Too many shareholders can become problematic as start-ups grow.Virginia Star

When I launched my first business venture, I sought help. I didn’t have much money so I was generous with equity to investors and supporters. Five years in, I had 80 shareholders and a capitalisation (cap) table that was difficult to manage.

Everyone told me to be careful when distributing equity. But early on, I needed support and couldn’t afford to pay contractors full rate, so I subsidised payments with equity. I had to convince incoming employees to take a pay cut, so I gave them shares. And I needed capital, so I accepted investment from wherever I could find it.

Start-up law specialist Richard Prengell of Viridian Lawyers says this problem is widespread. “Minority shareholder issues are amongst the most common legal challenges we come across. It’s easy for entrepreneurs to sell the dream early on and give away equity to people who help get the business going. But two or three years later, a messy cap table can have regretful consequences.”

Potential investors

I discovered a large shareholder group made it difficult to raise capital. Larger venture investors were nervous about our ability to manage so many stakeholders. Would anyone hold the company to ransom when we needed a critical document signed?

Prengell says a full cap table may deter potential investors. “An oversized shareholder list can become a nightmare: incoming investors may wish to make decisions about issuing new stock, bringing in more investors and incentivising employees without having to get sign-off from 30 or 40 people. This can institute delays, even if no one becomes obstructive.” He also warns about dead-weight shareholders who no longer contribute to the business.

“Investors want the company to be owned by people who are doing the work now. A contractor who helped build an early version of a product but is no longer involved in the business is a drag on a cap table.”

Five years on and we’ve put measures in place to manage our large shareholder group. Fortunately, no one ever became obstructive, but I have lost weeks chasing signatures from shareholders camping in the south of France, kite-surfing in Brazil or skiing in Switzerland. The challenge should not be underestimated.

I’m now establishing a new venture and, like last time, I’m doing whatever it takes to get my vision off the ground. This will mean issuing equity to early supporters; it’s impossible not to. But I’ll set up structures to incentivise people who make a long-term contribution; ensuring early shareholders don’t put off later-stage investors. Here’s how:

Set long-term goals

In my first business, I awarded equity to the graphic designer who made our first logo, a lawyer who drew up our early agreements and so on. This time I’ll set long-term goals. Everyone will earn their compensations over four years with a one-year cliff. So, if the design firm is still supporting the business in two years, they’ll have earned half their allocation. But if they disappear in six months, they’ll get nothing. This ensures everyone is committed for the long-term and removes the risk of dead-weight shareholders.

Prengell says the best way to incentivise contractors and employees is with an option plan. “Always give equity as options rather than shares. Put an agreement in place upfront so that options can be bought back if the contractor or employee ceases to contribute to the company.”

Have the the future in mind

Richard suggests early-stage entrepreneurs take time to consider the implications of their shareholder’s agreement. “Too many founders use an off-the-shelf shareholders agreement and company constitution and don’t look at them until there’s a problem. One of the most important things to know about a shareholder’s agreement is that it can’t be changed without everyone’s agreement.”

Entrepreneurs need to turn their mind to the future of their businesses, designing agreements that will survive several capital rounds and an exit without modification. For example, don’t name board directors. A future large investor is likely to want a board seat, and if this means amending the shareholder’s agreement then 100 per cent of shareholders need to agree. This gives small shareholders a huge amount of power and is often where businesses get stuck.

Encourage investors to form a trust

Prengell advises entrepreneurs to have small investors participate in a common trust rather than as individuals. “It’s simple to set up a trust so related investors can register on the cap table as one unit. Keeping your shareholder numbers below 50 helps contain your financial reporting obligations.”
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It might seem that launching a business would be easier the second time around, but the opposite is true.iStockPhoto

Some time ago I met with a partner from Kleiner Perkins Caufield & Byers, a renowned Silicon Valley venture capital firm. She was kind enough to offer me mentorship; we discussed what makes a start-up successful and what attributes she looks for in a founder.

She showed me some research they’d done comparing first-time founders with founders who’d successfully exited from a previous venture. All had been backed by Kleiner Perkins. “Which group do you think were more successful?” she asked.

“Experienced founders are much more likely to succeed,” I replied. “They have proven skills and resilience.”

“That’s what we expected, but we were wrong,” she said. “It turned out that our first-timers have a much higher strike rate. And when they succeed, the companies they build are much bigger.”When we dug into why this might be, she described a theory called “second-time founder syndrome”.

Rebekah Campbell built a successful music management company in her 20s.

Looking back at my recent entrepreneurial endeavours, I see that I too was afflicted with this condition – although I didn’t realise it at the time. In my 20s, I built a successful music company managing the careers of 11 artists, including Evermore, Matt Corby, Lisa Mitchell and George.

