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What Do VCs Do?

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    How This Module Works
  2. How Much Do You Know About The VC Job?
  3. The Six Tasks of VCs
  4. The VC Cycle
  5. Quiz 1
    1 Quiz
    What Is The Best Way To Generate Deal Flow?
  7. Generating VC Deal Flow
  8. Building A VC Referral Network
  9. Networking 101
  10. The Importance of Branding
  11. The Startup Ecosystem
  12. Service Professionals
  13. Warm Introductions
  14. Co-Investing
  15. Cold-Calling Startup Founders
  16. Making Angel Investments
  17. The Deal Flow Funnel
  18. Analyzing Pitch Decks
  19. Time Management Tips For VCs
  20. The Anti-Portfolio
  21. Quiz 2
    1 Quiz
    What Are The Critical Characteristics VCs Look For In Startups?
  23. Analyzing Startups For Venture Capital
  24. VC Firms' Investment Strategies
  25. What Is (Really) Scalability?
  26. The Product/Market Fit
  27. The Hard Truth About Network Effects
  28. The Idea Maze
  29. More On Due Diligence
  30. Breaking The Mental Model
  31. Being Primed For The Problem And The Idea
  32. Making The Investment Decision
  33. Quiz 3
    1 Quiz
  34. Case Study: Write The Investment Memo
  35. How Much Do You Know About Term Sheets?
    Negotiating Term Sheets
  37. Our Term Sheet Courses
  38. Quiz 4
    1 Quiz
  39. Portfolio Monitoring Survey
    Adding Value
  41. What Kind of Value Do VCs Add?
  42. What Is The Background Of Top VCs WorldWide?
  43. Jack Welch's HR Practices
  44. The Reporting Pack
  45. How Much Time Should You Spend With Portfolio Companies?
  46. Quiz 5
    1 Quiz
  47. How Much Do You Know About Exits?
    Selling Startups
  49. Testing Founders' Exit Strategy
  50. The Most Common Exit For Startups
  51. Taking Money Off The Table
  52. About Startup IPOs
  53. How Long Does It Take to Exit?
  54. When Raising Too Much Money Makes Exits Difficult
  55. Helping Founders Exit: The M&A Cheat Sheet
  56. Quiz 6
  57. How Much Do You Know About VC Funds?
    Raising VC Funds
  59. Investment Strategy: Which Round To Target?
  60. When VCs Pitch Investors
  61. How Do VCs Make Money?
  62. Case Study: Acrobator Ventures
Unit 43 of 62
In Progress

Jack Welch’s HR Practices

One of the areas many VCs try to help Founders with is the hiring & firing cycle, which transforms as the company grows.

The late CEO of General Electric (1981-2001) is not a resource most startup Founders think of naturally. Isn’t GE the corporate behemoth par excellence, a textbook example of the inertia, complexity, and internal politics that startups should keep clear of?

Despite its size, the GE of Welch, and to some degree of his successor, Jeff Immelt, has a lot to offer to Founders experiencing fast growth. GE was the first large company to embrace the Lean Startup philosophy and methodology, even inspiring Eric Ries’s second book, “The Startup Way.”

As we discuss what value VCs can add to the startups they invest in, Jack Welch’s “Bottom 10% Rule” cannot be ignored.

Any company, regardless of its size, thrives only because the people who work there execute a well-thought strategy. You don’t need to have only “A” Players, but you always need to have the optimal mix of skills.

It’s even more true for startups, especially when they are still small. One bad hire can set back your execution plan by months, and burn through your precious cash pile.

Watch the interview with Gary Vaynerchuck, Jack Welch and his wife Suzy, then read the additional material to understand how Welch’s HR practice can help you influence the Founders you work with.

What did you think of these principles? How much of it applies to the startup environment, in your view? Why, or why not?

💬 Let us know in the Comments section below.

👀 Sources & Additional Material

  • I think these principles make sense. From my point of view, they can be applied much to the startup environment. In early-stage investment, it’s all about ‘people business’. Sometimes you don’t even have complete financial statements to make analysis on. So it’s crucial to make the members of the startup “attractive” to the investors, which makes principles aforementioned well suitable for this situation.

  • I think that these principles make even more sense for an early-stage startup. In that scenario, every person must deliver very good work for the startup, and must be credible from investors considering that the Team is what early VCs most look at when valuing investments.

  • I think that those principles are not sustainable. Though at an early stage, a company can look more attractive (especially to VCs), but in the long-run it sticks to the company reputation. In our time, with technology and social media, reputation, values, cultures and work environment are very important. However I do agree that having the right people executing a well-thought strategy.

  • I feel this is more true for some businesses than others. Also, top-performers might be hesitant to join firms with high turnover as it leads to short-terminism and emphasis on personal achievement instead of team results. I believe Enron enforced a similar internal policy where the bottom x% would be fired every year.

    • Totally agree. Joining a startup as an employee is exciting, but risky. Implementing a strict 20:70:10 rule as Welch did in GE adds to this risk. Besides, the rule may be easier to implement in larger companies, where several people hold the same or similar roles, but it is much harder to define what the bottom 10% looks like only few people hold a given position. Hiring mistakes will inevitably occur, but I think they are best dealt by a combination of feedback, training and swaping roles, with termination as a last resort.

  • I believe that Jack Welch’s principal is important to Startups, because when the company is at its early stage, it can’t afford to waste time and funding if the employee are not making effort. For large companies his principal may not hold, but if Startups can’t manage well their cost, especially salary, it will become harder to convince investors to inject more funding.

  • The Jack Welch’s rule seems to have its pros and cons. From one side, it encourages the startups to layoff the personnel with the worst performance, which might help company’s future and, on the other side, such a company culture might be counterintuitive and have the opposite results (create fear, reputation damage, high employee turnover etc.). Also questions might be raised on the type of metrics the startup uses to evaluate employees’ performance and whether those metrics are sufficient. On the other hand, other practices, such as a feedback culture, could be more efficient especially in small start-ups with flat organization.

  • I think its easier said than done when it comes to letting go of the bottom 10% of employees. While on one hand a startup does need the perfect dream team to excel, choosing who is a bottom performer becomes a very subjective matter. Also, in a team of people, somebody is always going to be in the bottom 10%. In such a case, it can create an environment of fear for the employees.

  • While I understand the purpose of the bottom 10% rule, I can’t help but worry that it could stifle collaboration within teams and therefore stagnate overall performance. While a little bit of employee competition is healthy, shouldn’t we want people to spend their energy working together to help the company beat out external competitors instead of focusing on beating their coworkers?

  • I think this approach might still be relevant in the start-up contexts. I found an interesting article on LinkedIn to support my point. “Should “Hire fast fire fast”​ strategy be a universal Startup mantra ?” Implementing agile start-up approach to hiring and firing decisions often leads to disposal of talented employees and disrupting company’s cultural roots. Innovation requires incremental learning, often on one’s mistake. 20-70-10 approach would guarantee a better talent retention and higher team morale, both of which promote innovation and growth in the long-term

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