Most successful startups have hands-on founders
By: The Phonetic House
Tags: Management, Entrepreneurship, Startup, Management And Leadership, Business

Most successful startups have hands-on founders

Photo by Mario Gogh on Unsplash

Research says the best-performing startups are those where the founder is hands-on with people management.

Startup founders with a hands-on management style are more likely to retain employees and see their firms thrive new research shows. The results are particularly applicable to knowledge-intensive technology firms, where human talent is the most critical resource that affects firm performance, the researchers say.

Founders are usually very busy people — they recruit vital employees, raise funds, find a board, develop partnerships, set strategy, and design the organization, to name a few responsibilities. What often falls by the wayside as founders get pulled in all directions, according to the researchers, is intensive mentoring and monitoring of staff.

“Because many young companies face both technological and market risks, founders may prioritize dealing with these challenges rather than the more mundane aspects of human resource management”, the paper says.

“Our findings suggest that … more intensive people management is a worthwhile investment of a founder’s time.”

Effective human resource management is more than just keeping the paperwork flowing. “You also need to focus on the strategic part of managing people to make sure they are working on the rights tasks, that they’re getting the feedback needed, and are happy in the firm, so they’re less likely to quit,” says Rembrand Koning, an assistant professor in Harvard Business School’s Strategy Unit who was a co-author of the study.

“OUR FINDINGS SUGGEST THAT … MORE INTENSIVE PEOPLE MANAGEMENT IS A WORTHWHILE INVESTMENT OF A FOUNDER’S TIME”

(Koning’s working paper, released in May, is titled Learning to Manage: A Field Experiment in the Indian Startup Ecosystem. The co-authors were Aaron Chatterji and Sharique Hasan, both of Duke University’s Fuqua School of Business; and Solene M. Delecourt from Stanford’s Graduate School of Business.)

In studying 100 founders of Indian software companies, they found that those who exert more hands-on management, keeping close tabs on workers with regular evaluations, setting expectations, creating shared milestones, and tracking progress towards the main goal; run better-performing companies.

Learning from the network

If this intensive style doesn’t come naturally to a founder-manager, the good news is that it’s easy to learn.

“What’s encouraging about this paper is that we found that hands-on management is easy to learn over time. The concept is something we think many firms can improve. And if we can get people to manage better, we think they can keep more employees and be more successful.”

Through social interactions with other hands-on managers, founders can discover not only why they should use these tactics, but also how exactly to implement them. To study how these management skills can be acquired through peer networks, the researchers partnered with the Indian Software Product Industry Roundtable (iSPIRIT). This think tank promotes the growth of Indian software product companies. The team brought together founders of 100 growth-stage software product companies in India for a three-day executive retreat.

Before the retreat, participants were surveyed to find out how often they engaged in four management practices: providing structured feedback, conducting performance reviews, setting expectations, and establishing shared goals. They then grouped founders into 50 pairs, focusing on the couples where a high-intensity manager was partnered with a founder who was self-described as more hands-off. (A more hands-on manager might use these intensive practices once a week, whereas others might do so once a month or less.)

During the retreat, the paired founders discussed their business challenges and were told to provide advice about management and strategy to their partners.

On the final day, the founders completed a list of changes they planned to implement after returning to their companies. Founders paired with intensive managers were more likely to include items related to management practices. Eight months later, founders were surveyed to provide results from changes that had occurred at their companies.

Hands-on wins in practice.

Founders who received advice from hands-on founders were more likely to adopt a similar leadership approach. The majority of these founders made at least one substantial business change after the retreat. “Founders talked at length about implementing particular action items,” the paper says. “For example, the founders discussed hiring a new product manager or reorganizing their team to be more efficient.”

“NO ONE WANTS TO WORK FOR A BOSS WHO’S DOING EVERYTHING OR GIVING (WORKERS) ONLY THE BAD PARTS OF THE TASK”

Founders who adopted a more intensive management style saw positive results: These companies retained a higher percentage of their employees and were less likely to close eight months after the retreat. Founders who got advice from more hands-on managers saw 19.6 per cent fewer employees leave their firms, and these startups were roughly 20 per cent less likely to fail. Founders who already had a more hands-on management approach were able to increase hiring rates.

The researchers make it clear in the paper that “we do not assert that ‘more’ management is always better. To the contrary, excessive ‘micro-managing’ could harm firm growth.” Active managers make sure their workers understand corporate goals, then trust them to take charge of critical responsibilities and make crucial decisions. It’s easy to confuse hands-on management with micromanaging.

“Startup founders have a tough time letting go, so they’re the ones doing the customer interviews and trying to hire people. But no one wants to work for a boss who’s doing everything or giving (workers) only the bad parts of the task”.

Companies should invest in peer learning.

Companies often opt for formal training programs or consulting arrangements with instructors who teach entrepreneurs how to manage their companies. But these interventions can be expensive, often don’t work, and at times are impractical for leaders who are working full-time on their businesses, the paper notes.

We hope the research shows founders that they should seek mentor networks to pick up intensive management techniques that they can use to manage and grow their teams more effectively.

These types of exchanges are often more personalized than formal training programs because the founders tailor the discussion to a company’s specific situation and share their own experiences. These discussions aren’t likely to happen at networking cocktail parties so that it may take one founder seeking out another for a more in-depth talk, says a lot of research papers and people, whose research examines how businesses depend on the distribution of knowledge, technology, and people across firms.

“When you think about building an advice network to discuss the strategic direction of your company, it can be fuzzy and hard, so you should think: Given the people I know, who should I be talking to more — and who should I choose to ignore?”, said by many market researchers and esteemed founders.

“It’s a big decision.”

It might even determine how well your firm performs.