Scale Venture Partners

The Startup Tapes #004

3 Mistakes (almost) Every Startup Makes when they Grow

with Dale Chang (Scale Venture Partners)

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Tim Anglade, Executive in Residence at Scale Venture Partners: What was it called, portfolio operations?

Dale Chang, VP Portfolio Operations at Scale Venture Partners: Portfolio operations, which is used interchangeably with scaling.

Tim: Scaling, right. And that’s the whole concept of the firm, it’s like helping companies that go through that growth phase, right, to structure themselves. It always seemed like that would be the easy part, right, of being a startup, you’re like, oh, you have market fit, and you have money, and so, and yet I’ve really been amazed at how many companies are really unable to scale up, and the typical implosion stories, there’s culture, there’s the costs go out of control, there’s just so many companies that fail at that stage, and so I figured we’d talk about kind of maybe top three things that companies do wrong, and talk about that. So we can sit down and enjoy the water a little bit. So what are some of the things you came up with? So let’s start with number three, what’s the number three thing you think people do wrong when trying to scale a startup?

Dale: I think number three is, when you’re trying to scale a startup, it is, as you’re developing your team, a lot of times people will hire for the exact same thing that they are, it’s really easy and comfortable for them to work in that particular scenario, but what I tend to find is that those that hire outside of their own profile, both in terms of areas of expertise, knowledge, work style, work experience, tends to add more creativity, which is usually a catalyst to creativity within an organization, versus if you look at organizations that hire for sameness, yes, they can drive laser focus within the organization, but you lose some of the creativity and you start putting on your blinders.

Tim: Right, and there’s some really big examples. Of course a lot of talk these days about gender diversity and racial diversity and all that stuff, but I’ve also seen that the type of person you hire, I’ve seen a lot of companies like overhire engineers, because they have a strong engineering-centric culture and background, and even within their business people, for the business people to have a strong engineering background themselves, so, you know, there’s kind of that sameness. Or educational background, you know, people are hiring a lot of people from, you know, the top schools, an east coast type of mentality, and it’s true that, you know, it does kind of create that sclerosis of sorts, right, I’ve seen that in startups, where the company faces problems, and then if nobody from that monoculture has faced that problem before, then they’re really unable to deal with it. It’s a big issue. So what’s number two?

Dale: Number two, I would say, is because we’re so focused on metrics, and I think that it’s really important for people to start practicing, developing and practicing the metrics before they actually need them. A lot of the companies, if you can imagine trying to figure out what you need to measure, and at the same time trying to measure and analyze it, that’s really hard. But if you can actually take the time now to look around the corner and think about, hey, these are the metrics that I need to start measuring, and start doing it now, while it’s easy, when you get to the stage where it actually becomes critical for you to be able to report and analyze and use the data to tell you what does this actually mean, it just becomes so much easier.

Tim: Right, yeah, and I think, the way that I think about that a lot is a couple of different things. One is, you know, I’ve seen companies optimized for the wrong metric, you know, way too early, because they don’t really know what’s going to affect their business, a lot of metricizing analytics in a company, to be honest, is just a lot of gut feeling, especially early on, and there aren’t that many templates, coming in, I thought there would be, oh, there’s this golden metric, and every company has to think about it this way, and do this, and optimize for that, and there’s so many blog posts that are like, if you’re not tracking this variant then you’re doing it wrong, and it’s really not the case, and it’s true that you see those kind of scares, kind of develop very very quickly, I’ve seen that from, there’s a board meeting that goes bad, this metric isn’t doing well, and now the CEO is cracking down on everybody to work on this metric, and this metric ends up being the wrong thing to spend six months of your company doing, so it’s very important to kind of get that, to me it’s kind of like a language, right, it’s like picking up a language, you have to start figuring out the concept and practicing it.

Dale: You have to practice, you have to understand the concept and the context of how to use it, before you actually need it, so when it comes time to it, you’re not scrambling to figure out whether it’s a good metric for you to be using, you actually know that beforehand.

Tim: Right, and how long do you think that takes, on average, for a company? Like are we talking days, weeks, months, you know, again, this is a generalization, what’s the frame of mind you think people should have in terms of testing out metrics and applying them?

Dale: The good thing about data is that you can always backtest data, right, you can look, you can set up what you think that data metric might be, and then run it back into history. We do that with a lot of our own companies, we take a look, we develop a metric, we say, hey, what does this tell us today, but also let’s backdate this, and see what this tells us over the period of time, and how does that correlate with how the company has performed since then? Would we have made a different decision at this point if the number told us x versus y?

