How Startups Scale
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As a founder, getting a good idea off the ground, identifying who will benefit from it, and figuring out how you can make money in the process is only half the battle.
Unless completely bootstrapping your business is in the cards, you’ll probably need to raise money by courting investors, explaining why they should care, developing deadlines for key objectives, and creating a product roadmap that revolves around a target audience.
Even if your company’s growth is tied to the money you have in hand, knowing how investors evaluate businesses can help you develop a solid business plan, revenue model, and avoid pitfalls that can sometimes cause growing pains later or even spell doom for a business.
To glean insights from both sides of the negotiation table, Pilot CEO and co-founder Waseem Daher sat down with two well-known startup investors and operators for an hour-long webinar on how startups scale:
- Choosing the right market for your business early because it can get increasingly difficult to pivot later.
- Consider two key questions as you’re building your business: Does everyone need your product? Does the whole company use it, or does someone very powerful at your company care a lot about it?
- Don’t overestimate your product-market fit or get away from your core group of users too early while you’re scaling.
- Stay super close to your users and figure out why they're obsessed with your product and why they need it.
- Pace, rather than perfection, can be more beneficial to early stage startups that are scaling.
- As you’re growing and hiring new people, develop processes that monitor how resources are allocated and what employees are working on at a project level.
- You may be rewarded early on for churning out new products or features, but focus on maintaining and fixing what was built over time.
- As your company grows, consider stepping away from some tasks and trusting the employees that you’ve hired to do their jobs.
- Rather than focusing on individual projects and day-to-day operations, consider spending more time on hiring, cultivating, and supporting leaders.
On common, early-stage mistakes that founders make
Will Gaybrick, who, at one point in time, served as Stripe’s head of payments, CPO, and CFO, said that founders often find it difficult to select a market that they want to pursue.
“This is something that you can over engineer for sure,” Gaybrick said. “I think, broadly speaking, once you choose that market and that canonical user, you're going to be with them for a long time.”
While it’s easy to spend too much time on it, choosing the right market for your business is key early on because it can get increasingly difficult over time to change course.
The key, he explained, is to “think hard about what budget you're in, who's the decision maker, and what are you proportional to — are you proportional to revenue, are you proportional to number of employees, and other things like that in terms of how you monetize.”
As a former venture capitalist at Thrive Capital, Gaybrick said he often used two key questions to evaluate B2B companies: Does everyone need your product? Does the whole company use it, or does someone very powerful at your company care a lot about it?
“I'd say that’s one thing that I think people do get wrong early on,” he said.
It can also be easy for founders to overestimate their product-market fit and get away from their core group of users too early while they’re scaling.
“You want to stay super close to your users and figure out why they're obsessed with your product and why so many of your users need your product,” Gaybrick explained.
Pat Grady, who has been a Sequoia partner since 2007, said that pace, rather than perfection, tends to be more beneficial for early-stage startups.
“There's a class of startups that never really get off the ground because they're too worried about looking silly or too worried about getting things exactly right, and what really matters is just getting a little bit better every day,” Grady explained. “It's okay if you start with something that's not exactly right as long as you're listening, incorporating feedback, and getting a little bit better every day.”
On the other hand, it can also be easy for founders to mistakenly believe that their company as a whole is improving because it’s getting larger.
“Those variables might be correlated, but there’s some independence there,” Grady said. “You can have a company that has gotten bigger but hasn't actually gotten better, meaning that your service quality or culture has deteriorated. The fundamentals that point toward long-term success have actually gotten worse, even though in the short term, the numbers have gotten bigger.”
To avoid these mistakes, founders should not only define what a quality experience should look like for customers and employees but also work on constantly improving these processes over time.
On challenges that founders face while scaling
While Stripe always seeks to put users first when creating product roadmaps and setting priorities, the payment processor’s CPO, Will Gaybrick, said that listening to everyone and incorporating all of their feedback into the company’s plans isn’t always easy.
“As we’ve grown, there have been times where it has gotten really hard to listen to our users and to collate and sift through the cacophony of asks that come from users of all sizes,” Gaybrick explained.
To resolve this issue, Stripe now relies on a product operations team that’s dedicated to setting up beta tests, explaining what the company’s roadmap will be, communicating changes that happen along the way, managing a central product calendar, and getting product managers and engineers in front of users.
As Stripe grew and hired more people, it became increasingly important for the company to develop processes that monitor how resources are allocated and what employees are working on at a project level.
“You feel like, at various stages of the company, everything is always under-resourced and yet you're growing headcount incredibly quickly,” Gaybrick said. “At a very early stage, you can actually know exactly who's working on what. You don't really need the right systems of observability to really see what exactly resources are going to.”
While early startups are often rewarded for churning out new products or features, there’s a certain point at which founders need to focus on maintaining and fixing what was built over time. Apart from improving features, startup teams may also need to refactor the underlying code or even re-architect the platform on which it’s built.
“As your product velocity accumulates, meaning as the set of features that you've put out begins to grow, it starts to get very complex and it starts to get very confusing,” Sequoia Partner Pat Grady said. “Your marketing team doesn’t know how to market it. Your sales team is not sure what to sell. Your customers aren't sure what they're supposed to be using. At some point, you need to shift from product velocity toward maturing whatever it is you built, which has a bunch of different aspects to it.”
Still, this desire to slow down, create processes that flag buggy code, and develop high-quality features that are easily understood can be at odds with the continual desire to innovate and build something new.
“It feels like that pendulum swings back and forth as companies grow, and at each stage, you may be on either side of that,” Grady said.
On changing your management approach while scaling
When companies first take off, founders must often take on multiple roles and lead a small team, which enables everyone to know what each person is doing.
As their company grows over time, founders often face a completely difficult problem: stepping aside and letting employees do their jobs.
“I think trusting the people you've hired and letting them do their jobs is one of the hardest things for people to do,” Grady said. “It's almost the transition from, ‘My product is my product,’ to, ‘My company is my product,’ and shifting that mindset from wanting to be in all the details to just wanting to sit on top and let people do their jobs.”
Though startup founders must often pull themselves up by their bootstraps to be successful, this same management approach and mindset can sometimes work against them later on down the road.
“The traits that lead you to be successful in the early days are generally like, ‘Roll up your sleeves. Do the thing. Answer the support ticket. Write back to the customer or call,’” Pilot’s CEO and co-founder Waseem Daher said. “Now, when I find myself doing that, I think it's actually incredibly demoralizing for the team because what they see is like, ‘Oh, Waseem, doesn't trust us to do our job,’ or like, ‘Wow, this is like super weird and scary that the CEO has chimed in on the support ticket.’"
Rather than focusing on day-to-day operations and individual projects that employees can handle, founders of growing companies must oftentimes spend more time on hiring, cultivating, and supporting leaders.
“Companies grow at a geometric or exponential basis, so you have this structural imbalance between your own personal competencies, the needs of the company, and its growing structural imbalance,” Gaybrick said. “The only way you're going to get around that is by hiring around it.”
Want to listen to the rest of their conversation? Access their recorded talk here, and sign up for notifications whenever Pilot holds a webinar with a wide-range of thought leaders in venture capital, finance, and more.