When I decided to launch a tech start-up I was confident I’d succeed: I knew how to build a team. I hired someone to carry out market research and another to sell to my first customers. I found an agency to build the technology and a graduate intern to answer all the support inquiries. I put together a PowerPoint presentation and raised my first round of angel investment.

The first version of my concept didn’t take off. I pivoted our approach and tried again. Still not enough traction – but the costs were mounting. Looking back, the mistakes seem obvious. Now, as I prepare to embark on my next adventure, I’ll heed that advice from my friend at Kleiner Perkins: “Always be a first-time founder”. Here’s how.

 

Campbell grew Evermore's fan base by booking lunchtime concerts in high schools across NSW.

1. Do the groundwork

I thought I was an expert in building companies and that I could apply this expertise to a new business. I was wrong. A founder needs to be an expert in their own customers, not in starting a business. Facebook’s Mark Zuckerberg knew nothing about raising an angel investment round, but he knew a lot about how university students wanted to connect. By paying someone else to research the market for my business, I missed learning valuable insights.

My next business is in a new area again. This time I’ve allocated a whole year to learning the industry, taking a postgraduate university course to get the same training as the customers I’m looking to serve, and I’m also working in the field. I won’t design our solution until I’m sure the value proposition is right.

2. Hustle

Evermore was my music company’s first client. No one knew or cared about my company or the band. We couldn’t get a gig at a local pub. We had to fight to be noticed. Using the Yellow Pages, I phoned high schools across NSW offering Evermore to play at lunchtime. We’d charge students a gold coin donation and they’d get a CD single of the band. For 10 months we traipsed across the state playing in school halls. We’d stay in backpacker hostels and pay with bags of coins we’d collected from the kids.

Working town by town, we started to build a fan base. When I managed to get the CD single sales to count in the ARIA chart, the band’s song started climbing. Radio stations noticed and started playing Evermore. When the band’s album came out a year later it sold more than 100,000 copies. But by the time I launched my second company I’d forgotten the struggle. I thought I’d launch a product and people would just buy it.

Most successful businesses build granularly at first. The Airbnb founders talk about how they personally photographed the first thousand or so listed properties; Yelp held restaurant meet-ups to build groundswell. Almost every large company talks about how much work went into developing a following. First-time founders are prepared to hustle.

3. Stay close to the customers

In my first business, I was the only employee. When someone had a complaint or suggestion, it came to me. In my second business, I recruited interns to be the initial point of contact. They would welcome new customers and respond to support inquiries. I thought this would be efficient, but the cost was huge. I missed out on valuable feedback that would have helped me improve our product.

As a second-time and now third-time founder, it feels that launching a business should become easier, but the opposite is true. Recall what led to success the first time. Stick to the basics, consider abandoning your support network, and be prepared to sign up customers one by one. 

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Co-working isn't always unalloyed joy. Rawpixel

Co-working spaces are all the rage. Why not leave a stuffy office to work in a funky warehouse full of ambitious people doing amazing things? I thought so, once. But all that co-working was not unalloyed joy. In 2013, two colleagues and I packed up our start-up dreams and laptops and made our way to New York. We wanted to change the face of mobile shopping and this seemed a good place to launch. On arrival, several people suggested we check out various co-working facilities.

I researched spaces in Manhattan and discovered new locations were opening all the time. I shortlisted eight spots and made appointments to check them out. The first one I visited was quite strict. It had rules about the hours people could work and about leaving nothing in the space overnight. The other end of the spectrum was like a hippie commune house. Loud music blared across the offices, people slept on the floor or in hammocks, the walls were covered in graffiti and coffee cups lay everywhere.

 

It can be tricky to establish a culture of hard work when the co-workers next to you watch YouTube videos and go home.

Cultural fit

I chose a place I thought was somewhat structured and a good cultural fit for our team. For $200 each per month, we scored a desk, WiFi, access to meeting rooms and other shared facilities. We would be working alongside other companies in a similar position to ourselves and might make some friends. On moving in, we attended the mandatory orientation session. First, we were presented with a raft of sponsors and their offerings. We could obtain a lawyer, accountant, insurance, server hosting and a range of other services at introductory rates. We learnt the rules of the community. Don't talk in the quiet areas, clean your coffee cups and so on.

At first, the place felt like a utopia. We were in the centre of the tech community surrounded by people designing products to change the world. The desks were laid out in rows facing each other with power points in the middle. There was a quiet side (no talking) and a noisy side where groups could sit and converse. We decided to sit on the quiet side and use a meeting room when we needed to talk. It took a week for the gloss to wear off. Day one's little annoyances became distractions by day seven; after two months, I gave notice that we'd move out. Here's why.