Tim: That makes sense. So it would kind of argue for doing a collection of all the basic, especially financial stuff, of course, but even user data, metrics about what they used, doing all that stuff, and then figuring out what to ask later on over the years, that makes a lot of sense. So what would be the number one? Let’s do like, number one drumroll.

Dale: I think the number one drumroll would be, don’t copy exactly what you did at your last company. You know, the copycat startup, it’s difficult, because the organization is different, the culture is different, the market is different than what you did at your last company, we actually just ran an SNB summit where we brought together six startups, all selling to SNBs, but all having very different go to market plans, one was competing in a very competitive market, but it was version 2.0, making web conferencing better, and so their big challenge really was getting share of voice, and so branding and corporate marketing was very important for them. Others, you know, for instance, they’re developing a brand new technology that no one has ever seen before, branding doesn’t really help them, they have to go out there and actually evangelize and tell people what their solution does, and so their go to market looks completely different.

Tim: You’re right, and it’s very interesting, because there’s a lot of copy catting, you know, from one startup to another, but you’re right, and I’ve seen this quite a bit, where I’m always like, at this company we did this, but afterwards we did that, so we should try it again, and it’s very funny because, also this kind of thing in Silicon Valley, I don’t know if you’ve seen this too, where there’s this phenomenon of the founder, where they’ll just build the same type of company over and over again, and so I have some friends who were like, in the web 1.0 era were like, oh, I’m gonna do this, and in the portable era they did it again, and in the social era they tried to do it again, et cetera, and they keep kind of doing the same idea, and again, to the number three factor, they keep hiring the same type of people, and kind of rebuilding the same thing, and so that echo, while it happens from one company to another, it’s very striking that founders fall prey to that and copy themselves over and over. So breaking that loop, how do you suggest that people break that loop?

Dale: I don’t think that there’s, and this is not to say that there aren’t best practices that should be adhered to, but again, they should be used in context with one another, you know, don’t copy exactly what you were doing before, but take what you learned, what did work, what didn’t work, and then use that in the context of your new company, use that in the context of the new market that you’re going after, and understand, you know, this worked here, maybe I’ll take that same idea, use the same principles, but I have to better understand what the outcomes and what the ramifications are gonna be.

Tim: Like, really maybe just honor why did it work the first time, right?

Dale: Right, more about the why versus the what you actually did.

Tim: And it’s very funny, because I think a lot of the conversation, a lot of the culture, still drives people to say, like, oh, content marketing worked great, and you should try content marketing, and never really kind of talking about the problem. There’s a lot of trading techniques and tools and, oh, you should hire this consultant for SEO, and so I kind of feel like, yeah, it’s undervalued, right, not to think about the solution but to think about the actual underlying problem that people have to solve. And again, this may sound trite, but I can’t believe how many times I’ve seen this, you’ve probably seen this 200 times more than I have, but it really is a thing that people fall prey to those three factors, people fall prey over and over, and I have to say that I can’t think of a company that I’ve worked in or advised that hasn’t fallen prey to all three of those things.

Dale: At some point in time in their life cycle, they will fall prey to all three of them. And so the good entrepreneurs, the great entrepreneurs are the ones that can actually use the data in context, they can actually hire for diversity within their organizations, and they can actually start thinking about what do I actually need to be measuring now in order to get the analytics for tomorrow.

Tim: Yeah, it’s one of those things, it’s sneaky, right, it sounds like a cliche, and you say, obviously I’m not doing this, obviously I’m not doing that, but again, it happens to everyone, it’s just one of those things. It’s dangerous because it seems cliche, and it seems trite, and that’s why people fall into that. But yeah, cool, thanks a lot.

Dale: Absolutely.

Tim: Cheers!

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The Startup Tapes chronicle the highs & lows of building a startup, through candid, immersive interviews with founders, operators & advisors. Tim Anglade, an Executive-in-Residence at Scale Venture Partners and formerly with Realm, Apigee, and Cloudant leads the project with the goal to de-mystify the process through which startups emerge, grow & succeed. His unfiltered interviews transcribe the conversations we often hear in the boardroom, amongst our portfolio community and with entrepreneurs and partners we engage with every day.

Learn more about Scale Venture Partners at scalevp.com.

For guests suggestions, feedback or questions, email tim@scalevp.com
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