Posted:April 25, 2006

When I worked at the American Public Power Association in the 1980s, one of the most coveted technical awards to a member was the "Seven Hats Award."  All of our APPA members were municipal electric systems, most of which were in small towns or counties.  The Seven Hats Award was granted to the municipal electric director who was deemed to have done the best job juggling other municipal responsibilities.  Other hats this person might wear were manager of the sewer, water, phone, cable, local swimming pool, parks & recreation, cemetery, you name it.  A Seven Hats Award winner was truly the jack of all trades in his local community (I’m not being sexist; all winners in my era were men).

Well, now I’m in a venture-backed company, and there are also many hats.  Here are my own hats, confusing as they are:

  • Board member and chairman
  • Management
  • Founder
  • Investor (multiple series)
  • Licensor (of starting technology)

Some of these roles have legal and fiduciary responsibilities, others represent self interest.  In fact, of course, it is not unusual for starting companies that are not publicly held to have many individuals with such multiple roles.

Management and communications in such environments is a tricky matter.  I can say, and often do, "I’m now wearing this hat," and I expect the audience to understand this role and the differences in viewpoint that "hat" has brought.  But has it really?  And did the listener really understand the different "hat" nuance?

Well, no, and, of course not.  And that raises the rub.

Small companies can not automatically "gin" new perspectives and new people to represent the multitude of viewpoints from thin air.  There is NOT a single small company start-up that exists that does not have key individuals playing multiple roles and wearing multiple hats.  Frankly, on the face of it, there is nothing inherently wrong with this situation and there is likely nothing that can be done to change it for small companies anyway.

Yet, the diversity of interests still remains and is ALSO unavoidable. So, in my experience, saying we are now wearing a different hat is not sufficient alone to set expectations and trust.

‘Multiple hats’ does not combine well with sentiments such as "my word is my bond."   As start-ups grow up, what is written in agreements becomes the touchpoints.  Handshakes are great, a signal of initial trust, a hopeful way that points toward success, but everything in the end must be codified and enforceable.

So, start-up denizens let me give you a piece of advice:  Companies are not people.  They are legal entiities that represent a codified way of representing the rights and ownership of various interests.  It’s great to have friends, family, or whatever that you want involved with your venture.  But for your sake and theirs, make sure the understood relationship going in is not dancing ’round the Maypole, but the legal contract.  That is the only way to work out expectations and relations in advance, and the clearest way to not worry about what hat you’re wearing as success and complexity come to the fore.

Posted by AI3's author, Mike Bergman Posted on April 25, 2006 at 10:14 pm in Software and Venture Capital | Comments (0)
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