 

Moving desks every day made our team feel transient, homeless. HandsOnPhotography

1. Distractions are dangerous

Small companies such as ours needed focus. We had limited time and money to prove our ideas and we wanted to work hard. Few people in our co-work environment respected the quiet areas. Some people even appeared to show off their important phone calls by talking as loudly as possible. The space provided a stream of peripheral activities. Cheery folk breezed through the office every other day offering free coffee, pizza, massages and so on. There were regular after-work events, so we often had to clear our desks by 5pm or 6pm.

2. It's difficult to establish culture

Every morning we had to find new desks. If we'd paid more we could have rented our own office space, which I'm sure would have proved a better option. Moving desks every day made our team feel transient, homeless. It weakened morale. As our company has grown, I've learnt how people influence each other. The co-working space was full of people I'd never hire but who influenced our team. When co-workers sitting next to us arrived late, watched YouTube videos and went home, it made it difficult to establish a culture of hard work.

3. Competition isn't always healthy

There were more than 200 companies operating from our co-working space, and some used the "community" to their advantage. There were at least three start-ups working on similar ideas to our own, and they often invited our team members to lunch. Other entrepreneurs noticed when we received a positive press story or investment and hassled me for introductions. Finally, a competitor tried to entice one of our engineers with a more lucrative job offer. At that point, we moved out.

The co-working industry has evolved since then. Done well, it facilitates collaboration and motivation while allowing companies to remain focused on their goals. Accelerator offices designed to foster a group of start-ups appear to have succeeded best at this. I eventually decided to lease our own space. It was daunting at first, but it enabled me to build our own culture, give our team a sense of permanence and focus on building our product without distraction.

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Beware the sharks among corporate advisers, who promise a lot but go on to milk you of much-needed capital.

Hang around a few start-up events and you’ll meet someone who will pitch to become your “corporate adviser”. This person will most likely be male, aged 40 to 60, dressed in a nice suit and impressive. He’ll know everyone at the conference. I encountered one when I launched my business in 2012. He seemed enamoured of my idea and suggested we meet for coffee. I assumed he was a prospective investor. A moment later, as we started talking terms, he sprang his surprise. He wanted to sell his services. For a modest fee and some equity, he could help me raise $1 million. I said, “Yes.”

Two months later, he had introduced me to a few folks, none of whom invested, and he became busy with other opportunities. I’d spent $10,000 on a fancy presentation and hadn’t raised any capital. Worse, I’d agreed to pay a commission regardless of who invested so I still received a large bill when I eventually raised funds through my own efforts. Five years on, I’ve worked with a range of corporate advisers and some have proved more helpful than the character I met back then. Here’s some of what I’ve learnt:

Steer clear early on

Daniel Petre of top-tier fund AirTree recommends start-ups avoid using corporate advisers to raise capital. He often won’t take a meeting with an entrepreneur who’s come through a middleman because they get in the way, offering unhelpful advice. “Usually, an introduction from one of these guys is a sign that something is wrong.”

Petre prefers entrepreneurs to approach his firm directly. “People think they need a corporate adviser to access good [venture capitalists]. Not true. We don’t hide in an ivory tower. We respond to every email or call and see at least 20 companies a week.” And he wouldn’t spend money preparing the presentation. “We don’t want to see a fancy, 60-page pitch deck. We want an upfront, honest discussion with the founder about the problem they’re solving and why they’re better than the competition.” He adds, “There’s no role for corporate advisers in start-up land. They’ll take $100K to $150K on a raise, which is a terrible way to spend our investment. A good entrepreneur will want to put all their resources towards building the company.”

Despite my early mishap, I’ve found more use for corporate advisers as our business has grown. Jonathan Warrand of Greenwich Capital Partners recommends entrepreneurs contact his firm once their company is generating revenue and is growing at 10 per cent to 30 per cent every month. He says, “Advisers such as ourselves can assist with the management strategy and corporate governance as well as capital raising. These disciplines are important as companies grow. “There’s a difference between introducers and full-service corporate advisers who have deep knowledge of the market and a defined capital raising approach.”

Negotiate carefully

When I have engaged a corporate adviser, I’ve been careful to avoid paying too much. Most advisers will propose an upfront fee to craft the pitch deck and perform due diligence, plus a commission of 4 per cent to 10 per cent of whatever is raised. As Petre points out, good entrepreneurs know how to tell their stories. It’s usually possible to avoid an upfront fee. And never agree to pay a commission on funds that don’t come from their introductions.

