A lot of pain… yes, it is probably the most painful experience a startup founder/founding team goes through when transitioning a small group of people into a well oiled machine that drives metric (meteoric :)) growth. You move from sprinting to running a marathon. I think a lot of founders don’t spend the time to understand the metrics that matters to their business. All metrics are trumped by sales growth, as long as you are able to sell without giving up your shirt you are doing something right. What I mean is if you are selling for $1 and it costs you $0.50 to get that $1 you are doing ok. What is needed is much higher margins. I would say if it costs you $0.30 to get a $1 in sales you are doing great. Instrumenting your company to do that calculation automatically and knowing how to build levers that can be pulled to make it go up is by far the hardest thing a startup team can do.
This blog post was not about instrumenting, it is about all the other things the founding team has to get ready to do once the Product-Market fit is obvious. What I mean by Product-Market fit is knowing that your product has a market and you know the size of the market. The next step is to know how to move the needle to acquire the market read acquire customers. The pace of customer acquisition, the pricing and building the team to support the customers all become critical milestones to achieve in this phase.
The 20th and last lecture of How to Start a Startup was delivered by Sam Altman last thursday. He goes into some of the broad strategies, sequencing and pitfall to avoid in this phase. Given I have gone through the transitions a couple of times, I can tell you the strength of not having experience is a huge weakness when transitioning the company. Watch the video, you will be glad you did. Some of the great take aways:
- Make sure you codify Why and How you do things in your company before you start scaling the team.
- Don’t experiment with traditional management approaches, get experienced people who align with your vision and give them mandate to do what they do best.
- Be generous with equity compensation and top off to keep people aligned and motivated (most investors will give you bad advice here)
- Build a great financial instrumentation model
- Get a full time team member to fundraise
- Managing your own psychology gets worse as the team grows
- Being focused gets even more difficult, don’t get distracted