We believe that one of the hardest parts of early-stage investing is understanding the founder energy that can’t be captured in a spreadsheet. Teams matter, but in many high-growth startups, there is often one person who pulls the company through uncertainty, pressure and repeated invention.
This piece, from Rahul Chandra, explores why “the Key” sets the pace, absorbs the hardest trade-offs and keeps the startup moving forward, even when momentum is fragile.
“The Biggest Non-Excelable Part of the Startup Success Puzzle”
The Key is the nuclear reactor responsible for providing infusions of energy in the startup as it makes its way along the erratic path to growth. A Key pulls the startup forward and sets the pace. Other co-founders may be able to emotionally afford to move at organic speeds, but the Key will take on the role of the impatient horse in front of the wagon. When others have written off the future of the startup, the Key will be the last one standing in a burning forest.
The Key will use Steve Jobs’ famous reality distortion field and inspire the team to perform at their peak, especially when the going is rough. They are the most likely to set the tone for the culture of the organisation. They set the bar high. In many ways, this is where leadership becomes one of the most important startup success factors.
They are often the most emotionally edgy about hiring leadership outside the founding team. They also tend to be emotionally volatile, engaging in hair-pulling drama at the smallest misstep. Most likely to end up divorced by opening bell on listing day, the Key breathes vital life force into an idea even if it means sucking it out of their own life. A Key juggles the acuteness of execution, the vision of greatness and the daily uncertainty that naturally comes with building a company. A Key leads through example by bearing the biggest brunt of frugality required in the cash-scarce periods.
If the Key is removed, the configuration fails, just as if the planet that has the maximum mass and the strongest gravitational field is no longer around to keep the solar system in balance.
Co-founders around the Key are critical for success, but startup failure can be attributed only to the Key’s ability, or lack thereof, to lead and execute. The co-founders play important roles that help the startup execute faster, but the script is written by the Key. Co-founders tend to rely on the Key for energy sustenance. They have blind faith in the Key. They know that their Key is not perfect, are aware of competency and personality gaps, and step in to fill them.
The co-founder configuration is also designed to allow freedom of movement of vision and execution. The Key goes back and forth, defining and redefining the vision, stepping back to manage the day-to-day functioning of the organisation and wandering off to raise capital. Co-founders make sure that the startup is executing to plan, day after day after day. The Key relies on the co-founders’ execution focus when they represent the startup to investors. The Key represents the entire co-founding team to the investor they are pitching to.
This is one of the harder early-stage investing insights to internalise. Team building matters, but the investor still has to understand where the primary energy, judgment, and accountability sit.
In rare cases, two co-founders are conjoined so tightly that separating the Key becomes difficult. They choose to be one tightly knit unit for the external world. They take equal risk and pump in equal energy to fire up the startup.
In the twenty-five years that I have been evaluating startups, I have met thousands of founders, from all backgrounds, ages and approaches. Professionals with thirty-year careers behind them. Just-graduated teams. Single-founder teams. Raised an obscene amount of seed financing, but still no idea, no-direction teams.
Running both B2B and B2C models in one-company teams. Will-only-hire-family teams. Stealth-forever teams. Second-time teams, but only out of sheer boredom. Will-sell-at-the-first-instance teams. Founder living in the US because their children are still in school there, but the market is in India teams. Can raise capital, but cannot execute teams. Can execute but cannot raise capital teams. The A team in B markets. Frugal teams, listening teams, arrogant teams, been-at-it-forever teams. The list is long.
But when I look back at the journeys and outcomes of investments made, the mistake I made most often was to decipher team strength by processing a barrage of signals about all founders, advisers and angels, but not by focusing on a microscopic level on the Key. This bit me hard when the startups where I felt comfortable with collective founder strength were, in fact, hiding the lack of a strong Key.
What was supposed to be a Formula 1 vehicle turned out to be a car in a carousel. A weak Key means no one is pulling the load forward. Everyone is working hard, and there is plenty of activity, but no one is losing patience. No one is throwing up their hands in frustration. No one is screaming at 2 a.m. about delays that should have been avoided.
This is central to what investors look for in founders. Activity is not the same as force. Consensus is not the same as drive. A founder group can look balanced on paper and still lack the person who can pull the company through its most difficult turns.