They may ask for a period of exclusivity to raise the capital and insist this is essential to motivate their team. It’s true it can look bad when multiple advisers pitch a company to the same investors. It’s also bad when the adviser you signed up with isn’t delivering and you’re stuck with an exclusivity clause.I’ve found the most important factor in a successful capital raising is momentum. The advisory team will be motivated when investors are piling in and their clients might miss out. They’ll often agree to drop the exclusivity period if they can be confident you’ll manage the process well.

Fundraising is hard, lonely and distracting. It takes a huge amount of time to source investors, plan meetings, answer questions, negotiate terms and draw up paperwork. When someone says, “Your business is great. I can raise money for you and you won’t have to do anything,” it’s a compelling proposition. I’ve learnt that different stages of business and different types of businesses need different approaches. But, with or without a corporate adviser, the founder has to sell the vision, drive the process and take responsibility for the outcome.

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How you apportion equity in the first year of your start-up can come back to bite you later. Marcel Aucar

As a start-up entrepreneur I’ve made lots of mistakes. But one mistake irks me the most – because it can’t be rectified. I fell into it at the beginning when, surrounded by a group of friends at a cafe, I formed my first company, Posse. Five years ago I didn’t know anything about building a technology business. I wasn’t confident the idea would work and, in the interest of spreading the risk, I asked a few friends for help. I wrote a plan and called a breakfast meeting at a local cafe. Over eggs and coffee, I scribbled on the back of a napkin who’d be responsible for what and what percentage we’d each own of the company.

Six months later, my friends had disappeared. Our idea hadn’t exploded as we hoped. They weren’t prepared for years of low-paid hard work. One decided to travel, another became a parent and needed a stable job. But five years on, they still hold significant shareholdings in the business and we’re no longer friends.

This is a common mistake. I often meet enthusiastic new entrepreneurs on the cusp of launching their company. When I ask about their ownership structure they say something like: “I own 50 per cent and the other 50 per cent is split between my friend who’s building the technology, a woman who’s doing the graphic design and a guy who’s going to run operations and raise the money.” Six months later we’ll meet again and at least one person has almost always left the team. The remaining members work hard to launch the business and waste energy and time fighting to get the quitter off the cap table. This destroys friendships and creates animosity that will haunt the life of the company.

Founder vesting

Rick Baker of Blackbird Ventures says his firm will not invest in a company where the entrepreneurs have upfront ownership. Instead, they insist on “founder vesting” – founders must earn their shares over time. “Most start-up teams will not survive the first year intact,” says Baker. “As investors, we’re backing the founders to run the business. If we invest $1 million or $2 million and someone leaves after six months but keeps all the equity, then that’s a bad situation for us and for the rest of the team. We need to make sure everyone is committed.”

A founder exiting early creates problems for the life of the company. “It’s a huge distraction early on and even worse when you get 10 years in and the company is worth a lot of money. The last thing you want is a founder who left at the start still owning 20 per cent of the company – that’s just crazy.” Baker says it can be hard to convince founders they need to plan for someone leaving. “Everyone thinks that this isn’t going to happen, but the numbers tell a different story. Even the best entrepreneurs get stuck with problematic exes – just look at Facebook.”

The standard requirement for Silicon Valley and top-tier local VCs (including Blackbird) is for founder shares to vest over four years with a one-year cliff. Team members are allocated a proportion upfront but only gain ownership of their shareholding if they remain with the company. A founder who leaves in the first 12 months gets nothing; they earn 25 per cent at the one-year mark and the rest monthly for the remaining three years. If the CTO in my earlier example was allocated 20 per cent, but left after two years, then she would leave with half her allocation. The team could part ways amicably and without lawyers.

Value people

I wish I’d put this structure in place when I started my company. At the time, I was so infatuated with the glorious future of our idea that I couldn’t imagine anyone giving up. No one wants to think about a prenuptial when they’ve just fallen in love. I also didn’t want to haggle about shareholding because it seemed silly. The company hadn’t launched so it was not worth anything. Why argue over 30 per cent of nothing? But a company does have value at the start. It’s worth the years of energy and intellect the founding team is prepared to invest. When I think of the five years of work and perseverance I’ve committed to our business, it’s clear this level of commitment was an asset at the beginning.

Many people have been involved in making our company a success, and some provided far more than their shareholding reflects. As a founder, it’s important to value people who contribute generously. There’s nothing more frustrating than wanting to reward hard-working superstars with shares but being restricted on account of a few who did very little but happened to be around at the right time. Next time I start-up, I’ll ensure everyone (including me) earns shares over time. This is a fair structure which rewards those who build the business.

