A Founder’s Guide to Building and Beyond
--from Elad Gil

A Founder’s Guide to Building and Beyond
-- from Elad Gil​

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Pankaj Mishra

 
 
 
 
 
 
 
 
 

September 18, 2020 – [8 mins read]

 
 

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Pankaj Mishra
September 18, 2020
[8 mins read]

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Entrepreneurial journeys are often characterized by all the loneliness it brings in the middle of a dogged battle to fight the naysayers, and relentlessly building to survive and scale. To be sure, this loneliness is often hyped and glorified like many attributes that attract the starry-eyed wannabes.
In today’s fast-paced startup world, what’s real is the clutter of information and a deluge of advice when it comes to ideas on building a startup, growing it and making it big overall. There’s nothing lonely about being in the middle of all the advice, playbooks and best practices from investors, fellow founders and startup employees. 


So how can founders separate signals from the noise?

Few weeks ago, I had this deep conversation with Elad Gil, the author of “High Growth Handbook” and someone who has been both–a doer and an entrepreneur and an advisor for many startup founders. Gil has led high growth product teams at Google and Twitter, and built his own startups–MixerLabs and Color Genomics, before advising companies such as Coinbase, Instacart and Stripe. 

In this post, I have identified the most important questions facing the founders of both early and late stage startups, and narrated insights from Elad in his own voice (transcribed and edited for clarity and context).
1

What are the most common mistakes made by startups?

What are the most common mistakes
made by startups? ​

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Let’s start with the early stage companies and the areas where they make the most mistakes:
  • Find the product-market fit
  • Don’t run out of money
  • Don’t fight with your co-founder
Normally when companies blow up, they blow up because they either ran out of money, which again is a sign of no product-market fit or co-founder conflicts.

The number one reason that there are co- founder conflicts tend to be because there is nobody actually in-charge.


One piece of advice that is commonly given, that I actually think is in some ways bad advice and in some ways good advice is that
you always need a co-founder or there should be equal co-founders  and I think people need to divorce equality and terms of equity from equality and terms of decision making. I think in order to have a company really succeed you need somebody who is clearly in charge whether the equity is split equally or not. Clearly in charge could just mean they have a final vote. They could still make a lot of decisions together and everything else but ultimately if there is a fork in the road, you need somebody who can make that call in terms of which branch to take.

The other big mistake that you make for early stage companies is just not really understanding how to listen to customers or what your customers are saying and so you often see people build very large complicated products that nobody wants to use. A lot of that just comes down to how do you come down on customer development and market development. 

Let’s now look at the most common mistakes made by the late stage startups: 

1. Not rolling out executive team early enough

If you are a first time founder in particular or if you have never run a team to scale, your instincts are often to hire very smart individual contributors and you don’t really understand the leverage of having a great executive in place. That’s why often when you see second time founders start a company within their first 15 people they have 3 or 4 VPs and a CXO and often as a first time founder you ask why does this person need all these executives, it’s only a 50 person company, but then after you have been through it once yourself, you realize the enormous leverage you get by building out an executive team. 
Related to that a common first time mistake is not allocating sufficiently.


2. Hiring a VP sales too late

Many founders today, particularly technical or product founders, end up adding Sales and a VP Sales much too late in the life of the company, and they often wait until not only are there clear signs of product-market fit, they will bring on senior sales executives,they will test them out for 6 months. They will do all these things, when in reality the second there is a sign of product-market fit, it should be viewed as ‘Go’ time and it’s time to hire a VP Sales along with other executives and really start going after the market aggressively. 

Another one that I would throw out there happens a little more with certain types of e-commerce companies sometimes
is not converging their unit  economics soon enough, so, early on in the life of many products there may be money losing and the idea is that you converge to a positive or very large gross margin over time and some companies don’t really have good plans, don’t really execute plans to converge their unit economics and so a number of companies that have grown famously over time did so because of that.
2a (1)

How to read the signals?

How to read the signals?

 
 
 
There are a few different signs, but part of it too is the degree with which you have done customer development before you have shipped the product and there are some companies where they hire VP Sales really early simply because they feel they have proven out that the market exists and they may hire a VP Sales a few weeks before a launch so that as you actually launch an enterprise or SaaS product you have somebody who’s really driving the Go-to-market motion and often that happens in cases, for e.g. where you have built an adjacent product before and you know there is a real need or where you built the same thing internally over and over for internal customers and then you are now selling something externally. PagerDuty was a good example of a company where every engineering team eventually built a PagerDuty like tool and then they just built it for everybody. So, there are some moments where it is kind of clear that what you have is going to be needed and you want to hire somebody even before launch. 

 

There are other circumstances when there is uncertainty in terms of whether the market will adopt your product and in those cases sometimes you do it after a launch and you start  with founder driven sales but often if you close a few large accounts, and large accounts can be a 100K plus account or it could be that you are closing lots of small accounts or you suddenly see strong bottoms up motion, I would go and hire a VP Sales immediately and I think that often what you are increasingly seeing in the market, is people are giving pre-product-market fit advice to post product-market fit companies.
3a

The Curse of a Bad Advice

The Curse of a Bad Advice

 
 
 
 
If you go back 5 or 10 years it was the opposite. People were given very bad advice that was post product-market fit advice to a company that just didn’t have traction yet. So, for example you would launch a product, you would be 6 months in, nobody wants to buy it and you would be told by a VC or an advisor, go and hire a VP Sales and hire 20 people and let’s go sell the product and if the product is broken and nobody wants it, that is absolutely terrible advice.

