Learning the hard way - Part 1
Startup growth is a team sport.
“A startup is a company designed to grow fast” - so said Paul Graham in his essay “Startup = Growth”. It’s a phenomenal read. It’s such a simple observation which refers to the essence of what every startup aspires to achieve - to grow fast.
To understand why growth is so important, let’s go through the typical journey of a startup.
A small group of people observe an inefficiency in the world. They create an initial solution, an MVP. By doing so they gain a deeper understanding of the underlying problem they are trying to solve. Until now a startup might not take any external capital as founders do the majority of the work themselves. In some cases seed money might be raised from friends, family or angel investors to gain runway. Based on users’ feedback, product iterations take place. Ideally more customers show up (growth). Since there is very little or no revenue, founders usually start to seek external funding to continue running the business. Money is mainly needed to hire people.
At this point, typically funding is provided by Venture Capital firms aka VCs. It’s important to understand the incentive of a VC firm.
They manage a fund (a big bag of money), which for the most part is raised from other wealthy people and organizations. These folks are called Limited Partners or LPs.
So VCs invest other people's money - that’s important.
A VC firm promises their LPs that they will get a healthy return.
VC firms make the majority of gains from taking a cut from profits of their most successful investments.
Although it might sound complex, the main point is that VCs invest other people's money to make high returns. They invest in many companies and are focused primarily on businesses which grow fastest. If your business grows fast you get a lot of support from your VCs aka more money. If it doesn't, too bad. This typically means you are caught between rock and a hard place. So the moment you raise money from VCs, growth becomes the focus. If you forget, you are reminded about that every other month in board meetings. Besides VCs, the moment you start growing and gaining recognition in the market, you gain the privilege of being recognized by the competition. The best weapon to outcompete your rivals is to grow fast and outpace them. Growing fast also helps in building your position in a market. That helps in hiring the best people and getting more customers. Your customer base grows, people talk about you, you become more recognizable which typically leads to even more customers. Because you spend more money than you make, you need to raise additional capital from VCs to keep the momentum. That leads to following rounds of financing and now all eyes are on you and you really should be growing fast. At some point your, company makes more money than it spends, it doesn’t require additional external capital, so theoretically growth might not be a priority any more. In reality though, if you managed to get this far, you still focus on growth. It’s in your DNA and it’s addictive.
Taking money from VCs influences the way you’ll most likely need to run your businesses. Jeff Bezos described it best in his 1997 shareholders’ letter:
“Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.”
The challenge is that it’s nearly impossible to build a fast-growing company without external capital. There are a few exceptions, one of them being Mailchimp which did not raise money for the first 20 years of its operations and became a multi billion business, but it’s more an exception than a rule.
Going back to the typical path of a startup though, the unfortunate part is that many startups don’t follow the route I described previously as their growth stalls at some point. The good news is that if you are able to grow for a longer period of time, the journey is phenomenal. You really start feeling the impact your company makes.
With Base it took us nine years from the release of MVP until the Zendesk acquisition. Our story was similar to a typical startup journey.
Knowledge that I acquired which I share is closely related to the context of how our startup worked. Base operated in a CRM space, a huge and growing market with many players trying to become number one. You might ask why we chose a market with competitors. The answer is actually pretty simple - most large and established markets are already occupied. We believed that the solution we built was unique and that’s what would allow us to win customers. We were right to a certain extent.
What is the acquired knowledge then?
As a startup, you always operate with limited resources. In order to grow fast you need to focus on the right things and solve them efficiently. Sounds simple, but it’s easier said than done.
The one common element for both categories are people who are your comrades on the journey. I cannot emphasize enough the importance of the team.
The people
There are a few parts to it:
Mindset
Some people say the glass is half-full, others point out that it's half-empty. It’s extremely difficult to build a startup with people who tend to see half empty glasses. There are a lot of difficulties along the way. Many tough moments when you just have to keep pushing even though the odds are against you. The right mindset is so critical then. You just don’t want to explain in these moments why someone is wrong by saying that “X is not possible”.
I remember implementations of Base for bigger and bigger clients. Often
the feature set available in the product wasn’t perfect for our new biggest customer. Since we really wanted to win these clients, we typically expedited development of the necessary functionalities. One of the most critical aspects of these projects was to quickly understand the gaps between our product and the necessary changes we need to make. Those were stressful situations, as even before starting, we already knew that we were late with the development. Kuba and Ewa from the product team were amazing people to get involved in situations like this. They were infinitely positive and hard working. They always focused on the good - “It’s so amazing that a company like that wants to use Base!”. It was such a pleasure to work with them. The mindset is critical.