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If business partnerships are marriages then I’m a serial divorcee. I’ve rushed into relationships; taking on staff, clients and sometimes business partners, only to move on when things didn’t work. Broken partnerships are always disastrous. Why couldn’t I make these vital relationships work? Was it me or did I choose the wrong people? The question has frustrated me throughout my career. But in 2016 I found the answer.

Years ago, I took on a business partner in my music company. A colleague introduced Ben to me: we hit it off immediately and seemed to have complementary skills. We’d only met a handful of times and I suggested we form a company. It didn’t take long for cracks to appear. I’d stay back late putting together proposals and budgets while he took off to the beach in the afternoon to surf. I felt his work wasn’t of the same quality as mine, so one by one I took over his tasks.

 

The relationship must come first, even in a business.

We both became irritated. I felt I couldn’t rely on Ben to get things done and he was disempowered and miserable. He started complaining, loudly. He labelled me a control freak. I said he was lazy. Our staff, artists and music industry colleagues didn’t know who to believe.

Inevitable glitches

I’ve since learnt that this pattern is common and in my circle of friends I’ve encountered more broken business partnerships than broken marriages. Everyone starts out with the best of intentions and enjoys the camaraderie of a partner when things are going well. But when the business hits inevitable glitches, people don’t stick together. Both grumble about the other; both are certain they are right. The partners enter a spiral of doom that’s usually fatal to the business. I was determined to avoid this mistake again, so I looked for answers. Why do so many business partnerships fail?

Last winter, I went through the most intense personal development experience imaginable: I became a parent. I learnt new dimensions of patience, empathy and love. But my most valuable lesson was about relationships. I met my life partner, Rod, in 2014. After spending lots of time falling in love, holidaying together and living together, we decided to start a family. We rarely disagree but when we do, I know how to prioritise. Rod and his happiness come first. He does the same for me. Our relationship works. Business partnerships are more complicated: is the top priority the relationship or the business? When Ben and I clashed, I chose the business. It seemed like a rational decision and the right decision. I was wrong.

Work together

Becoming parents has parallels with launching a company. For the first time we had a “project” to manage. Three days after our baby daughter entered the world – screaming – Rod wanted to give her a dummy. This was our first conflict as parents. Other differences in opinions arose; how strictly should we stick to a sleep schedule? When does she need a sun hat? Does the baby food really have to be organic? I naturally wanted my agenda to win.

But as small conflicts piled into arguments I found myself asking a familiar question. What should take priority – the project (parenting) or the relationship? The answer was obvious: the relationship must come first. We couldn’t be successful parents if we didn’t work together – even if one person changed nappies in the middle of the night more often than the other. It didn’t matter. Unwavering love, commitment and a willingness to compromise is fundamental to raising a happy, well-adjusted child.

Three rules for a successful relationship

Next time I form a business partnership I’ll apply the same rules:

1. Take time for romance

Most longstanding successful partnerships are between people who’ve known each other for a long time. I wouldn’t get married after a few dates but I formed a company with someone I’d only met a few times. Next time, we’ll make the effort to learn how the other works before we commit.

2. Respect is essential

Ben and I blamed each other when things went wrong. I was so preoccupied in proving that I was right that I didn’t see the damage I was causing. If I could rewind time, I’d put my respect and commitment to Ben above all else.

3. Partnerships are forever

When I started a family with Rod, I committed to the relationship forever. Starting a company with staff and clients is a commitment for the life of the business.

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Each rejection will be easier than the last. valentinrussanov

The word “no” can be hard to hear.

Earlier in the year, I was managing several business opportunities, all at various stages of negotiation, and noticed a disturbing trend. While I was very good at opening doors and establishing relationships, I wasn’t so good at closing the deal. I could not push the conversation to a point where a decision would have to be made. I physically felt sick at the possibility of hearing “no” and procrastinated. I suggested next steps and more meetings, preferring to cling to “maybe” than risk a “no”.

As a result, nothing happened. I rarely heard “yes”, for I always left prospective partners with “maybe” as an option. A wise mentor observed, “No one will say yes today when they think they can say yes next week.” I trace my fear of rejection to when I was nine years old and I had my first crush on a boy. Cameron was a year older, had stick-out ears, two shortened fingers from an accident in woodwork and a huge gap in his front teeth. I didn’t care: he was charismatic, popular, and made us all laugh. I was in love.

I didn’t know how best to express my feelings at this tender age, so I wrote a letter. “Dear Cameron, I think you’re cute. Will you go around with me? Love Becky.” That afternoon I skipped up to him after school and handed him the note. Next morning as I walked into class, everyone turned; lines of nine-year-olds pointing and laughing. Cameron stood at the noticeboard grinning widely. He had pinned up my note for all to see.