 More recently, we have been getting a lot of people being given the exact opposite advice. They have really grey bottoms up motion where people are adopting the product organically or the founder is selling and he has gotten a few large customers to adopt it and there is very clear market pull and the advice that they get is, go hire a few junior sales people, and see how they do and make sure it isn’t just standard driven sales that works and then after that, maybe you have hire Director of Sales and then you kind of build it up and that is really terrible advice from a number of perspectives. 

So just as there are great engineering processes, you want to hire a reasonably senior engineering person early on. You don’t just want to have a bunch of engineers straight out of school who don’t know how to do code reviews, designer views or other things like that. Similarly for Sales, you don’t want to just hire a bunch of junior people and hope that process and best practice and everything magically falls into place. 

So, there are a lot of different reasons why you want to hire a VP sales early and a lot of technical or product centric founders tend to push back on that if they haven’t really seen great sales before. They worry about an early sales hire ruining their culture, or they worry about are we really ready for this. Do we really need somebody of that calibre driving our business. Or they may worry that it’s too early for the company to adopt it, worry about cost. So,
there are a lot of founder reasons to not do it but I think most of those are wrong and their product is actually getting strong pull from the market.
4a

Build a Board that questions and listens

Build a Board that questions and listens

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The biggest reason I’ve seen bootstrap start-ups fail is that they don’t establish a proper board of directors or some form of true advisory capacity where people are meeting with them repeatedly and forcing a conversation around planning and growth and direction and things like that and then it doesn’t have to be tied to governments.


If you think about it venture capital is a bundled product where it’s a bundle of advice, governance and money and in reality the people who are great at allocating capital and making investments may not actually be very good at either giving advice on governance. People who are good at giving advice may be bad at choosing companies to work with.

There are all sorts of co-founders there but the fundamental point is as a start-up you want to have all 3 and the capital could come from bootstrapping but you should figure out advice and governance, that is where I often see bootstrap companies fail in terms or really optimizing what they could be. They fall short because there is nobody asking them certain questions that are typically asked.

“Bootstrapping companies fail because there’s nobody asking them questions that are typically asked.”

Boards evolve enormously over the lifetime of a company. An early stage, Series A companies will have a very different board from a Public company and that is not only in terms of the size of the Board . A public company will have 6 to maybe on the crazy high-end 20 members and a Series A company will often have one external board member and then 1 to 3 founders. It’s not just size but it’s also composition and role and the Board in Public or late stage company shifts dramatically because you start having compensation  committees and audit committees and a variety of other committees where even people can effectively participate Board, while with the early stage company you don’t really get into those things until the company matures quite a bit. Unfortunately, to some extent for an early stage board you don’t have that much choice because fundamentally the venture capitalists is the one who is providing the board member and so it’s sort of who you take money from. Sometimes you can negotiate an independent seat either in parallel or instead of instead of the Series A investor, although that’s kind of rare, and then you have a lot more leeway in terms of choice and I think if you are choosing a Board member often you want to have to ask again what are the sets of skills that are missing from my board that I want to add. 

You ask if there is a very strong diversity, so you can look at whether it is a woman or an underrepresented minority. You can look at other aspects of, Reid Hoffman has this good saying that, to some extent an external Board member is like a co-founder that you can hire or an executive that you can hire in. Then you can give them a Board seat and bring them under your  team. So, you kind of want that calibre of person as your Board member and then you want to identify what are those areas that you specifically want that person to help with.

One thing that people don’t do enough is, just like they write a job rec for basically everything else in their company, when adding a Board member they should write up a job rec for the board member, what are they looking for, what are the skills they want, what are the years of experience that they want and how do they generally think about what they are looking for in that person.


So, then they have a common view with the other people who are interviewing and they can have a very targeted discussion around does this person actually meet the set of things that I am looking for. 

And there are a few things in particular that I would look for beyond the skill set side.
The personal rapport and the personal style matters a lot and also what are the motivations for the person taking the Board seat. 

The
things you want to avoid for example is the independent Board member who wants to join your Board because they want to network with the important people who are on your Board. Or, you don’t want the person’s stature in their own eyes to be driven by whether they take the Board seat or not because then they may be functioning in weird ways for a lot of gear from your esteemed Board members. You don’t want somebody who is going to talk down to you or be patronizing, sometimes you see that with the quote unquote experienced Board member operator who will talk down to you as a new founder or who would try and steer you in directions they think the company should go. So, there are a few almost like red flag warning signs when you interview Board members around things like that you should be aware of.
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Pankaj Mishra

 
 

September 18, 2020

 

Pankaj Mishra, Co-founder at FactorDaily, has been a technology journalist and editor since the year 2000 with several publications including The Economic Times, Mint and TechCrunch.

 
 
 
 
 
 
 
 

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Pankaj Mishra
 
 
 
 
 
 
 
 
 
 
 
 
 

September 18, 2020

 
 
 
 

Pankaj Mishra, Co-founder at FactorDaily, has been a technology journalist and editor since the year 2000 with several publications including The Economic Times, Mint and TechCrunch.

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