Founders - You Don't Have To Sell Your Soul
A startup exists for a purpose - to solve a problem for someone. The founder defines that purpose, finding or creating the what and for whom.
In the venture capital context, startups design, build, and deliver technology to solve a problem (profitably) that is so large and intractable that capital must be marshaled long before the business can sustain itself. The Founder has perceived the opportunity before anyone else, being first to take the leap and mantle, committing themselves before any proof that it can actually be done. But along the way, many founders will succumb to self doubt, mistakenly trading away the things that make their startup special in the hopes that it will bring financial results.
Founders must reverse this thinking. Long-term financial success stems from disciplined execution that aligns with the vision and the soul. They and their teams must find ways to balance all three, as compromising one for the other is more likely to hinder long-term success than to buoy short-term distress.
Ranjay Gulati of Harvard Business School (HBS) articulates the "soul" of a startup as encompassing its mission alignment, customer centricity, and employee experience. Drawing from our experiences at Virgo Strategic and the insights of Nielsen et al. (Edward Elgar, 2009), the founder's essence involves balancing paradoxes - being both visionary and disciplined, creative and pragmatic.
While these concepts may seem self-evident, many startups lose these fundamental elements in the pursuit of short-term financial gains. This trend is clear when examining reviews of mid-to-late-stage startups on platforms like Glassdoor, revealing a compromise of core values for immediate results.
In the early stages, protecting the startup’s soul is relatively straightforward because financial constraints are relaxed by design. However, as the startup transitions from the early to growth stages, the founder faces increasing pressure from external and internalized perceptions of how a “CEO” ought to be. The startup begins to wrestle with the need to deliver near-term financial outcomes as it seeks to renew its license to operate from the capital markets.
A common misconception among first-time founders is that sacrificing elements of the “soul” will be necessary for financial success, or that they themselves must lean out of their visionary capacities in order to lean in to execution. This is a false dichotomy. Generational companies of consequence have a clear long-term vision and maintain mission alignment, customer centricity, and employee satisfaction in balance to deliver competitive returns.
The Early-to-Growth Transition
The transition from early to growth stages is a critical and challenging period. Statistics indicate that approximately 70% of startups will fail at this juncture (1). Founders must navigate a significant transformation in both their startups and themselves. It’s a state of becoming and of being in-between. It’s also a proving ground that clarifies for most startups whether the outcome will be a great company, a good company, or no company at all.
The early stage financings focus on the viability of the product. The growth stage financings are preoccupied with the scalability of the business model. These are wholly different tasks to accomplish.
First-time founders, often technologists or scientists, face new expectations from investors, customers, and employees of the startup as a business, and of the founder as a CEO, requiring radical transformations within a typical cash runway of 24 months.
The startup as a business: Expectations grow exponentially (e.g. growing from $1M to $3M ARR). At the same time, goals become bigger than any one person, necessitating building teams, increasing collaboration, and preventing alignment drift. The foundational processes, systems, and data required won’t exist yet and need to be designed and developed. As the founder delegates, sales cycles will lengthen and leak (they’ll never sell it the way you do, and can never replicate the founder gravitas), development cycles will stretch (more robust and less agency), and culture will go through a storming-norming period. Most of the team will be new and ramping up. There will be a sense of deceleration despite raising the targets, slowing down in the hopes to go faster later after the machine is built.
The founder as a CEO: The board conversation is evolving to include financials, unit economics, sales productivity, corporate governance, talent management, and topics the founder may not have any formal training in or prior exposure to. Time stretches thin as the founder is on the road more than ever for marketing events, PR, and customer interaction. Employees demand more interaction with leadership than before. The founder’s span of control becomes unwieldy until key positions are filled, and filling those positions is high stakes and time consuming.
This period can be a time of extreme discomfort and self-questioning. Founders may experience imposter syndrome and changes in their health. The physical and psychological strain can be higher relative to the stages before and after. I think of Jensen Huang recently saying he’d never do it again - the CEO of NVIDIA whose market cap is $2.9T and whose stock price has grown about 12x since 2020.
The Soul of the Startup
In 2019, Ranjay Gulati from HBS published research wherein he investigated the “Soul of the Startup” (thank you to Dr. Amy Fraher who introduced this to me). He explored this phenomenon where founders, employees, and customers would describe a startup as having some intangible energy, a presence; something that made it special. And that when the soul was sustained, startups were more likely to perform. When sacrificed, startups were more likely to falter. Employees, customers, and investors could always tell something was now gone that had once been precious.
Gulati’s research proposes three elements of the soul, which I’ve slightly adapted below:
Mission alignment
Customer centricity
Employee experience
Gulati profiles several ways the soul goes to die, and I highly recommend you read his article. In my own experiences with founders in the early-to-growth transition, I’ve observed that first-time founders incorrectly assume that sacrificing one of the three elements above is not only necessary to achieve financial results, but is both stage-appropriate and normal. This couldn’t be more false. Founders seem even more prone to this misconception when navigating times of difficulty such as executing a pivot or responding to shock or crisis.
If the startup trades away the elements of its soul, there is a higher likelihood of falling into the classic downward spiral of missed revenue targets, which leads to poorly targeted cost cutting and sales aggression, which leads to further missed revenue targets until customer churn and employee attrition get out of control.
The correct way through challenging times is often to return to the core elements of the soul, not to depart from them. Even pivots, reductions in force, etc. can be designed and executed in a way that is aligned with the startup’s soul rather than in direct opposition to it.
