This post appears as the final in a two-part series covering technology red flags companies should address in preparation for investment discussions. Read part one here.
As the digital transformation takes off and technology plays are front and center for investment firms, young companies should be aware that investors are taking a closer look at the strategic technology directions of companies, especially as it relates to the three Ps of technology product development: People, process, and platforms.
To mitigate risk, due diligence is moving beyond the financials and is taking a deeper dive into potential technical risks that may spell trouble for companies as they grow. The good news is that many of these issues can be resolved (or at least acknowledged and accompanied by a clear plan of action).
In part one of this series, I covered some of the red flags surrounding platforms and development, including technical debt, MVPs, technology stacks, and infrastructure. Now I’ll look at potential red flags surrounding people and process. These are often harder to identify, because it means taking a very honest look at sparse resources, guerilla product development processes, and isolating areas that are in need of improvement or change.
PEOPLE: THE RIGHT MIX FOR GROWTH
Not to get too theoretical, but change is hard, and many behaviors that may seem harmless or even efficient today can negatively impact companies as they grow.
In my 10-plus years of working with companies (startup to mature) as CTOs and CIOs, I’ve come across some common personas that can present major challenges for companies down the road.
Linchpins: Seemingly indispensable (Seth Godin’s book on this topic is worth reading), linchpins store everything in their head, know where everything is, and understand how everything is built. They’re often one of the most critical members of an organization.
The problem is, nothing is documented, shared, or able to be replicated. To investors, this is or should be a serious red flag. Aside from the obvious (these individuals cannot be replaced), this actually encumbers organizations that are trying to grow.
Heroes: These are often the individuals who carry a“I’ll do it myself” mentality. Tireless contributors, they may single-handedly build the platform, work countless hours, multi-task, and save the company money by continually having the view that it’s cheaper to do it themselves.
While great in a company’s infancy, growth and scale requires behaviors that are diametrically opposed to a hero’s viewpoint. Heroes can often be focused on the tactical, have a difficult time delegating or taking guidance, and can constrict growth rather than enable it.
THE CORE TEAM IS NOT TOMORROW’S TEAM
Founders often try to envision the future org chart based on the team they have today to reward those early employees who helped create the company. As a strategic leader, it’s necessary to take a step back and envision the longer term needs and then work toward seeing where the core team fits within that structure.
This process is fraught with angst as you try to balance a business with personal relationships. However for the investment community, it’s all business. Showing that you’ve thought through the growth phases of the company and mapped required skill sets, identified legitimate gaps, and come to terms with what the organization needs to look like will pay dividends in the long run.
MISSED MILESTONES = PROCESS PROBLEMS
At a high level, investors will want to see your roadmap. Technically-savvy investors may also investigate the development progress to date – including any late or missed milestones.
Some deadlines are missed simply because they were unrealistic from the beginning, but just as often they are missed because of process inefficiencies. The first step is to have realistic, team-built estimates. These estimates and how closely they match reality is the basis for a reasonably achievable roadmap. This process takes time, skill, and patience, but in the end is well worth it.
METHODOLOGIES ARE GREAT (UNTIL YOU SKIP STEPS)
Lean startup methodologies are well documented and yes, everyone seems to have been schooled in Agile development. However if you only follow the tenets of agile you like, your process will be as unpredictable as it would be if you were using no methodology at all.
Early stage companies are famous for “getting stuff done”, and the mad scramble of getting to that MVP can be an exhilarating experience. But while it may be exciting, it’s also unsustainable and unpredictable. Instilling a stable, predictable, and agile development process that provides the leadership team and your investors with the information they need to help you achieve your goals is critical.
For example, even though the customer is supposed to be at the center of decision making and feedback, if the team is not consistently monitoring against customer need sets and requirements, and falls prey to the “this is a cool feature, everybody will love it” mentality, then not only does it break the methodology, but you may end up with missed milestones and a product that doesn’t fit the market.
Predictability of process is critical, because once your process is predictable, it can be repeated and ingrained. Some of the areas you should focus on to improve predictability are planning, estimation, communication, and continuous optimization of the process through inspection and adaptation.
GETTING THE 3Ps RIGHT
Establishing and implementing strategies around people and process is difficult, because both are unpredictable and subject to external and internal forces. But doing this type of deep dive shows that you have the ability to turn a critical eye to your business, are looking ahead at factors like predictability, growth and scale, and may uncover gaps that require additional or different resources.
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