Banking isn’t the only ‘single point of failure’ entrepreneurs should be rethinking

Silicon Valley Bank is a good reminder that startups, often entrenched in the world of risk and scrappiness, sometimes forget to think about the obvious: single points of failure. But just like it makes sense to rely on a community-friendly bank, so does entrusting a single person to lead your business to success. Now that we’ve seen the former not really work out, perhaps it’s time to rethink the latter.

TechCrunch+ polled a number of early-stage founders who are building companies that have raised a Series A or less, to understand how they think about succession. The consensus is that it’s not top of mind, or even top of the list, in a world where founders are more focused on runway, product-market fit and growth.

Can that be changed?

Moving a company’s success beyond the individual founder or chief executive tasked with being the face of it is hard. I mean, there’s a reason that VCs love co-founders: Eighty percent of billion-dollar companies launched since 2005 have had two or more founders, one study shows. At the same time, co-founder breakups are one of the most common reasons startups fail. Contradictions! We love them.

Despite the fact that this concept has gone around tech’s ever-fickle block a few times, there’s a reason why I’m now sounding the alarm. I know of quite a few founders who had to leave their jobs because of the stress it put on their mental health. The past week’s volatility even inspired a mental health pledge, led by Pioneer Mind. It’s already landed the support of over 100 institutions and individuals in tech, including Brad Feld, Atomico and Flybridge.

Since proactiveness is top of mind, why don’t we better prepare for transition plans in case someone in the C-suite wants to step down?

But as is often the case, the answer is simple: Founders don’t think about succession plans because they’re busy trying to disrupt tools that protect the earth or fix our email. Who wants to think about one’s own succession in a company they’re trying to build?

Greylock partner Reid Hoffman published a framework in 2021 on how to better identify which teams provide most value to an organization (and therefore may be tapped for a more collective approach to leadership). He tells leaders to look across their different functional areas, whether that be engineering, sales, marketing, product, finance, etc., and pick one as the “primary driver of success.”

“Sometimes, it’s not obvious,” he wrote. “Many default to sales (because that’s what drives revenue) or product (because that’s what customers buy). But for some companies the secret sauce might be engineering or finance. And the primary driver might even shift at key times during the life of the business.”

SJ Sacchetti, former CEO of Cleo, stepped down to take care of her older parents. She’s now the company’s chief business officer; she joined the Equity podcast last month to talk about the stigma of walking away from a C-suite role.

“There should never be that much on the shoulder of one person, and if there is, you have to ask yourself why that is and how that works,” she said at the time. “I think part of our celebration in startup culture is the cult of [a founder], and I think that’s what gets us in trouble with some of the biggest headlines in the last five years of tech alone.”

Her perspective is that startups are relay races between groups of people, a collectivism-focused approach that she thinks women “particularly get.”

When I spoke with her this week, Sachetti said “the other element of this period is the impact of prolonged crisis management for tech execs and diminishing returns,” she said.

I realize the irony here. A startup’s success often does and should boil down to a seedling or ambition of a person daring to dream. Sometimes, an entrepreneur’s strongest characteristic is being an outlier who doesn’t overthink macroeconomic failures. At the same time, it is a lack of focus and discipline that triggered a wave of layoffs that have cost tens of thousands of people their jobs; just this week, there were cuts at Course Hero, Klaviyo and Launch House.

Balancing ambitious risk and necessary caution is the art of being a long-lasting entrepreneur. To not let this past week’s crisis go to waste, founders should get more comfortable with planning ahead — even if the future doesn’t include them.

If you have a juicy tip or lead about happenings in the venture world, you can reach Natasha Mascarenhas on Twitter @nmasc_ or on Signal at +1 925 271 0912. Anonymity requests will be respected.