In some cases, the mistake I made was to assume that the shortcomings of the Key could be supplemented by hires. Building a strong team around a founder so they can be left to do their visioning is not an alternative to a strong Key. Hires cannot fix this problem. Maybe some co-founders can, but even that is wishful thinking. Maybe in these instances, the valuation was too good to pass on and caused my rationalisation to override my doubts about the Key.
The Key should be the focal point for determining the potential of the startup. Spreading attention to the whole, believing the whole is greater than the sum of the parts, can be an expensive diversion for the already strained analysis mechanism of the investor’s brain. If the Key can be identified and assessed accurately, then we have taken the first step towards understanding the biggest non-Excelable part of the investment puzzle. And, if I may say so, the greatest predictor of a billion-dollar outcome will begin to come within our grasp.
“The Key is most often the person who thought of the idea. They are the ones who will lead the startup through its one-to-100 stage by making sure that they evolve and grow fast enough to sustain the startup’s growth.”
The exercise can be tricky, but it is easy when practised and remembered. Look for the one who lives in the past, the present and the future. The Key is most often the person who thought of the idea. They were there on day minus zero. They die the most for the startup, but also move the furthest from their natural state in doing so.
They are the ones who go through the pains of labour to give birth and are also the ones who will lead the startup through its one-to-100 stage by making sure that they evolve and grow fast enough to sustain the startup’s growth. This personal growth is a journey of letting go of the ego, transforming hardwired natural behaviour patterns and, hardest of all, opening themselves up to the scrutiny and judgement of those whom they lead.
Imagine that this crazy person is offered a big reward for running across a desert devoid of any shade or water. They can run a distance of their choosing, but the rewards are proportionate to the distance run. They are under no compulsion to either run at all or to run a minimum distance. Their desire to run is based on the motivation to win a big reward. They could run a mile or a hundred miles.
Now for the rules. If there is a medical emergency in the middle of the desert, irrespective of the distance chosen, no medics will come to provide aid. A slow, miserable death writhing on the hot sand, begging for water, is almost guaranteed. No maps are provided, no compass. A vague promise of a water station is given on the condition that sufficient progress is made, but the organiser could redefine “sufficient progress” on a whim.
The crazy runner has to convince the water station manager that the chance of not collapsing while running miles under the desert sun is non-existent. And now for the most fun rule. If the runner chooses to risk death by running as fast as they can, covering a long distance at great speed, then the water station manager would be favourably disposed to doubling the water quota. If the water quota doubles, the runner can run even further and take an even greater risk of running fast. They can keep repeating this and win really big, or face exhaustion and death.
What is more, the runner has to carry in their backpack several items dear to them: their family, their health, their ego, any nest eggs they may have built, their social life, glorious weekends, self-respect and sanity.
Oh, there is another requirement. The runner must ensure that a group of followers tagging along must also make it to the finish line. They must share their water and rewards with these followers.
The odds are beyond crazy, yet many brave runners attempt this wild race. Many perish. The craziest ones choose to run ultra-long distances and attain mega status. They chart their path through the desert. They make it to the finish line in good time, do an exemplary job of convincing water station managers that they will finish strong, and get plenty of water. They keep everyone following them in good spirits.
What they did with their baggage is hidden from most, but in order to win, they had to lessen the load. What makes them choose the crazy distance in the first place? Are they trying to prove something other than physical prowess? What massive irrationality sets them off across the vast desert for a reward that can be so elusive? What energy reserves do they tap into to charge themselves and their contingent, who choose to keep running alongside them in the debilitating heat?
What mindset pushes them to keep taking that one step after another, a million times over? How do they ignore their blisters? How do they keep the vision of them crossing the finish line at the front and centre? And most importantly, what were their personalities like at the beginning of the run, and what are they like at the end?
These questions sit at the heart of founder decision-making and execution and scaling challenges that define high-growth startups.
Once we have identified the Key, we can identify some of the traits that set them apart. Over the last twenty years, I have consistently observed certain specific thinking and response patterns in Keys. These traits are demonstrated in dire situations, in winning big, in causing trajectory inflexion, and in giving wings to people. By no means recommended for deriving causation, these characteristics are present in such an uncanny pattern that it makes me wonder if there is a link between them and the Key’s success in creating market leaders worth billions of dollars in equity value.”
For investors and founders, this is why the Key matters. Among successful startup founders, the ability to carry vision, urgency, culture, execution and personal transformation at once is rare.
It may not be the only factor that determines startup outcomes, but it is one of the most difficult startup success factors to measure and one of the hardest to ignore.