Motivation
During the recruitment process one of the questions I asked was “Why do you want to work at Base?”. It’s a simple question which carries so much weight.
Many people would answer in the following way: “I like what you do”, “I always wanted to work in a startup”, “You have a nice office and people I spoke to are cool”, “I like technology and it seems that there are interesting problems to be solved” etc. Those were bad motivations in my opinion. Not specific, shallow and general. There are many companies that meet these criteria.
Some people would answer in the following way: “I checked your product, talked with a friend of mine who is a sales person and uses X daily. He really struggles with it, so I thought it would be interesting to work on a better solution”, “I love technology. The best part is that it can help people in solving their problems. Business software seems to be an interesting use case as it impacts so many people”, “I’ve always wanted to build a product which makes people’s lives easier”. These are very different motivations. User centric, impact oriented.
We always tried to hire people who first and foremost were motivated by helping customers and having an impact on other people.
Actions speak louder than words
Ultimately the result of a startup is the total effort of the people who build it. You don’t want to manage simple, obvious things, telling everyone what to do, verifying if necessary work has been done or manage daily tasks. You want to be spending time on coming up with the next big customer initiative, hiring a key employee, rather than constantly worrying if deadlines are being met or tasks completed on time.
You want to work with doers - people who are proactive and have a sense of urgency. It’s motivating. Positive energy is infectious, it’s inspiring to others, creates momentum and drives progress.
In the summer of 2012 the product was already 3 years old and in order for us to keep improving it, we had to dramatically change the interface. There were also areas of the product we knew were not good enough anymore. We started with a tool for freelancers, 3 years in, bigger teams started using Base, different functionalities were necessary. We decided to redesign Base. We wanted to do it quickly. Rather than spending months we chose to bunker down in one office for a week and just make it happen. It seemed like a completely crazy idea but we went for it. The team of 4 people Marcin, Atek, Werbel and myself arrived in Chicago. Uzi and Eden, our designers, joined us. We spent a week, or maybe 10 days, in the office. During that time, with some help from the team in Krakow, we managed to redo the vast majority of the application. It wasn’t 100% ready, however it was good enough to onboard first customers, get feedback and fix bugs. A couple of weeks later - a new interface was available to everyone. It was spectacular. It happened so quickly.
The amount of work which can be delivered by a small group of committed people exceeded our own expectations.
Being authentic
In a startup, things move quickly and tensions appear naturally. It's important to fix problems fast. If problems are left unaddressed, they can grow and cause negative feelings and even bigger issues later on. So, it's best to deal with any problems as soon as they arise to prevent things from getting worse. The worst thing that can happen is when people accumulate bad feelings towards others, don't address problems on a regular basis and things blow up at some point. To prevent this, we established a culture of open and direct communication, free from hidden agendas and politics. We encourage team members to assume the best intentions of their colleagues. Creating a culture like this helped in focusing on things that matter rather than managing expectations.
Telling a designer that their proposed solution might not be the best for customers due to X should lead to a discussion which ends with a better solution rather than an emotional discussion about who is right. If an engineer ships code with bugs, it should be ok to immediately tell him to do a better job. Direct feedback based on merit, without worrying about someone's job title or level of seniority, is best. The team which understands that can self improve quickly.
I always admired people who tried to learn from the feedback they received, rather than prove someone wrong.
Skills
The nature of a startup is that stuff changes over time. Skills required today will most likely be not good enough in the future. Because of that, we always tried to find individuals who have a desire and ability to learn and adapt rapidly. That desire would typically come from curiosity.
When we first launched Base, I was primarily focused on coding. However, as the company grew, I found myself leading multiple teams, including product, growth, and analytics. I also became involved in customer implementations and sales. Those who joined us early on and stayed with the company had to adapt and learn quickly. Junior programmers became system architects, while others transitioned into engineering management roles. Most individuals became proficient in multiple programming languages, even if they started with just one. This pattern was similar in sales, customer success, and marketing. Startups are inherently dynamic, and changes occur frequently. It's critical to have the right people on your team who can adapt to change and grow with the company.
In summary, teams composed of people who are thoughtful, value quality, learn quickly, are properly motivated, see the glass as half-full, and are team players can move mountains.
In this post I primarily focused on lessons related to the team aspect of building a startup. That wraps up the first part. I hope you enjoyed it.
As mentioned before, in order for a startup to grow it’s best to focus on the right things and solve them efficiently. In my next post I will share observations related to this.
Additionally, I’m open to invest and/or help your startup grow. If you have any questions or thoughts don’t hesitate to reach out at bart@founderspond.com or DM me at @kiszal on Twitter.