Phin Barnes

Investor

Why startup founders should build a company, not a product

So many company origin stories hinge on how an idea came to be: the lightbulb moment when a founder realized a need, or when two college classmates sought a market opportunity together. Less glamorized is how a founder builds the company bones: defining values, shaping culture, and making first hires.

But take it from Phin Barnes, partner at seed-stage venture firm First Round Capital, that the company structure is more than a means to an end. A human-centered venture capitalist, he’s seen the value in forming a business around people, not products. An intentional CEO designs the entire system, from how a company is structured and how people work together, to how individual contributors tie into overall happiness and efficiency within the business.

“Entrepreneurs are the designers of companies,” he said. “Great startup CEOs recognize very early that their job is not to build a product, but to build a company —defined by mission, values, and culture.”

He compares this strategy to a chess game, in that your first move is telling, but it’s the following moves that define the strategy and shape the ultimate outcome. Sure, figure out how to go to market—but thinking longer term for a sustainable business is what differentiates a good company from a great one.

It’s a distinction of a human company, too. In Phin’s view, the best companies are those where employees love to work, and where people’s passions and capabilities are aligned with the company mission. Considering the whole system is an intentional, structural thing that great CEOs do. And this intentionality is reflected throughout the business.

Hiring so diversity isn’t “a pipeline problem”

Many leaders explain the gap between their diversity efforts and their company’s homogeny as a pipeline problem, in that the talent pool they pick from is a sea of sameness.

Phin sees it differently. From his perspective, First Round partners don’t have a pipeline problem, but rather a network problem. As the firm’s forté is its community, they’re responsible for engaging with new networks to ensure their talent pipeline is actually diverse.

This means sourcing from schools big and small, including historically black colleges and universities, and considering geographic diversity beyond the coasts, like in the Midwest and the South. It also means thinking through where this level of recruiting thoughtfulness has already been done, which Phin believes happens at many elite schools. Elite college admissions programs do a good job in thinking through diversity and inclusion, Phin said, with class makeup aiming for around 50% women, and a significant number coming from underrepresented groups, religions, and LGBTQ identities. Starting from that pool, he aims to ensure that the companies First Round invests in and the entrepreneurs they engage with represent that diversity. First Round is behind a bit, he admitted, but they’re working actively on it.

“If our mission is to build and serve the strongest community of entrepreneurs,” he told us, “we think that community needs to be diverse.”

One place this manifests in Phin’s world is the First Round-backed Dorm Room Fund, a student-run venture fund that supports a community of student entrepreneurs across the U.S. Considering how to find the best candidates from a wide network and convince them that a startup career is viable is very much about diversity, Phin said.

“We wonder why young, white men flock to startups,” Phin said. “Well, those are the ones who trust the system to mitigate the risk of a company failure. We’re focusing on how we create community connections and networks for people who are extremely talented, but don’t have that sense of safety.”

Retaining employees by providing safety nets

There’s a perception that startups are often point solutions—temporary stopovers between other safer, longer-lasting careers. And while the startup crash-and-burn stories are famous, Phin thinks startups shouldn’t be pigeonholed as risky and unstable. A large organization in an industry full of other comparable options, like a global bank, is seen as predictable and stable. And if you get laid off? You can quite easily move to a different firm.

But so too should the startup community be seen as a long-time career, Phin argues. New companies fail and start all the time, and a network like the Dorm Room Fund or First Round model forms a safety net. That community doesn’t see you as a failure if things don’t pan out, and recruiters in the network are there for a reason.

“If that startup doesn’t work out, we know it’s not their fault and that we would definitely be calling them again,” he said. “I do think for most people [in established companies], it’s a sense of safety, but not safety in reality.”

The intentional CEO also looks to retain people by creating an environment that respects how employees work. The frenzy of many startups presumes that people will work long, deadline-driven hours. Yet Phin is fond of giving people space to be thoughtful in their decision making. He calls it “minding the gaps.” In a time when we’re exposed to so much information, people forget to take the time to process. Waves of long working hours may happen when trying to get a product out the door quickly, and those time periods can dramatically raise enterprise value, he said. At the same time, leaders must recognize that those hyper-productive weeks aren’t endlessly repeatable.

“What you’re doing [during slower times] is equally, if not more, important than the grind,” Phin said. “In that period of deciding and considering, I think it’s OK to slow down to get the head space you need.”

Developing your people by role modeling

A few years ago, Phin’s work out-of-office message read as follows:

“My daughter is turning 4 this week, so I am taking 4 days off to celebrate with her. We hope to make a habit of taking one day off for each year of her life, from here on. I can’t wait for her 30th and taking the entire month of April off. As a VC it will be like August in spring.”

It’s a subtle signal, but one that sends a clear cultural message to recipients that time off is valued and availed of, even by leaders. Role modeling like this is critical for leadership, where writing “This can wait ‘til Monday” atop an e-mail means nothing to a team member who will still read it on the Sunday afternoon it was sent.

“Bret Taylor at Quip is a great example,” Phin said, “where he’s a CEO and would leave every day at 5. He didn’t say anything about it, it’s just when he would leave. It sets a cultural precedent.”

In another organization Phin worked with, a co-founder of a company of 10 became pregnant and planned for a three-month leave. This requires an objective, transparent conversation, Phin said, and the company was intentional about it. They accelerated a new hire, and figured out a plan to engage the co-founder while she was out on leave in a way that would make her feel comfortable but included. They planned to talk again to see if she’d want to stay home longer with her baby, or even come back earlier, but the point was this: The leaders had an open conversation in which the woman had the control.

“The CEO, the investors, everybody believes that the most important, optimum thing for the company is to do right by her and her family now,” Phin said. “So that when she comes back, she feels great about that and is as productive and as effective as possible.”