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.
Did you ever ask yourself: Are we doing the right kind of technology and product due diligence on our startups? Many Venture Capitalists are confronted with this question, and the main reason for that is that there really aren’t any clearly defined standards for tech due diligence. What we see in reality is that TechDD is often based on self-developed procedures, trials and errors, and a somewhat common understanding of best practices. The result of this is that tech due diligence can mean anything from a 30-min call with a CTO from another portfolio company to a 14-day in-depth analysis with industry experts and technicians. So, there clearly is a need among VCs and their target companies to get clarity on whether they are doing the right kind of tech due diligence.
FutureWorldVC: Investors, CTOs, and Tech Advisors Have A lot to Talk About
Zoe Peden, Principal at Ananda Impact Ventures, tapped exactly into this need when inviting the FutureWorldVC community to a panel discussion in London. I was happy to join the panel with Perran Pengelly, CTO and co-founder of DrDoctor and Sara Stephens, CTO and co-founder of Rest Less. It was a perfect setup of VCs, founding CTOs, and technology advisors coming together to exchange ideas and experiences.
On my part, I talked about our approach to TechDD at Philipps & Byrne: What are the objectives, timelines, and deliverables of such a tech assessment? I went into how we work with VCs and startups, and what both sides can and should expect from a proper tech due diligence based on best practices. We also shared some -anonymized- examples of typical red flags or positive impressions. Perran spoke about his experience of working with us and provided some honest reflection of the challenges and positives that came out of the experience. Sara brought in her experience from two TechDDs performed by other service providers and shared super insightful feedback she had gathered from surveying members of the CTO community. These numbers were a great basis for the further discussion among us and with the audience.
Takeaways: What We learned at FutureWorldVC
Despite being a speaker at this event, the exchange with the different participants gave me plenty of fresh input and insights. Also, let’s be honest here: I have been exercising tech due diligence for ten years, and yet we are still trying things out and are keen on finding a better approach for everyone being involved. So for us this was a perfect learning opportunity. Here are some of the things I learned during the conversations with VCs and tech leaders in London:
Investors want clear(er) guidance from Tech experts
Understanding what is going on is of the essence for investors – especially if they do not come from a tech background. Many of the investors – but also the founders – shared their experience of getting a 2-pager TechDD “report” without a clear indication of whether to invest or what to do after the investment.
What they actually want is clear advice on action items, dos and don’ts, next steps, and priorities for both themselves and their target company. There is definitely also a desire for clear benchmarking, rating, and comparability with other investments. In general, investors want tech assessment to be derived from the business context, and how that context translates into tech solutions, set-ups, and processes should be an essential part of the TechDD.
TechDD Findings can be a Conversation Starter for Delicate Topics
One aspect we brought up during the discussion is that the results of a tech due diligence can serve as a well-founded basis to address difficult tech topics on board level. I know from attending board meetings myself, that often slow time to market is being discussed with or without naming Tech issues as a root cause. Having tech assessed by an external expert and going through issues in a structured way is always better than discussing on the basis of a gut feeling or a hunch. Having a structured and honest discussion in the DD phase contributes to more fruitful board meetings with shared expectations clearly set.
Founders and CTOs: Transparency is a Real Game Changer
One of the most interesting findings was brought forward by Sara, who did a survey on two CTO networks. She found out that two-third of founders feel stressed during a technology and product due diligence. But even more important: Apparently there is a direct correlation between stress levels and the degree of transparency regarding the assessment process. In other words: The more transparency, the less stress. As simple as it sounds, the data was impressive:
This begins with having clarity on the deliverables and continues during the assessment itself, all the way to the report. Transparency throughout the entire process makes a real difference.
Secondly, the mode of operation is very important. Here we can see, the more the due diligence is done in a sparring mode, the better. The less this is done, the more useless the experience is conceived by founders and CTOs. Among the CTOs she surveyed, Sara found out that half of respondents felt a TechDD was useful for both investors and founders/CTOs, and half of them felt it was not. This indicates misalignment and inconsistency around the TechDD process and outcomes.
Thirdly, Sara’s survey also found that 80% of TechDD conducted focused on the technology being used in the target company at some point in the process, but only 50% of the tech leaders felt that was actually important. This is an interesting indicator for the business context, often not being considered enough during a TechDD. Meaning, those conducting the assessment are not applying a true 360 degree approach. This channels back to the investors’ desire of tech assessment being derived from the business context.
And finally, and this cannot be overestimated, if the TechDD and the following report provide concrete and actionable guidance for the future, it can function as a long-lasting leverage for tech in discussions with non-tech founders and investors. Perran mentioned in this context that almost two years later, the engineering leaders in his company still bring up the findings from the TechDD as a gentle reminder for keeping certain standards up. This is what true value derived from a best practice tech due diligence looks like.
Wrap-up: Whether You Do TechDD Right or Not Makes a Huge Difference
So, what can we say about the FutureWorldVC panel wrapping up? First of all, it was a blast! Second, these kinds of dedicated spaces to exchange, learn, and get inspired are so beneficial and valuable, also for us. So many thanks to our client Zoe for putting the whole thing together, as well as to the two post-series-A Tech startup founders, Perran and Sara, and all the participants who so actively contributed to the discussion.
Coming back to the initial question: Are we doing the right kind of tech due diligence? What we see is that whether a tech due diligence is done right or wrong has a great impact on all parties involved. If done wrong, investors lack understanding and visibility, founders and CTOs suffer from enormous stress due to intransparency, and tech advisors have a hard time accessing information and gaining insight, due to a possibly hostile environment. But if done right, meaning with a clearly pre-defined and transparent process according to best practices, TechDD can be the most thorough, honest, and valuable external feedback investors, founders, and CTOs can get. It can provide beneficial findings and actionable recommendations that can help support tech and product strategy and future growth. And last but not least, it can be an important conversation starter between investors and founders about uncomfortable truths that will appear on the board level anyways at some point in time.