them up when they do. When you give direction on how a task gets done, do so only to the degree needed to provide coordination that can't be achieved any other way. Keep direction as brief and simple as possible, relying on employees to work out the details of execution. Be continually open to feedback that the plan isn't working and needs adjustment. Needless to say, this way of sharing responsibility and leadership depends upon all the work you've done to make sure everyone understands the mission and its intent.

While this might sound obvious in a company where the CEO can no longer manage every detail, many entrepreneurs have a hard time letting go when it's their brilliance and vision that created the idea of the company in the first place. This inability to delegate was one of Mark's downfalls at BetaSheet and is one of the common issues when a founder is removed by the board.

None of this delegation downward means an abrogation or diminishing of the CEO's responsibility. On the contrary, executives should always begin delegating with a “trust but verify” philosophy. The first few times a job or mission is assigned, check to see that the work has been performed to your satisfaction. If it has been carried out, then reduce the amount of verification until it becomes part of the synchronization meetings. If the job didn't get done, or wasn't done correctly, provide direction, training, and guidance to make sure employees have the knowledge and understanding to perform the task. Then back off and let them do their jobs.

Another important aspect of leadership culture is a close-knit sense of being part of a team. The organization's formal leaders should reinforce the common values that make employees feel good about their organization and company. This means creating a supportive atmosphere in which initiative is encouraged and rewarded, provided it advances the shared mission of the team.

A leadership culture also depends upon developing employee maturity—engendering in employees a willingness to exercise initiative, the judgment to act wisely, and an eagerness to accept responsibility. Maturity in this sense is not necessarily linked to age or seniority. I've seen 20-somethings step up to the plate and grab all the responsibility they can get their hands on, while those twice their age shrug and say, “It's not my job.”

One way to nurture maturity is to transition the “superstars” found in every corner of a startup into coaches and role models. When the company was a small startup, it looked for those world-class individuals who were 10 times more productive than average. Now, when you need to scale and grow, you'll find there are not enough superstars in the job market to match the caliber of your existing staff. In a traditional startup, as processes, procedures, and rules begin to get added, jobs are redefined so “average” hires can do them. The superstars, who tend to be individualist and iconoclastic, look at all this with dismay, lamenting, “the company is going downhill.” Like the elves in the Lord of the Rings stories, they realize that their time has passed and quietly leave the company. One way to keep and motivate superstars is to integrate them into larger teams as role models and coaches. If they can teach, make them coaches. If they prefer isolation, let them be revered role models. And if they are outspoken, they can become the voices in the wilderness that will sometimes be prophetic—as long as your culture protects the mavericks. However you deploy them, the long-term tenure, motivation, and contribution of iconoclastic superstars and founders are the ultimate tests of a leadership culture.

Fast Response Departments and the Agile Company

The result of building fast response departments is an agile company. As this Company Building phase ends, you have assembled a company and management processes that can scale, yet is more responsive than competitors’, and relentless and ruthless in its execution. Figure 6.13 summarizes all of the components of the agile company.

Iterate and Grow

The end of this company-building phase brings to mind a quote from Winston Churchill in World War II after the British finally won their first major land victory over the Germans at el Alamein in North Africa: “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” ⁸

The same can now certainly be said for you and your company—it is the end of the beginning.

By the end of this phase your company has gone through some major and irreversible structural changes. It will never be the small startup you once knew. You have moved from selling to earlyvangelists to setting your sights on mainstream customers, you've reviewed your management team and built a mission-centric organization, and you've transitioned the Customer Development team into functional, fast-response departments.

Now it's time to honestly assess whether these company-building activities provide a sound footing for moving forward.

• Has Sales crossed into the mainstream and hit the hockey stick or is each order still a heroic effort?
• Is the company on its revenue and expense plan?
• If so, do you have a viable and profitable business model?
• Is there a management team in place that can grow and build the company?
• Is there a mission-centric culture in place—company and department wide?

As grueling as the company-building process was, you may need to iterate parts of it again. Typically, finding mainstream customers is hardest to get right the first time in new and resegmented markets. Finding the right mix of positioning and branding is difficult, and if the company doesn't get it right, sales won't take off as expected. However, if you've been following the Customer Development model, the consequences are not fatal to the company (and may not be career limiting for you). Provided you've kept the headcount and expenses low, you can afford to try again.

As difficult as it is to find mainstream customers, the tectonic shifts changing cultures bring are equally wrenching. That's why agility is so important, and why there can be a huge payoff from implementing a mission-centric company and fast-response departments. Just remember that changing people's behaviors and expectations is hard, and you need to work at it constantly.

The payoff for successfully executing this company-building step is a set of words that any founder or CEO would be proud to hear: a profitable, successful, relentless, driven, and tenacious company with satisfied employees on the path to an IPO.

Company-Bulding Summary