Re-architecting growth-stage companies on the road to IPO
People think that once a startup is successful early on, growth follows in a straight line. Once you have money raised in the bank and market validation, it’s just a matter of not screwing up. In reality, companies flatten out at every stage on the growth curve, from $25 million in annual revenue to $50 million, to $100 million. On the path to IPO, nearly all companies experience turbulence and are forced to give up ground. In our experience, the companies that survive are the ones that can take a step back and constantly re-architect every aspect of the business.
How to scale your business and yourself
In the early stages of your company, you’ve successfully built something out of nothing, and you likely feel invincible. But without the ability to shift gears, you might be setting yourself up for a hard landing. CEOs who know only how to push harder and faster won’t scale. In the growth stage, you need to know when to step on the brakes and fix the parts of your business that are breaking.
We believe there are two key characteristics to scaling well:
- Self-awareness: Entrepreneurs who scale well constantly evaluate their businesses and themselves in a realistic They’re always trying to figure out what they do well and what they could do better.
- Advice-seeking: Entrepreneurs in the growth stage need to get out of their own heads by getting counsel from leaders of other companies as well as trusted advisors within their own. Being receptive to a variety of inputs allows them to synthesize a broad spectrum of advice into what works for their business.
Scaling the business means not being satisfied with the strategy that led you to success. That’s the kind of complacency that leads to stagnation and decline. To thrive you need to continually reinvent every stage of the business, and that means starting with yourself, the CEO. You have to re-architect the way you organize your people, the way you configure your tech stack, and the kind of product you’re building.
Reinvent the company culture
As Zynga CEO Mark Pinkus says, when you’re still small “you can manage 50 people through the strength of your personality and lack of sleep.
You can touch them all in a week and make sure they’re all pointed in the right direction.” As you scale, this shifts dramatically. You can’t be the single architect of your company’s culture and values any longer.
Bringing in veterans to fulfill senior roles is one way to help with this. Having seasoned leaders at the helm helps you reinforce your culture from the top down and cut down on organizational overhead.
At the same time, this doesn’t mean anything if your regular employees don’t feel a sense of ownership of the company. As your company continues to grow, we believe that building autonomy throughout the ranks is the most efficient way to maintain focus.
- Bring on senior execs: For founders who haven’t grown a big company before, hiring a senior Chief Operating Officer (COO) and VPs is a proven way of filling the experience
- Promote athletes to build from the bottom up: Focus on empowering athletes within your workforce. These are the well-rounded team players who might not be the best within their individual fields but can work across many Athletes have the potentialto be CEOs and help you build a tightly knit team.
- Part with employees who don’t scale: Some people excel during the early stages but falter later Growing means that you have to part ways with people who have been with you since day one, even if they’ve helped you get to where you are.
It’s not always productive to force a senior engineer with no interest in management to take charge of a team just because that’s the traditional path to promotion. Scaling your culture and your organization is about how you build flexibility into management.
Case study: Box
Founded by Aaron Levie in 2004, Box followed a proven formula for scaling: recruiting a senior COO. His pick was an experienced operator named Dan Levin, who was already a Box board member and had spent years before that working as a VP and General Manager at Intuit.
Bringing on an experienced COO helped compensate for Levie’s inexperience at management while also allowing him to focus on building out a vision for the product. Levin had already seen a company scale to making hundreds of millions in revenue, and at Box he took over a lot of the day-to-day operations and responsibility through the organizational chart. Nearly everyone reported to the COO, which allowed the CEO to focus on building out his vision for Box’s product.
But even after implementing a more efficient management structure, what allowed Box to excel was its continued focus on people and culture. As CEO, Levie still made time to interview almost every new hire who came to Box. This helped him make sure that everyone fit the culture. It also sent a crystal clear message to all prospective hires, emphasizing the importance of culture all the way to the very top.
Re-engineer the tech stack
When you’re a startup, using the latest technology is what allows you to move fast. Once you’ve been around for five years and are earning $25 million in revenue, getting bogged down by technology is how you slow down. Young companies can build their architecture completely on top of the cloud. They can use the latest offerings from Amazon Web Services or Google Cloud Platform with minimal infrastructure and maintenance overhead.
As your company matures, you have to deal with technical debt, buggy code, and a mix of cloud and on-premise servers. Maybe you still sell software on a licensing model, and you need to figure out how to deliver it over the cloud to stay relevant. Until you re-engineer your stack, you’re just putting Band-Aids on a much larger problem.
You have to choose whether to try to keep grinding on a creaky stack or take the time to fix it.
- Technical debt: Products break under scale as they accumulate bugs and unwieldy code. Small bugs that don’t matter that much in the beginning compound into huge problems down the
- Aging tech: If you don’t reengineer your technical stack every five to six years, you cripple your ability to offer the best product and user experience to your customers.
