Last year there was a lot of talk in the startup scene about having a CTPO: Meaning a CTO (Chief Technology Officer) and a CPO (Chief Product Officer) unified in one person. To be honest, this really is not entirely new – this kind of unified role has always existed before in the startup scene and everywhere else as well. However, for a specific time something happened that I would call a trend. Why? Because everybody was talking about the CTPO thinking it is a great new idea. It was a little bit like what happened with Agile or the Spotify model. Neither of those were entirely new ideas, and they were based on certain principles that already existed. But people quickly adopted what were perceived as novel approaches, without reflecting on them deeply. And I think that is a mistake! While the debate has kind of blown over a little, the question whether to have a CTPO or separate CTO and CPO roles is still very relevant for young companies building their organizational setup. It is something that we continue to encounter on a regular basis. That is why I would like to revisit the topic and comment a bit on this CTPO model.
Like Being In a Good Marriage
While I think in some setups and at certain stages this unified function of a CTPO can make total sense, I think it is a bit risky in other contexts or with certain people. Product and tech, although being closely related to each other, usually have very different angles on how they perceive the world in general and the business in particular.
Product management people are usually very business and user oriented. In their position, it is more about the Why. Tech people on the other hand are traditionally more focused on the How. Certainly, that has changed over the last twenty years or so, and we can see the roles having become closer to one another. But still: The emphasis on the business, the capabilities of calculating a business case and thinking strategically in terms of business and product strategy; that is still something product people are usually much better at than tech leaders.
The reason why people at early-stage startups want to combine the CTO and the CPO into a joint CTPO role is, first of all, the (false) hope for a reduced budget. Unfortunately, in most of the cases, this is an illusion because any candidate who really lives up to the expectation is usually very expensive.
The second reason is that you naturally want to bridge the gap between the tech and the product organization – and that makes total sense. After all, you want to have the two as closely together as possible. So there is the expectation that if you have one person leading both tech and product management, that they will be uniting those two teams, and you will not have that gap. However, I think that is a little bit of an illusion as well. Almost every person that I know in one of those roles has a certain preference, a certain background, and level of expertise. Usually, you are either best at one or the other.
Oftentimes when a person who is technically very strong takes over that CTPO role, they have a certain bias towards technical decisions. That can be unconsciously, which makes it even more dangerous. This holds true the other way around as well: If you have someone who is very strong at product, but maybe tech is their weak spot, the decisions they make are oftentimes more in favor of product and business and sometimes tech does suffer.
So revisiting this topic, I personally am still very much a fan of having two people in those two roles. In a well-working setup, it is like being in a good marriage. You are fighting here and there, and you do not always have aligned interests, but you figure out a way. It is a constructive fight that you are having – more like wrestling. And in the end it is a joint effort, and you achieve a shared goal. So, if you have one CTO and one CPO then you always have a sparring partner whether you want it or not – again, like in a marriage. And they remind you of something you tend to forget.
Before You Know it, Complexities Can Become Overwhelming
If you have a very early stage company with a small team size and a very narrow focus to look at, and you are currently in the process of building a prototype and MVP, a very early first version – fine, have a CTPO model. No problem at all. You will be able to handle the context, team, technology, product and everything else at once. But as the company grows, the complexity grows as well. Naturally, you will have to deal with a bigger product and technology scope as well as team size. And of course, you also need to take care of the market: Do you have a good product-market fit? Do you have the right business and product strategy? And how do they align with one another?
Suddenly you will be dealing with a lot of topics, which can quickly become overwhelming. To be honest, most CTOs and CPOs that I know are not entirely capable of handling all of that or even overseeing it by delegating it to the right people. Usually they are pretty good at what they are doing, but they are also challenged with the daily issues, topics, and requirements you have in a fast-growing startup.
So in the first phase of a startup or if you are a scale up that is well established, and you have the budget to hire a top-notch CTPO or someone with plenty of experience, seniority, and strategic knowledge, then the joint role can make sense. Go for it! But in the phase in between, I am not sure about whether this is the best solution. So I would say take a closer look at your organization and the requirements. Look at the potential candidates for those separate roles or such a unified role. I would like to remind every CTO and CPO to really do some soul-searching whether this is the next step of development. Can you already master a CTPO role easily, or would you like to focus a little bit more on improving your skills in your core domain or expertise before you make that next step – because it will be a lot!
Find Out What Works For You!
So is the CTPO role right for you – or separate CTO and CPO roles? In the end, as always in life, it depends. Of course, there are people and setups where a CTPO model works best. This is the ideal. But let’s face it: Many people in Tech and Product leadership positions are already challenged with one of those roles. Both are demanding positions which require lots of skills. The war for talent is already incredibly tough, even if you just look for either a decent CTO or a capable CPO.
At the end of the day, you have to be honest. The CTPO role is not for everyone. If you find one of those gems who are equally capable of both Product and Tech, and it works for your setup, consider yourself extremely lucky. Gems are rare for a reason. But do not necessarily think that this has to be the way and blindly follow that trend. Because in many cases a team – and it is a team sport after all – of CPO and CTO works much better than an overwhelmed or even biased CTPO.
