The year 2020 has seen some of my founder friends in insurance, e-payments, lending and other industries think about stepping back and hire a new experienced executive team to steer their companies towards a new phase.
I was listening to two founders – Armon Dadgar of HashiCorp and Martin Casado of Nicira networks over the weekend. It was exciting to connect with their experience. I decided to pen few thoughts for my fellow founder community while peeking into my own entrepreneurial journey. During the course of its journey, a startup demands the founder to transition through its different phases, from being a product focused founder to a sales obsessed CEO. However, the question is – if the founder is not able to do so, then is it time to bring in new talent to scale-up the company? Needless to say, this requires awareness, ability and willingness from founder to either transition to different personalities or to let go the reins of the company by hiring a compatible executive team to run the company.
Phase 1: Product market Fit
In the first phase of product market fit, the founder needs to know technology trends, how users use technology and the problem the startup is solving. The founder is a risk taker during this phase, who needs to build a tech infrastructure and forge a path amidst high uncertainty and no market yet. As a technology and product leader in this phase, the founder has to be a visionary and provides credibility to the company. He/she needs to attract funding from investors. At this stage, the ratio of story to results is very high. From the year the company is founded, this phase could be 2-3 years long.
If the company has achieved product market fit after analysing the requisite data, then the startup needs to move to Phase 2. In transitioning through different phases, overlaps between these phases is very common. It is key that the leader is aware of the progress to next phase and honest that he/she needs to become more obsessive about most the important objective to accomplish in the next phase – of Sales and Go-to-Market strategy.
Phase 2: Go-to-Market Strategy
This phase requires a different mental model. The product founder/leader has to mentally tune himself/herself and the team to focus on growth, margins and customer retention. The founder (also the product leader), needs to transform into a sales leader in this phase. While any shift is not easy, today’s world of cloud computing further adds to the complexity. The founder needs to provide a clear direction to the engineering team to focus either on feature velocity or efficiency. Business models that require investment in artificial-intelligence, machine learning technologies may not reach a steady state of margin. In such models, the accuracy of solution depends upon the amount of data collected and time spent on analysing data. Instead of focusing on efficiency, the engineering team may be mandated to focus on feature velocity.
Instead of engineering costs, it is time to invest more in the variable costs of sales and marketing and identify the right customer. This is the time to recognise that revenue will increase when more sales team members are recruited (as productivity has limits). It is crucial to invest in Sales team, in direct and indirect sales channels. If the sales team has not been able to achieve a desired percentage of the sales target, then should more sales team members be recruited in the company or there is a need to review the product stack? While the path has been forged in Phase 1, this phase requires obsession for setting sales processes and structure.
Phase 3: Scaling up
As the company moves to its Phase 3 of repeat sales, scaling the business, the processes, sales cycles and workflows/mechanisms become more important than ever. It is phase of “How to scale.” It is important to assess whether company is a small business focused company or large enterprise sales focused company? It is important to start signing partnerships and increase the paying customer base. The company moves from signing few deals/few customers in Phase 2 to having an account management approach in Phase 3. The inside out approach is replaced by outside in approach. Clear and simple messaging of value proposition in less than 5 slides to the customer assumes highest priority. This phase 3 may see launch of multiple product lines, merger with other companies to propel growth and entry into new markets. It requires strong operational leadership mindset. It maybe relevant to point out that when a company opens new markets and enters new geographies, due to regulations, country and competitive landscapes, a company could be in distinct phases in different countries at the same time.
Should A Founder hire CEO at some stage?
If the founder has worked earlier in large SaaS or enterprise sales focused companies, then he/she may be quite comfortable in leading the transition to the phase of Go-to-Market Strategy. If not, then it is important that the Board of the company helps the founder in re-affirming that the latter’s vision provides credibility to the company. The board should also support the product founder/leader in making the change and recruiting a sales focused CEO or COO in the company, whose ideas are compatible with the vision of the founder and the Company. Embracing talent with experience in the areas of Go to Market becomes a top priority. At the same time, when there are large enterprise deals being signed, a new CEO might need to work closely with the Product Founder to provide the larger picture of the company and trust for a long-term partnership to the potential enterprise customer.
In many cases, I see that the new CEO candidate is selected by the Founder when the former has an open communication style, is aware of his/her own strengths and weaknesses and adapts within the context of the Company’s vison and history. I would give more marks to the talent that is not hung up on titles when joining the organization.
Accountability and Partnership
For the new C-suite team/executive team to succeed and take the company to the next level, it is crucial that the CEO is held accountable for key metrics. Accountability and empowerment need to go hand in hand. CEO and the Founder/Product leader should work closely such that there is complete transparency and visibility on the product roadmap and the logic behind prioritising one product rollout over the other in the future. Likewise, the Product leader/Founder should know the reasoning behind the key strategies and investments in sales and marketing from the CEO. The executive team members in the company should have a clear reporting line (preferably to CEO) and be provided direction on accountability. For the weekly, monthly and quarterly meetings, both the CEO and the founder should align on their roles. It may also be a good idea for founders to hire an executive coach or a mentor to help them through this phase of transition or handing over the reins of the company to an experienced professional.
As uncertainty grows, the company can move from Phase 2 to Phase 1 or Phase 3 to Phase 1. Used cases that were relevant less than a year ago may not be more relevant now and hence the product team and tech team may need to go back to the drawing board to review the infrastructure and product suite. It is key that the founder is aware of the phase that the company is in.
While building companies, everyone in the team must remain relevant in its different phases by adding value continuously. Past achievements should not guarantee any team member to stay in the same role. This applies to the founder as well. The founder has to continuously strive to be an enabler to the growth of the company.
The above phase wise framework may not always reflect reality. At the same time, keeping this framework in mind helps you as founder, who is building a company, to be aware and remain honest on which phase the company is in and rely less on emotions to make the decision to hire a CEO or to step up as a sales focused CEO of the company at the appropriate time. There is no better time to scale up the company, that you have been building, than now!
– Written by:
CEO & Co-founder, Telr