Zoom is not enough (why startup teams should be together)
When I started Kickstart, we spent a full day a week just hearing the pitches. This is equivalent to seeing over 500 companies per year.
We had almost no filters ― if you were starting a business, you could talk to us ― because, at a minimum, we were hoping to provide helpful feedback to make the meeting worthwhile for the entrepreneur.
In my first week, we heard a pitch that I found quite interesting. After the founder’s presentation, a partner of mine asked a question that struck me as odd: “Is your management team co-located?” The founder replied that his two co-founders were in different cities, although they spoke and collaborated frequently. In our debriefing later today, this same partner said that the distributed founding team could exclude the startup for investment.
I was surprised by this. I have worked most of my career in large organizations with people across the country and around the world. In my experience, this was not only viable but desirable. Being close to customers, markets and cultures where business was done was an asset to cultivate. I hid this thought while continuing to learn the business of VC investing at Kickstart.
As I worked with more and more companies, the reason for my partner’s concern became clear. As seed investors, we support businesses from the early stages, where often only a few people are on the team and the journey to building a business has only just begun. A product (intentionally italicized) may be in nascent form with early customer engagement, but the vast majority of learning about what really works in the long run has yet to take place.
Pivots (or significant changes in the business) are incredibly common. Some successful VCs estimate that over 90% of companies go through a significant pivot after Series A, a step later than Kickstart usually invests. At this point, companies have already deployed a few million dollars and probably a few years to build, test, sell, and iterate in what can be a continuous cycle. What successful entrepreneurs actually build is usually different from what they think they will build in a start-up.
This can be one of the most trusted signs that you are supporting founders who will crush them: a finely tuned ear to signals from customers and a willingness to give up your most valuable ideas in favor of what you hear.
So how does this relate to a co-located team? It’s simple: these signals can arrive at lightning speed and in high volume. With a constantly limited budget and track, response time is short and the margin for error is reduced. Missing a few months and a few hundred thousand dollars can mean the difference between another round of funding or a shutdown. The team must internalize the learning, create solutions, apply them, and then iterate in near real time. The friction in a team’s ability to do this can be very costly.
Distance creates friction. The urgently called meeting with a whiteboard and copious amounts of Mountain Dew and pizza that lasts until midnight does not take place. A spontaneous chat about a missed deadline takes place on Slack without reading body language, stress, and heightened emotions. The painful coaching discussion that might mean firing someone in a critical position is made cold and impersonal during a phone call or Zoom. A full team to formulate urgent responses to your biggest customer threatening to cancel can’t happen in person, so it’s made less efficient. The list is lengthened increasingly. Distance creates friction, and friction kills responsiveness, speed, and critical collaboration.
Enter Covid. Companies around the world, including dozens funded by Kickstart, were quick to respond (or even stay alive). VC funds have warned teams to take urgent action to lengthen the track. Who knows how long it can last and how much capital it can take to stay in business? Live to fight another day. We are right at the bottom of Maslow’s hierarchy with no prophetic idea to guide an answer. And what have we learned? Most companies have done it. A few (very few, in fact) did not. Many, sometimes unexpectedly, have accelerated during the pandemic to new heights of performance.
2020 was actually the best year in Kickstart history, and 2021 is even truer. We certainly didn’t expect this 18 months ago. The crazy thing is that each of these successful businesses had to settle for virtually no in-person interaction. Like zero. In retrospect, we can look back and say, “Sure! Zoom and G-Suite and Office 365 and Slack work really well. Remote working is now common, office leases are canceled or reduced left and right, employees and even executives are now regularly hired from anywhere in the country or the world without expecting that one day they move to work side by side with their colleagues.
So how do I reconcile my belief in the power of working together (literally) with this reality? To understand this, I interviewed a few of our CEOs. They experienced it firsthand, one running a co-working company (Kiln) and another who ran his business remotely from the very beginning (Color Factory). What I heard from them simultaneously confirmed my earlier views and challenged them. Here are my updated beliefs.
Let’s start with the caveats: There are times when being at a distance can work well if you take a few considerations into account. First, is geography important for a particular role? For example, Leigh Radford, Creative Director and Co-Founder of Kiln, lives and works in London. London is the design epicenter for co-working spaces, with more experimentation and density than any other city. Arguably Leigh is better at her job in London than he would be with the rest of the Kiln, Utah management team.
Second, to what extent is there a relationship between the CEO and another executive who works remotely? Two people who have co-founded a business together or have a previous work history are much more likely to experience minimal friction from a distance than those who haven’t. Leigh and Arian Lewis, CEO of Kiln, have previously worked together to design co-working environments at Barclays. Check — low risk.
Third, the more discrete and independent the leadership roles, the less risk there is for friction from not being co-located. For example, John Thomas is the COO of Color Factory. He’s responsible for making sure the New York and Houston museums (Chicago coming soon!) John doesn’t need to interact with the creative team, marketing, or even the CEO on a daily basis to do his job well. . A steady cadence of virtual interactions with his peers and Jeff can move the business forward when needed. Complemented by regular team meetings, John does a better job of being close to where the action is taking place, in the field with his frontline staff and clients.
That said, if you are a startup considering co-location, please seriously consider the following:
Distance creates friction. And friction creates costs. Software and collaboration tools have become incredibly powerful. But we’re at the forefront of what great software, high-resolution webcams, and super-fast internet speeds can do for us, and we’re still struggling to replicate real life. experiences and impressions which only come from the direct appreciation of nuances, context and serendipity. No matter how the technology develops in the future, I don’t believe this problem will ever go away. The costs of losing interpersonal collaboration, creativity and human contact with remote work are real. They will always be there.
The earlier the stage, the greater the co-location. Stage is a proxy for maturity, and the less mature companies are the most prone to the risks posed by distance. During the chaos of the search for product / market fit, companies have a critical need for the immediacy of real interactions to gather and act on the information required to exceed a minimum viable product. As I went back and analyzed the experience of Kickstart-funded companies on their journey through Covid, it’s no surprise that those that maintained or increased their momentum were typically funded after Series A. The move to subsequent cycles usually comes with a stable and scalable initial product, real revenue, loyal and engaged customers, and larger and more mature teams. The founders and other executives had time to work and solve the problems together. Relationships exist now and have the capacity to cool friction.
Distance hinders the construction of culture. Cultures begin to form at the foundation. Habits and norms, language, values and ways of solving problems are established early and usually only change at the margins as the business grows. Words matter, but behavior matters much more. And the behaviors that matter tend to happen in person.
As a friend told me while reading a draft of this article, “Culture is built on continuity and is tested in change.” There is so much inevitable chaos in a startup that any form of continuity is essential, while change is inevitable, if not desirable. Healthy cultures are difficult to establish and require intentionality. The reverse is also true: unhealthy cultures are devilishly difficult to change. When they change, they usually only do so with new leadership. When we invest in companies, we invest in the leadership that is there, not in the ones we assume can be hired later.
Startups come with all kinds of risk: product, technology, customer, execution, funding, to name a few. And in the early stages, these risks coexist and can worsen. Compound risk means higher chances that your startup will fail. Why add more risk with a dispersed management team? All other things being equal, when you can avoid it, you should.