I shrivelled up, humiliated

This is the first time I remember making a social request and getting “no” in response. Only recently have I realised how much this and other early experiences of “no” continue to influence aspects of my life, including business. The thought of “no” still strikes fear into my heart: a fear that stops me from achieving. Unless I could overcome my fear, I’d never close the important business deals I needed to reach my career goals. I decided to tackle the challenge.

Here are some of my strategies:

1. Eliminate time-wasters

I had a huge number of deals on the go and added more each week as I obtained more introductions. I didn’t want to lose any prospective partners but realised that for every deal I lost, I would have more time to focus on the few that signed up. One or two significant partners mean so much more than a list of prospects.

2. Practise closing

I read an excellent book, Getting to Yes, by Roger Fisher and William Ury, and spoke to several friends, all expert closers, for advice. I learnt all the techniques, such as what questions to ask when. I used the scarcity principle and set deadlines for a response. Next, I poured concrete down my nerves and held the hard conversations. At first it was terrifying. Every “no” stabbed me in the heart. I hated those emails. But each rejection was easier than the last and eventually I toughened up.

3. No doesn’t always mean no

If I really want something, I’ll go after it: “no” is but a step towards a “yes”. I’d wanted someone to join our advisory board for years, yet had never pressured him for a decision. But as the business progressed, I needed an answer. He called me into his office and said, “Sorry, but I’m a no.” For a couple of days I was disappointed. The following Monday, I had new information: we’d achieved something that I knew would appeal to him. I invited him out to coffee and again asked him to become an adviser. At first, he appeared perplexed – had we not held this conversation last week? I ignored his puzzlement and continued. At the end of our meeting, we were back to “maybe” and weeks later achieved a “yes”. A “yes” is so much more satisfying when it follows a “no”.

As children, we are open about what we want. We’re happy to reject other people’s requests and we accept that we may not always have our own way. I didn’t think twice about giving Cameron a note outlining what I wanted. But when he said, “No” so publicly, I was hurt. Next time, I thought, I will be more circumspect. I expect many of us have similar “no” traumas from our youth. Rejection hurts, so we learn to avoid putting ourselves in the position where we could hear it and strive to avoid hurting others by saying it to them. As a result, we don’t make direct requests or give direct responses. We leave things hanging in the world of “maybe”, which wastes time. I have learnt that “no” is a powerful word that should be pursued, not feared.

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As Hey You grew, Rebekah Campbell realised her technique for managing change also needed to adapt.

Agile is the new black. Every business leader knows their company needs to innovate at speed to stay ahead; start-ups like Hey You move fast. We raise enough capital to give us a limited amount of time to win an opportunity. As an entrepreneur, I've never struggled to adapt quickly. We are aggressive and change course frequently to respond to user feedback and analytics, better ideas and competitive threats.

Early on, this was easy. But, as our business grew, I realised that my technique for managing change also needed to adapt. One or two engineers can be experimental, trialling ideas and working through the night to test what works. But a team needs structure. By mid last year, we had 30 staff. Hey You had an established profile; tens of thousands of customers used us at cafes every day. We hired smart people across a range of roles: marketing, sales, design and engineering.

Everyone had an opinion about what to do next. Team members would march in, excited about a new idea or new partner that could drive us more customers. We often wanted to get to work straight away. But, as the organisation grew, our nimble approach constrained us. What I had thought was agile was, in reality, chaos. We released features early, moving on to other ideas without testing and improving what we’d already built. Some projects were never finished; overall productivity dropped and team members became frustrated at the quality of our work.

I asked other business leaders for advice; everyone had encountered the same challenge. Managing teams that innovate nimbly is difficult. I enlisted the help of an agile coaching group called Pragmateam and learned that an agile team needs rigorous structure to be effective. We involved the whole company and, in three months, established a process that enabled us to make good decisions and build quality product and campaigns at speed.

Here are the most important principles we put in place:

1. A healthy heartbeat

We began to run the company on six-weekly cycles we called increments. We set two to four goals at the start of each increment and workshopped what each team could commit to in order to support the objectives. We then divided the increment into three two-weekly sprints. Every day we held a full-team stand-up where team members reported on their progress towards the goal of the sprint. Each person would rank from 1 – 10 their confidence on reaching the increment goals. At the end of each fortnightly sprint, everyone presented their achievements and committed to what they planned to accomplish in the following two weeks.

