The Startup Killer No One Is Talking About

Startups move quickly. Before disrupting an industry, there’s the matter of getting off the ground. In the race to market, an increasing number of startups are turning to a perceived means of expediting timelines: Capital Investor Employees, or CIEs.
Haven’t heard of CIEs? You probably recognize them, even if not by name. A CIE is an in-house resource that doubles as an investor, partner, or both. CIEs typically join young businesses for deferred or limited pay (as much a show of confidence as a means of “getting in on the ground floor”), supplying startups with top-notch talent without the burden of traditional salaries. Perhaps most importantly, these aren’t “in name only” roles. CIEs are responsible for resource deliverables at levels ranging from middle management to C Suite leadership. Though they’ve been around for years, CIEs are becoming more common as startup numbers rise. Hungry young businesses with limited capital are hiring – or, more accurately, partnering with – experienced CEOs, CFOs, customer service experts, and other critical players through this non-traditional approach to staffing. Subsequently, human resources budgets are freed up for other needs. This one-two punch is what makes CIEs so appealing and so powerful: They can propel startups forward – for less.
But like all things startup-related, there are risks to engaging CIEs – risks more dire than generally acknowledged.

Put simply, when investors and high-level partners get in the trenches alongside superiors or subordinates who aren’t vested, trouble has a habit of brewing.

Before we delve into why and what to do about it, let’s acknowledge a non-negotiable: However a business is structured or organized, it needs a strong foundation. As a student of Bauhaus – the art movement that literally means “building house” – I’ve long believed that Bauhaus’ values don’t merely help architecture and design endure; they can also contribute to the longevity of businesses. Transparency. Efficiency. Clean lines. The Bauhaus non-negotiables that make chairs look and work great can also keep figurative structures from tumbling. For decades I’ve infused my consulting work with these Bauhaus cornerstones. Those clients’ departments and companies are, by and large, still standing today.

One of the challenges of Bauhaus, though, is that most companies think they’re already abiding by its values – and often, to some extent, they are. However, the second you remove transparency from the equation, the remaining Bauhaus values have no leg on which to stand. Which brings us back to our discussion of blending traditional employees and CIEs: I’ve been called on numerous times over the past 20 years to help modern startups dig out from the costs – financial and otherwise – of merging traditionally salaried staff and nontraditional resources. Each scenario boiled down to this: When CIEs put perceived autonomy or authority ahead of business needs, it creates an out-of-balance work environment with serious ramifications.

In several instances, fallout looked something like this: A traditional salaried associate requests a deliverable from a CIE. The CIE responds, in essence, “I am investor, so I will deliver when and if I want to.” The salaried associate feels they can’t hold the CIE accountable due to the CIE’s investor or partner status, even if said salaried associate is at a higher level in the company structure. Adding insult to injury, most startups lack human resources personnel or the bandwidth to navigate these issues (or lack the boldness to approach investors or partners about the problem). Employee strife, dissatisfaction, and even turnover set in during the critical early phase, taking a toll on timelines, deliverables, profit, and revenue.

So what’s the solution for companies interested in freeing up finances via nontraditional hiring? How can companies tap into the benefits of CIE structuring without falling victim to its drawbacks?

The solution is less solution and more pro tip: Get ahead of rogue atmospheres before they can take hold.

Lean into the Bauhaus belief that clarity is key to building a sturdy house and keeping it there:

Companies looking to engage CIEs need to manage, set, and enforce expectations and boundaries, especially with their non-traditional hires – and regardless of the CIE’s notions of what it means to be a partner or investor.

Expectations should be defined during negotiations, when frank talk is par for the course. Startups should make it clear to CIEs that even a subordinate with less experience can demand timely, quality delivery of agreed-upon deliverables if said deliverable falls within the CIE’s responsibilities as defined by their title and role. In short, all players are accountable to other players, and an untenable situation may occur if a CIE fails to deliver – regardless of their status or investment.

Innovation cuts both ways. The emergence of the CIE model is no exception. Tapping into CIE resources while dodging potential drawbacks requires added professionalism, flexibility, maturity, and a CIE’s willingness to forego traditional hierarchy (including traditional reporting structures and intimidation techniques) in the interest of a mutually beneficial outcome. This can be a real test of human nature! Companies considering non-traditional structuring need to ask themselves, if an investor becomes a support resource but isn’t meeting deliverables or willing to comply with demands or timelines, are we willing to reprimand or even remove them? If the answer is “no,” keep the secret startup killer at bay by sticking with traditional hiring. If the answer is yes, buckle up and channel your inner boldness. Next-level business possibilities await.