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All startups have the same goals; develop an innovative product, find your market fit, and exit through an acquisition or IPO. Yet, very few achieve these goals. Even if they’ve built a product that blows the market away, the majority of startups fail. While some companies may suffer from a lack of product-market fit or a lackluster sales strategy, many don’t make it far because of mundane reasons.
In the frenzy of starting a company, founding teams often overlook the core factors they need to lay down the foundation for a company that will last. While product innovation may be more exciting to work on than processes and people management, it’s ultimately the people who make up your company and the processes they follow that will make or break your business.
In my 20-plus years of working for high-growth startups before and after acquisitions and IPOs, I’ve learned several lessons that every founder should keep in mind:
- Build process like you’ll be in business for decades;
- Keep it simple;
- Focus on your team and values; and
- Know when it’s time to step away.
Build processes like you’ll be in business for decades
On Wall Street, there’s a saying, “Nobody rings the bell at the top of the market.” Similarly, during my time working in companies after the startup phase, I’ve seen that “nobody rings the bell when the product-market fit is achieved.” In other words, no one tells you when your business has achieved long-term viability. However, realizing that long-term viability requires changing how you run the company earlier rather than later.
Many early-stage businesses fail to prepare for running the business for the long haul. They continue to run it as they did prior to achieving product-market fit, trying to achieve milestones that enable continued funding of the business. This lack of foresight and preparedness for what’s to come can have consequences that last for years, and is often the downfall of startups that otherwise would be on a path to success.
It’s unfortunate, but many startups associate developing processes with “slowing things down.” That can be true when there are just a handful of people in a company, but once you have 100+ people, processes are a friend. I like to say that processes enable increased and sustained execution velocity the larger a company becomes—you must “go slower to go faster.” Even though putting in more processes may be perceived as slowing things down, it actually enables more velocity because it drives coordination, which is vitally important the larger a company gets.
Some founders think they can wait until their business is larger and more established to create processes, assuming that there will be a “defined” time to invest in the fundamentals. For most startups this isn’t the case—fast-growing businesses are always chaotic, and as they grow a lack of processes will cause even more headaches, as the impact of adding more customers, people and technology to an organization without adding processes tends to accelerate problems.
Startups must invest early on in building effective and efficient sales, marketing, finance and product innovation processes. A lack of process slows growth because companies aren’t effective enough at selling, marketing and fulfilling customer needs, and companies can get into financial trouble if they haven’t scaled their processes with their business.
While many companies fail by not raising enough capital, then burn through their cash quickly, others raise too much and still waste it on ineffective strategies. Both scenarios are a recipe for disaster. Burn rate often goes up when businesses start to scale, as they may invest large sums into inefficient sales and marketing tactics, among other mistakes. This leads companies to raise capital when they really need to invest in more efficient workflows. Creating targeted go-to-market strategies and being strategic with your spending rather than throwing money into unproven channels will pay dividends in the long run.
Unfortunately, today’s market rewards inefficiency, as investors can get a return even when companies are unprofitable. This has created a culture of technology companies with high burn rates and inefficient processes.
The reality is: Many startups have viable products much earlier than they think. Once you know your business will survive, you should be building a business like it will be around for 10 years, rather than waiting for problems to show up once you’re at a breaking point.
Keep it simple
At DigitalOcean, simplicity is one of our core values, and if more startups focused on it they would avoid another common pitfall—making products, processes and teams too complex. Instead, by truly understanding what makes your product stand out, you’ll be able to focus your resources on the few core elements that are critical to your business’ success.
The moment a company experiences an acceleration in their growth rate, teams must stop and analyze what got them to that point, and focus on those factors. For example, suppose businesses throw too much money at a new product instead of focusing on their core functionalities. In that case, they run the risk of growth decelerating due to an increased burn rate as increased product investment is made without clear goals and outcomes for those products.
The key to successful scaling is simple—input and output. It’s important to understand the connection between your actions and how they impact growth and profitability through clear metrics and scorecards. Don’t just rely on anecdotal evidence to drive your strategy forward. Too many businesses fail because they trusted their gut rather than the numbers, and chased after side projects that weren’t at the core of what brought customers to their solution in the first place.
One of my favorite strategies for enforcing simplicity is communication on a regular cadence with the broader company. Simplifying communication makes it easier for an ever-growing organization to stay on the same page and is critically important. I like to connect the broader mission and vision as well as the company’s values to the more tactical aspects of initiatives and metrics. Doing so connects the bigger picture of “why are we here” (mission) and how we do what we do (values) to our regular tasks. This is important so that mission/vision and values don’t become simply slogans, but are embodied by each employee every day.
Focus on your team and values
At the core of every company is a team of individuals. If you take the time to invest in your team, you will reap the rewards for years to come. Building a team that is accountable, transparent and able to communicate clearly will ensure that problems are solved as they come up. Placing an emphasis and value on identifying gaps in your team before they become an issue, will allow you to proactively build an all-star team that will stay with you in the long run.
Too many early-stage companies don’t place emphasis on values, but values drive individual employees to give their best and should be in place from the early days. Having clearly defined values enforced throughout the company makes tough decisions easier to resolve and builds loyalty in your employees. Creating a culture of accountability and a team that is aligned toward the same values will help you avoid unproductive conflict and focus on business growth.
Additionally, instilling company values into your product development and customer engagement will help make your customers feel like they are part of your broader community. By creating values that cover both your own team and your customers, you guarantee that customers will be at the heart of your decision-making. Ultimately, you’ll build a devoted customer base that grows alongside your company.
Know when it’s time to step away
The hardest part of being a founder is knowing when it’s time to take a step back. There comes a time in every growing company where the founder is no longer the best person to run the business effectively. Frequently, bringing in other experienced leaders is all that’s required to support the growth of the company under the founder’s directive. However, every circumstance is different.
Founders’ identities are closely linked to their companies, and they often find it difficult to leave the day-to-day running of their company to someone else. For most high-growth startups to move to that crucial next stage, they need to bring in an executive team with a diversified skill set and experience scaling a company to supplement the vision and energy of the founder.
The key is for founders to think of this evolution as a feature, not a bug, and embrace the change rather than find a way around it. Think of the most successful companies built in the last two decades, including Facebook, Google, and Microsoft. Almost none of them would have succeeded if they hadn’t brought in a more experienced partner or executive team to help them grow from 500 to 1,000 employees and from 1,000 to 10,000-plus
Successful companies are often not helmed by a visionary, but by a practical operator who knows how to build processes, manage a productive team, and crunch the numbers. Companies can’t get to $100 million, $200 million, or more in revenue without some significant change, and if more founders acknowledged that they are not the right leader earlier on, they would save themselves heartache in the future.
Conclusion
There’s no single piece of advice that will enable you to build a high-growth company, and I can’t tell you what product will bring customers to you. But once you’ve found a market fit for your product or service, I do know that the steps outlined here will help you thrive with growth instead of becoming consumed by it.
As chief executive officer, Spruill drives the overall strategy for DigitalOcean, leading the company through its next phase of profitable growth. He brings a wealth of technical, financial and leadership experience and spent the past 15 years in senior executive roles at technology companies including SendGrid and DigitalGlobe.
