The recent stock market landslide has public companies clenching their proverbial teeth, but what sort of affect does this tumble have on startups?
Startups are always looking for funding and when it comes time for investors to look at a company, they need a way to gauge how these privately held companies are doing. With public companies, the day-to-day stock trade is how performance is gauged.
“Markets like this make investors nervous,” says Scott Budman, business and tech reporter for NBC Bay Area, “That means investors will hold on to what they have, to ride out the craziness. Until then, they won’t be willing to put money into risky investments like startups and, for that matter, IPOs. The IPO market, which has been strong lately, often slows way down when the market goes through big swings. Everyone is just too scared.”
With private startups it’s a little different.
“At startups, employees have accepted the risk that comes with the territory of working in a smaller company where long-term success has yet to be proven,” says Steven Huang of Culture Amp.
Culture Amp also noticed that in times of turmoil, the role of leadership is very important.
“Culture Amp has surveyed over 60,000 people from 100 tech companies, primarily in the Bay Area. We’ve found that a key driver of engagement for startup employees is confidence in leadership. In fact, we’ve compared the scores from our new tech benchmark (almost all startups) to other industries, the largest margin was having confidence in leadership – employees in new tech companies are 15% more likely to say that they have confidence in leadership than in other industries” Huang adds.
According to a Culture Amp benchmark report:
Leadership teams and founders are often highly visible in New Tech companies early on, but this can change as growth and a degree of “business-as-usual” creeps into the culture. Leaders need to be encouraged to socialize, communicate and connect more than most of them think is necessary.
Often leaders are surprised when leadership scores go up during a crisis - simply because they have something to communicate about. Leaders need to adopt a mindset where communication and connection is front-and-center all the time.
They also need to listen to and encourage the feedback that they get. Think road shows where leaders present hard data, leaders rotating through the reception desk or support team, and leaders who communicate they can be wrong.
“A good leader communicates a vision that motivates people, and a good leader demonstrates that people are important to a company’s success,” says Huang. “Those are two of our questions in our benchmarkable template. We provide a driver analysis for each company we work with, and we often see that confidence in leadership trumps things that might be associated with market fluctuations. This demonstrates that employees at startups are less likely to be influenced by market fluctuations, and are more likely to follow a leader whose vision resonates with them.”