New ideas and opportunities still poured in at mid-increment. At first, I tried to squeeze in a couple of extra projects but found this derailed the whole process. “We couldn’t finish X like we said because of these extra tasks.” I developed the discipline of putting new ideas to one side until the end of the increment.

2. Visualisation of progress

We created a story wall on one side of our office, posting the increment goals for everyone to see, and then used tape to create project streams. So, one increment goal was: launch Hey You gift vouchers for Christmas.

Each team member created coloured cards for the different tasks they had to complete to meet the goal. They owned it and put their photograph to their cards. Design and development would build different parts of the product, sales and marketing would put in place a process to launch to customers. Each day the team member responsible moved their card across the wall from ‘To do’ to ‘Doing’ to ‘Testing’ to ‘Complete’. The wall gave us an end-to-end company view on every project, and it was fun to watch cards migrate from one side to the other.

3. Step back to the balcony

Our agile coach suggested our leadership team take time off the dance-floor to stand on the balcony. We needed to get into a habit of observing and planning. Prior to each increment, we took one full day to reflect on our progress, digest data and user feedback, review our strategy and plan the next six weeks. We set goals that were two to four steps ahead of the team workshop. At first, I worried that a shift from no structure to a rigorous process might deflate morale, but the opposite occurred. Team members chose their own tasks, made public commitments, communicated their progress daily and presented back to the team each fortnight.

We operated as one team rather than a collection of departments. Progress was clear and we started gaining momentum. I knew we’d succeeded when I came back to the office after dinner to find our whole team eating pizza at 9pm, working to finish the sprint. Many businesses strive for a start-up culture, misinterpreting this as scrappy and unstructured. I’ve learned that an agile team works best with a rhythmic process of planning, implementation and feedback. 

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Common behaviours can make women feel uncomfortable.

I recently discovered that our company is sexist. Megan is a senior member of our team, and I was conducting her quarterly performance review over lunch. As we discussed her progress, the business and our future, she offered some observations about the social climate of our team. I asked her to describe our company culture in one word. She chose “blokey”.

Blokey! A woman co-founded this company – me – and we have several women in leadership positions. I think of myself as a staunch feminist and I’m acutely aware of the dynamic between women and men in our office. I strive to nurture a culture of equality and respect. But as I listened to Megan describe her experiences, I realised I’d failed.

Megan’s complaints were not the type she would take to the Fair Work Commission. But as she detailed a series of small instances that, in aggregate, made her uncomfortable, I knew that we could do better. I suspect these behaviours are common to most Australian offices. Business leaders have come a long way in promoting equal pay and opportunity. Now it’s time we address some of the systemic, seemingly harmless, activities that create a culture of sexism.

When a joke is not on

Here are some of Megan’s concerns:

1. Jokes

Light-hearted sexist jokes sometimes aren’t called out. Several months ago at Friday afternoon drinks, I mentioned we were getting a dishwasher for the kitchen: “When does she start?” one of the men responded. It was a quick joke and the team members in earshot laughed. I grimaced, but laughed too. I felt awkward but, in the context of Friday drinks, I didn’t want to look as if I didn’t have a sense of humour. But the moment stuck with Megan: “You should have called out the joke as inappropriate,” she said. She was right.

2. Language

I often find myself feeling uncomfortable with the casual language in our office. Everyone is referred to as guys. It seems almost endearing to address emails “Hi guys”, no matter who we’re writing to.

Much worse is when people use crude expressions like, “We can’t drop our pants on price.” I can’t help the split-second visualisation of that person actually dropping their pants (which isn’t pretty). And my least favourite of all is being told person X needs to “grow some balls”, meaning to become more courageous. I’ve never been told to grow balls but when it’s said about someone else, I feel like an outsider.

3. Behaviour

Megan mentioned she thought some of the rituals in our office were geared towards men. For example, we regularly host tech meet-ups and puzzle over our inability to persuade more women to attend. She pointed out that we only ever put on pizza and beer; if we wanted more female attendees, we should cater for a wider audience.

She also thought that some women in our office and at partner organisations talk themselves down, and that it was our responsibility to prompt them to change. When a smart, experienced female product person constantly jokes in meetings that she doesn’t understand “techy stuff”, she is putting herself down in order to be liked. Megan thinks this sets a bad example for other younger women.

Learning to speak up

I find it very hard to put a stop to this kind of behaviour. When people talk about growing balls, a twang of discomfort shakes me inside. I want to say something but I’m scared I’d look overly sensitive.