As the first half of the year lies behind us, we in the Venture Capital and Startup world find ourselves in a very different place than 12 months ago. From your perspective, what is happening right now?
Simon: We are definitely seeing a slowdown in investment activities, especially in the growth segments (series B onwards). There are a couple of reasons for that: First, 2021 was a record year in venture capital. A remarkable amount of deals and funding happened with much higher valuations than previous years. Inevitably there had to be some sort of slowdown sooner or later. So in this sense, I’d rather call it a correction, as opposed to a market collapse or anything like that. And that can actually be quite healthy.
Second, money is no longer cheap. Interest rates are slowly rising, which of course has enormous implication on funding on one hand, and where people allocate their investment on the other. In times of zero interest, there were not many investment options that promised yield, so it was logical that more investment went into venture capital. As more investment options are yielding interest again, less money will move into venture. However, keep in mind that there is still quite a lot of dry powder around that is somehow committed.
And thirdly, uncertainty around inflation and the underwhelming stock market performance of some startups and scaleups that recently went public, has caused some nervousness. Especially among those investors who see companies they are engaged in going public in the near future. After all, we have seen some companies that reached high valuation before going public, but afterwards haven’t necessarily fulfilled expectations at the stock market. This is channeling back into the pre-IPO phase. Investors are rethinking where valuations should be during funding rounds, as they might not actually see the anticipated returns, once these companies go public. And if that proves to be right, people are going to shift that capital to other investments that can generate higher returns.
What implications are these overall market corrections having on VCs and startups?
Simon: Well, we are definitely seeing VCs pushing their portfolio companies from hyper growth to profitability. That means cost reduction, first and foremost, but also reassessing and restructuring organizations in light of the current market climate. Basically, VCs and founders are asking themselves: What are the implications of inflation and higher capital cost, investment reorientation and reallocation, and fluctuating demand? How does this change priorities and roadmaps? Uncertainty drives desire towards investments that can produce near-term certainty and profitability, and this is a proof startups need to deliver now. This will be a decisive factor, for new funding rounds or in securing bridge funding from current VCs.
Is the investment cool-down noticeable across all funding stages, or are certain stages more affected than others?
Simon: The ability to raise funds for startups does depend very much on the stage right now. The stock market climate impacts later stage companies much more, and they are currently struggling to get deals done because investors are skeptical about the exit prospects. Right now, investors don’t really want to pour money into a company that plans going public in one or two years. For seed and early stage startups, IPO is still far on the horizon.
However, early stage startups are starting to reassess their funding goals and valuation expectations in light of the general market cool-down. They, too, realize that those hyper valuations of 2021 might not be realistic anymore. And overall, closing funding rounds is taking longer and there is more risk analysis and due diligence from the venture side again. Which, again, is actually a good development and very healthy.
So you expect risk evaluation and due diligence will play a more important role again during funding rounds
Simon: Yes, very much. In the recent past, we have seen VCs completely skip due diligence to get deals done quickly. In some cases, this might have contributed to the underperformance we are seeing now. And as the market is less favorable in general, more uncertainty and higher capital cost, of course risk management and due diligence are and should be top priorities for smart and sustainable investment decisions. And as we are in an ongoing digital transformation of entire societies and economies, technology will play a crucial role in all of this.
In which way?
Simon: Technology and product management are extremely important in any startup today. The way teams work with tech, how processes are designed and how well they are automated, the degree of maturity of product roadmaps and their development can make or break a young business. Also, how well business decisions and strategy are based on metrics and data, simply matters, if you want to secure future funding or convince your current VC to provide bridge funding. For this, you need data intelligence and technology.
What should VCs and Startups do now with regard to tech when working towards profitability?
Simon: As technology plays a crucial role in the capability of startups to shift from pure VC backed growth to profitability, we currently advise all our clients – on the investor but also the founder and startup side – to do a thorough check-up on their technology and product set-up to get a realistic understanding of how resilient and capable their tech leaders, teams, processes, and architectures are, and how well they manage the transformation towards profitability.
A lot of startups that are venture backed already will now have to have a frank conversation with their board on the perspectives of fundraising and in many cases, bridge financing will play a role. Doing their homework on the tech side, can be a decisive factor. However, to prove this, VCs might want to see an expert tech advisory report rather than just taking your word for it. But given this, they likely will be open to provide capital you need to get through the rest of the year.
What do you expect to happen in the Startup ecosystem moving forward?
Simon: We could actually see things get worse before they get better. There is still somewhat of an overhang from 2021 spilling into this year: Deals that have been done under a high valuation in late 2021 that have been announced recently or are still to be made public. As these run out, we could see the next quarters perform even worse.
Definitely, we will see the overall market correction settle in, which will most likely go hand in hand with some layoffs at strong growth startups. And we expect much more consolidation and M&A activity between startups as well as private equity and startups. Also in this context, risk analysis and due diligence will be key for making the right business decisions.
And beyond 2022 – well, that very much depends on how monetary policy will develop and if the economy is heading towards a recession. But, despite all of this, we are very confident that technology will remain the number one investment area and the passion and excitement of venture for tech will be going nowhere.