Startup communication best practices
If there is one thing that is a lynchpin for success in an early stage company it is human capital. In the early days of the life cycle of a startup tech company, a multitude of...
If there is one thing that is a lynchpin for success in an early stage company it is human capital. In the early days of the life cycle of a startup tech company, a multitude of decisions must be made. What features should the product or app have? What distribution channels should be pursued – direct to consumer, resellers, 3rd party implementation partners, Amazon versus owned eCommerce? How to acquire customers? The list goes on and on.
One thing is clear, however, which is that no founder CEO has all the skills and knowledge to properly address such a broad array of launch requirements. The value of a CEO lies in establishing and maintaining relationships with others to make the best use of the company’s resources in pursuit of goals agreed upon by both internal and external stakeholders.
Investors are one group of stakeholders with very specific needs. To a large degree economic incentives make them choose to invest in startups. Investors want a hefty ROI on their money, if only because they may only see one great return on ten startup investments at any given time. But investors often also have a psychological stake in the company in which they invest; very often they genuinely care about the fate of the company beyond its pure financial ROI. This is especially true of angel investors.
To forge, maintain and deepen the relationships with the different stakeholders, including investors, communication is key.
Communication breeds success
Investors from all over the country (be they venture capitalists, angels, family offices or others) have told me in hundreds of conversations over the years that the start-up companies that perform best for them are those that provided a regular stream of reports on how they are performing. This communication makes for a feedback loop that pulls in useful insights from the investors into the CEO decision-making process, making those decisions better.
Rick Timmins, Chairman of the Central Texas Angel Network (CTAN), analyzed the performance history of all 90 investments (through 2013) of the members of CTAN since it started 10 years ago. His data show that as a group, entrepreneurs that communicate on a regular basis provide a superior investment return relative to entrepreneurs that don’t communicate.
The value of CEO Inc.
The personal brand buttresses the efficiency of CEOs in communicating to their different stakeholders, including their investors. What makes a powerful personal brand? Transparency is a requirement. Actively engaging with stakeholders is another.
Prof. Charles Holloway, Director of Stanford University’s Center for Entrepreneurial Studies, said in an interview with the Wall Street Journal that one of the determining factors for entrepreneurs who failed to convince American VCs to back their endeavors is the way they worked (thus communicated) with their previous investors.
So clearly there is ample evidence supporting regular communication with investors, that it is not some kumbaya moment owed to an anxious angel or VC but a critical component predicting future success for startups.
Time to tango
Yet even as startup CEOs should consider improving their outbound communications to investors so do investors need to demand the communication flow. It takes two to tango, and if investors want to know that their money is being wisely used then they have to insist on CEOs coming up for air to give them concise, informed and objective updates.
I strongly agree with Aaron Harris in that CEOs should give monthly updates. The goal, after all, is to help the company be a success, and the investor is a key part of that process.
Bottom-line: the more CEOs and their investors work together the more times they will find the ROI they both seek in the startup.
This guest post was submitted by Joe Milam. Joe is the CEO of AngelSpan, an Austin based company that provides bespoke investor relations services for start-ups to maximize the value and return on that asset.