When I was 21, I interned at a very blokey radio station in Auckland. A stripper turned up in the middle of the day to perform for the program director’s birthday. I was in the room next door, and seeing a naked woman twirling around the desks to music and cheers from the team made me feel sick. I knew it was wrong but didn’t want to speak up; that moment has stuck with me. It’s easy to ensure a company promotes women and puts policies in place that prevent discrimination. It’s harder to call out everyday comments and behaviours that, taken in isolation, could be interpreted as fun, but combine to create a culture where women are uncomfortable.

I should have said something about the stripper in our office; I knew it wasn’t right. Now I know that I should speak up every time. Australian culture is laid-back, and it’s hard to call out as inappropriate what others see as jovial behaviour. Megan and her peers are watching, and from now on I’ll make it my mission to create an environment of respect. I’ll question language and jokes that border on being inappropriate. I’ll risk being seen as uptight by some so as to be strong for Megan.

I’m certain it will be difficult. But as a business leader, it’s my responsibility to catalyse change.

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Are ambition and compulsive comparison with others inextricably linked? David LoSchiavo

Last week I read in the paper that a longstanding competitor had had breakthrough success. Scanning the article, brow furrowed, I sizzled with resentment, jealous. Lying awake at 2am the next morning, my rational voice said, "Whatever this person does or doesn't achieve has no impact on my life." Then my emotional side kicked in and I rolled over, sweating with frustration. "But it's not fair!"

Jealously, I suspect, affects most of us. The need to appear successful at all times is rife in the start-up world. Our sector thrives on ambition and hype. Everyone crashes from time to time and, when we do, it's easy to feel as if we don't measure up. The mental health of entrepreneurs is increasingly becoming a concern. Three high-profile founders involved in the Las Vegas Downtown Project died by suicide in 12 months. It was discovered afterwards that each of their companies was struggling.

Recently, I attended MaiTai in Maui, the ultimate start-up conference where glamour and success are as potent as the cocktails. Everyone at MaiTai is successful, smart, young and athletic. It's full of gorgeous twentysomethings who've built multi-million dollar companies, often after winning an international sporting title. It was hard not to compare myself and sense that I was lacking something.

I confided my feelings to a few of the other MaiTai attendees. To my surprise and relief, they all said they were struggling with the same thing. One successful entrepreneur said he thought something was wrong with him because, unlike his friends, he had never started a company that IPO'd. A woman who could be a model if she wasn't an entrepreneur said she felt intimidated by how athletic everyone was, and didn't want to wear her bikini at the beach. The most successful person at the conference, who had built a world-changing piece of technology, said he felt old compared with people like Mark Zuckerberg, who achieved more at a younger age. This sense of inadequacy ruined my experience of MaiTai. A haze of agitation followed me around, preventing me from relaxing and having fun. With my self-esteem under threat, I set to work even harder on Hey You, so that next year I would fit in.

The comparison game

Back at my desk, compelled to drive my business faster, I couldn't help but wonder: are ambition and compulsive comparison with others inextricably linked? Why do we always grade ourselves against more accomplished people? What about the very top? Do Bill Gates and Mark Zuckerberg go to bed at night fretting about how Einstein or Darwin contributed more to humanity than they? At school, I used to compare myself with Nicole, who could beat me in cross-country racing. This drove me to run faster. At university, I worked hard to get higher grades than Emma. Now I look to other entrepreneurs who have built bigger or more striking companies. There's always someone ahead.

Even though jealousy hurts, it can't be all bad. Every negative feeling contains a hidden lesson if you are prepared to open it up and investigate. If I didn't care that Nicole ran faster than me, I might not have trained so hard. Even on my jog this morning as I contemplated this article, I felt a twang of frustration when an older person who appeared to be less fit overtook me on the track. Jealousy is a natural emotion with which entrepreneurs are turbocharged. It's one of the forces that drives us. Reflecting on MaiTai and my experience fretting at 2am, here's what I plan to do next time jealousy flares.

Focus on what's important

What my nemesis or the people at MaiTai achieve has no impact on my life. Some time ago, I wrote a list of what's important to me. When I start to feel jealous, I go back to my list and remind myself what I should be focusing on.

Be grateful that I'm wired to be competitive

Sometimes, I get angry with myself for feeling inadequate. It doesn't solve anything, if indeed there is anything to solve. It can be good to be competitive, and our drive to compete also drives humanity forward – to do things better, faster and more efficiently. Being competitive means there is a good chance that I'll contribute in some way.

Remember that most other people share similar sentiments

I was shocked to discover that even the most successful folks at MaiTai felt threatened by the success of others. The start-up ecosystem in Australia is booming; every week brings another big winner. But for every success there are dozens of failures, and often that's not because the team was less smart or didn't work as hard. Some businesses are luckier than others. We must recognise that success creates jealousy and for most of us, this can be hard to process.

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