If Your Startup Isn’t Moving, It’s Probably Dying—and Other Insights from a McKinsey Director

8/15/08Follow @gthuang

Bob Felton has been there, done that. Growing up in a farm town in Eastern Washington, the son of a migrant construction worker, he was the first in his family to graduate from college—at Washington State, where he studied mechanical engineering. He started his career at General Electric, then got his M.B.A from Harvard Business School and joined McKinsey & Company in 1972. In the consulting firm’s Los Angeles office, he rose to the rank of director and senior partner, founding McKinsey’s global board governance practice and running its office in Seoul, South Korea, which grew from 30 to 120 people during his tenure between 1996 and 2001.

Afterwards, he moved back to Washington state, running McKinsey’s office in downtown Seattle. Since retiring in 2005, Felton has been investing in small tech companies on the West Coast—mainly in Seattle, Los Angeles, and Portland, OR— in areas like software, communications, biotech, and energy management. It’s quite a change from the big corporations Felton is used to dealing with in his career. He has recently joined four private company boards, and has invested (as an angel) in about 10 startups. “It’s way too many,” he says, half-joking. “I came out of McKinsey, and it was like a candy store…But none have died yet.”

Which is saying something. So I figured, who better to give high-level perspective on investment, startups, and corporate leadership and management? Here are a few highlights from my recent conversations with Felton.

On the skills you need in a startup: “In the big-company world, you come in, you build a foundation,” says Felton. “You’re kind of a generalist. But at startups, from Day One you’ve got to have a developed skill. You’ll have to do operational finance on Day One, or fundraising on Day One. Unless you’ve got a grand idea like Bill Gates or the Facebook guy, if you aren’t the founder, you’ve got to have a plan to build skills so people come to you…It’s different from big companies, where they expect you to be smart and hard-working, but they will invest in building skills. In a startup, if you don’t have the skills, they change you out like underwear.”

On leadership in small companies: “It’s so much easier to move a startup. If you’re not moving, you’re probably dying,” says Felton. “You defined the market, but it’s not quite what you thought, so you quickly change and adapt all the time.” There’s no consensus building and fewer meetings, he adds, so “leadership means moving quickly, if you’re on the wrong track. Being bold is so important…Whereas big companies are proven, and the skill there is orchestrating and knowing how to motivate and energize a big organization that’s already successful.” Take GE, he says, which CEO Jack Welch could change over a time frame of years and decades, because it had a very strong market position.

On what to look for in a startup investment: “A unique technology, different from anything out there, where there is a substantial market. Or a known market, where there’s nothing [that] special about the product or market, but a very good management team. It’s usually one or the other,” Felton says. He prefers the former, because “it could be 50 or 100X your investment. The other, you could put it in a private equity fund or a VC fund, and it’s 3 or 4X.” The key characteristics of a great management team, he says, are experience, energy level, boldness to shape things, knowing where they are in the market, staying in touch with customers, and “shifting on a dime when the product is not quite right.” So how is he doing as an investor so far? “I’ve learned a lot, I’ve gotten better,” he says. “It’s been a hoot.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com. Follow @gthuang

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