You’ll never find the perfect time to rebuild your architecture. Rebuilding means simultaneously figuring out to deliver your software as a service. You’ll need to cut from sales and marketing spend as you divert resources to engineering.
Choosing to rebuild your stack means that you will miss sales goals and revenue targets—which you’re under pressure from your board to meet to secure your next round of funding. It’s a choice that might not be popular with your team, your board, or your stakeholders, but one you have to make sooner rather than later.
Case study: Company A
Company A is an example of an organization that had to decide whether to re-architect their stack. They knew that their tech stack needed some serious maintenance under the hood but thought it could wait another year. They focused on hiring more salespeople to ramp up growth before revamping their infrastructure.
In our observation this just exacerbated the problem. The new salespeople had a hard time selling the product because it didn’t have a feature set that was competitive in the market. What had been cutting-edge five years earlier no longer cut it.
Refresh the product
Even in enterprise software, products win by being easier to use. Maintaining discipline around building a product that people want to use is another big challenge of scale.
When you start off, you have a rough roadmap for where your product is going. You leave room in the design to add new features and functionality. But after a certain point, you find that there isn’t space in your navigation panel to add anything else. Your original roadmap no longer fits, and you have to refresh your product to stay competitive.
- User interface and ease of use: Design grows stale rapidly and if you don’t refresh your product, it will look dated very quickly.
- Feature creep: As your product grows over time, you add on a lot of extra This eventually bloats your product and makes it unusable. Growing your product means knowing what to cut.
Everyone pays lip service to building a customer- facing product. But it’s hard to stay focused on this as you grow. Your engineering team is larger, which means there is more communication overhead and lengthier development cycles. Your product is also bigger, because it has evolved to serve a bigger customer base.
To keep focused on product, you have to think through the user experience and the entire workflow of what your customers are trying to achieve. These are all things that constantly change over time.
Case study: Nutanix
Dheeraj Pandey, CEO and founder of Nutanix, likes to say that “the most transformative technologies are the ones we don’t think about. They work all the time, scale on demand and self- heal. In other words, they are invisible.”
As Nutanix has scaled, it’s tackled increasingly difficult technical problems around the datacenter, hyperconverged infrastructure, and the hybrid cloud. The beauty of Nutanix’s products is that they have evolved over time to make this complexity disappear for the customer.
For Nutanix, this meant launching “one-click” technology that allows for instant software upgrades, analytics, planning, and efficient maintenance. Where overworked system admins were once responsible for provisioning and maintaining hundreds of servers, with Nutanix’s products, they can do it on their phones. Nutanix’s focus on product revolves around delivering enterprise-grade scalable infrastructure—and making it easy to access and manage from anywhere.
Manage your board, don't let your board manage you
All of these problems around scale are challenging because they force you to face the realities of your business and share bad news when it comes. To surmount them, you can’t just present a united front internally. You need to get your board on board.
Many first-time CEOs are caught off guard by the necessity of managing the board of a large company. They’re used to calling the shots and executing them. But when you’re in your Series C and making $100 million in revenue, you’re no longer the primary stakeholder in the outfit. Your board is. Asking your board to spend $2 million dollars to rebuild your data warehousing isn’t something that can be done on the fly. You have to figure out who on the board is in your corner and who you need to win over.
In order to get support behind hard decisions, you have to actively manage your board.
- Be careful who you take money from: Bringing on a board member is a marriage withoutthe option of divorce. If your interests aren’t aligned, it can fracture your company as you scale. You don’t always have a choice about who you take money from, but you should always enter the relationship with your eyes wide open.
- Build alliances within the board: Know to whom on the board you can go for sales issues and to whom you can turn when you need advice on building your cloud infrastructure and your marketing funnel. These board members not only provide you with valuable operational advice but also can help you build consensus among the larger board.
Different stakeholders will have different motivations—as well as different areas where they can guide and help you. Familiarizing yourself with your board and its dynamics is a condition of survival.
When you build up trust with your board and work in sync, it’s much easier to steer the decision-making process that will shape the future of your company.
Slow down to scale fast
As you scale, the amount of inputs you receive skyrockets. Your inputs aren’t just from your employees. They’re from your customers, your partners, your suppliers, and the board. You have to constantly synthesize vast quantities of information that pull your attention across hiring, marketing, sales and product.
The best thing to do in this situation is something that a lot of entrepreneurs are really bad at: slowing down and taking a breather. You might just need time to validate that you are in fact doing the right thing at the right time. You might have to dismantle the company to build it back up.
Ultimately slowing down and making sure you have the right processes and people in place are what allow big organizations to move fast. As one McKinsey consultant said it best, scaling well is about “moving a thousand people forward a foot at a time, rather than moving one person forward a thousand feet.”
Jai Das, Managing Director, Sapphire Ventures