Moving into an adjacency that is mission aligned vs. not mission aligned
Discovering previously overlooked or underestimated upsell opportunities that make sense for the customer vs. pushing upsells even when they don’t make sense for the customer
Signing highly structured deals that you can knock out of the park vs. signing deals you know will churn and can’t be successful
Selling the roadmap vs. selling vapor
Being more focused and doing less, better, with fewer staff vs. layoffs and then asking staff to do more with less
Management foregoing bonuses vs. scaling back employee benefits
It takes extra work, care, and discipline to stay aligned to the soul and to incorporate it into decision-making, especially during wartime, but by staying principled, the startup is more likely to successfully reset and surge forward. This advice is stage agnostic - many high profile returns of CEOs or founders to reignite their firms were rooted in returning to the soul of the startup. Think of Steve Jobs (Apple), Howard Schultz (Starbucks), or Stephen Luczo (Seagate).
The Duality of the Founder: Vision and Execution
Founders must hold both realist and antirealist perspectives - maintaining a unique, evolving vision while ensuring precise, scalable execution. This balance allows founders to adapt and seize opportunities without losing sight of the broader vision.
Founders often struggle with the temptation to conform to a traditional CEO mold, sacrificing their visionary role. However, they must maintain both their visionary and execution capacities, surrounding themselves with the right team and advisors to support this balance.
Introducing Realism and Antirealism
In July, I had the opportunity via Yale School of Management to visit the Stockholm School of Economics and meet a large swath of the entrepreneurial community in the Nordics including academics, civil servants, founders, family offices, and VCs. During one of several wonderful conversations, I shared some of my ideas on vision processes and execution processes with Dr. Rasmus Rahm who pointed me toward realism and antirealism.
Realism proposes that a thing exists and has characteristics regardless of whether it is being observed. If I place a red apple on a table, the apple is there and it is red regardless of whether I’m looking at it, you’re looking at it, or no one is looking at it.
Antirealism proposes that whether a thing exists or not, and what characteristics it has, is dependent upon observation. Quoting the Routledge Encyclopedia of Philosophy, consider humor:
“... it seems natural to be antirealist about humour: something’s being funny is very much a matter of whether we find it funny, and the idea that something might really be funny even though nobody ever felt any inclination to laugh at it seems barely comprehensible.”
In my view - most things have both realist and antirealist characteristics and the interaction between the two is beneficial. The apple can be red (realist) and tasty (antirealist), and experiencing both qualities together is more impactful than either in isolation.
Maintaining Vision and Execution Processes
The founder’s “vision process” is antirealist in nature. Are opportunities discovered, or created? Certainly there are some aspects of an opportunity that would be perceived by anyone pursuing it, yet multiple founders building within any given sector will have very different long-term visions of the endpoint and path to get there. Their vision is constantly shifting and evolving, dependent upon who they are, their background, their relationships and networks, and their experiences. It is unique to themselves - no other could conceive of it in quite the same way. They are constantly straining to see around the next corner, just a bit further down the path, but it's their path.
In contrast, the “execution process” is realist in nature. Some things have optimal ways of being done, best practices which need only light customization to any particular market, segment, product, or team. It requires details and consistency. It is preoccupied with scaling and finding straightaways. Because there exists a wider set of people who could execute in similar ways, it is more readily delegated and distributed across a leadership team, but must be designed and orchestrated well.
By holding the vision process and the execution process simultaneously in the founder’s mind, a beneficial interaction between the two occurs. New signals from the execution impact the form and clarity of the vision, old possibilities become stale and culled while new possibilities emerge, and as the vision becomes more clear, the execution is adjusted to become more focused, more closely aligned.
Founders will be tempted to trade away or sacrifice the vision process to fit into a fabricated mold in their mind of what a CEO ought to be. They lean too far into the realism and execution processes rather than delegate those to their teams. They pull away from their own visionary and creative tendencies. There are certainly moments that demand more of one mental process over the other, but if taken too far, the founder will miss strategic opportunities or over-optimize for too small a scale. This type of behavioral change in the founder often precedes a trading away of one of the elements of the soul of a startup as covered above.
Founders should reserve some capacity to maintain and exercise both their vision processes and their execution processes. Balancing and rebalancing is okay, but they should never wholly sacrifice either of them. Founders should give themselves permission to ideate, explore, and create while being involved with the day-to-day minutia of customers, product, and operations. They must surround themselves with the right talent to reinforce and protect these capacities and strive to maintain the paradoxes in harmony for as long as possible.
Long-term success and financial returns stem from disciplined execution aligned with a founder’s vision and the startup’s soul.
As we move into late summer, many founders are gearing up for their annual strategic, operational, and financial planning sessions. Most hope to fundraise in 2025 on the back of positive results this winter. Founders should first refresh their vision of the endpoint and re-articulate it to ground their teams and boards. Similarly, the management team as a whole should restate what they believe to be the core elements of the soul of the startup:
What is the mission or purpose?
Who is the customer and what specific value are we creating for them?
Why is the sacrifice of working so hard toward this audacious, risky goal so compelling and rewarding for top talent?
Set checkpoints during planning to ask whether the strategy being formulated is aligned with, or in opposition to, the founder’s vision and the startup’s soul.
Founders don’t have to go it alone. At Virgo Strategic, we specialize in partnering with founders through this critical early-to-growth transition. Our team of experienced builders and operators is dedicated to supporting founders in achieving their visions while maintaining the essence of their startups. If this resonates with you, we're here to help navigate these challenges.
References:
1: Startup failure rate adapted from 1) Dealroom.co analysis circa 2020 based on 2009 - 2011 cohorts; 2) Can Your Start-up ‘Return The Fund?’ by Harlem Capital; 3) Why Start-ups Fail by Eisenmann for HBR (2021)
The Soul of A Startup, Gulati, Harvard Business Review (2019)
Entrepreneurship in Theory and Practice: Paradoxes in Play, Nielsen et al. (2009)
Realism and Antirealism, Edward, Routledge Encyclopedia of Philosophy (1998)