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Presentation Dave Kellogg gave at SaaStr Europra 2022 in Barcelona on the top 5 mistakes in scale-up phase for startups

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  1. 1. The Top 5 Scale-Up Mistakes (And how to avoid them) DAVE KELLOGG EIR, Balderton Capital www.kellblog.com @kellblog
  2. 2. Former Operator ε CMO 3x for 10+ years ε CEO 2x for 10+ years ε Enterprise, B2B SaaS Including: ε Business Objects, Host Analytics, MarkLogic, Alation (gig) Advisor, Angel, and Director ε Advisor 18x+ ε Angel 20x+ ε Non-exec director 7x for 10+ years Including: ε Numerous Balderton companies ε Nuxeo, Pigment, Recorded Future, Scoro, Alation, Bluecore, GainSight, MongoDB, Tableau Who Is This Person? 2
  3. 3. Who Is This Person? 3
  4. 4. You’ve got product-market fit (PMF) ε The Andreessen test ε The Sean Ellis test You’ve identified a buyer (persona) to sell to And a problem you solve for them You’ve sold maybe $2M to $10M in ARR You’re no longer in founder-led sales The product is no longer MVP Congratulations! You’re exiting start-up and entering scale-up Image source: https://nzrise.org.nz/9-rules-to-interrogate-hockey-sticks/ 4
  5. 5. 5
  6. 6. How hard should you step on the gas? When? Do you have the right people on your team? Do you have a repeatable sales formula? Do you have the right support and enablement? What’s your holistic plan for entering international markets? What shape will you be at $100M? Do the e-team and board agree? How do you stay focused in an idée du jour environment? When should you make your second album? Do you need one? What’s your product plan and when do you start worrying about technical debt? Well, Maybe Not 6
  7. 7. Now, You Have Different Questions (But they’re still hard)
  8. 8. 1. Prematurely accelerating go-to-market (GTM) 2. Putting (or keeping) people in the wrong roles 3. Losing focus 4. Messing up USA expansion* 5. Accumulating debilitating technical debt The Top Five Mistakes in Scale-Up 8 * This presentation is intended for a European startup audience
  9. 9. By far the top scale-up mistake Causes: ε Prematurely thinking you have repeatability ε Board pressure ε Model-induced hallucination Consequences: ε Dead VP of Sales; wounded founder/CEO ε Millions of dollars burned ε Loss of investor confidence ε Reduced employee morale Mistake 1: Premature GTM Acceleration 9 Catching air on the lifecycle curve World’s worst reason to hire a seller “If I don’t hire we have no chance of making it, if I do then we might.”
  10. 10. How Much Does a Seller Actually Cost? Direct Costs ε $300K OTE ε $180K for 2/3rds of an SC ε $60K for 2/3rds of an SDR ε $60K for 1/6th of a manager ε $100K of marketing for 25-40 oppties ε $700K = direct cost of carrying the wrong person for a year Opportunity Costs of a Bad One ε Deals lost that you could have won ε Flagship clients on competitor’s website ε Damage to your reputation ε Impact on coworkers ε “Impaired, but contributing” – wrong ε Deals lost, resources wasted – right ε Test: are you proud they represent you? 10
  11. 11. “You can never fire someone too early.” ε By the time you find out there are problems, a lot of damage has already been done Do you even think about firing your best employees? ε If you are thinking about it, the employee is definitionally not a star or superstar In countries where terminations are difficult by law ε Be extra careful on the initial hire (background/profile, references, work test samples) ε Setup formal review prior to expiration of probation period Aside: Remember the Old VC Adage 11
  12. 12. Be realistic in self-assessment ε Advisors and directors can help Hire according to empirical indicators, not the financing plan ε Indicators: quota attainment, forecast accuracy, pipeline growth and coverage ε Beware: pipeline discipline, pipeline chicken or egg problem ε Qualitative: does the VP of Sales want to make the hires? ε This is intelligent use of capital, not a bait-and-switch on your investors Learn what repeatability looks like so you can know how close you are Avoiding Premature GTM Acceleration 12
  13. 13. The Search for Repeatability What is it? How do you know when you have it? Conceptually, it’s simple ε Given standard inputs, ε And a standard process, ε Do you get a standard output? 13
  14. 14. Defining the Repeatable Sales Process 14 Standard Process • Tools and ongoing training • Management and cadence • Sales process and methodology Standard Inputs • Profile/background • Hiring criteria • Onboarding Standard Output • Ramping • Productivity • Attainment (X% at Y%) See https://kellblog.com/2021/01/14/the-holy-grail-of-enterprise-sales-defining-the-repeatable-sales-process/
  15. 15. Nostalgia can be pretty nostalgic ε “In the good old days, we had 80% of our sellers at quota every quarter.” ε “Back at BigCo, if you missed quota two quarters in a row, you were summarily fired.” Such comments have little value ε 80% at 100% on the year is a maybe, 80% at 100% every quarter, NFW. ε At that time BigCo was a $500M category-leading company growing at 50% -- not our situation ε If they were really firing everyone so quickly, the analysis is likely survivor-biased My take ε I like 80% of sellers at 80% of quota on the year, and even that’s a high bar ε In emergencies say this: “I can fire everyone who’s missed two consecutive quarters, but then we’d have no salesforce. And that would seem problematic.” Quick Thoughts on Attainment 15
  16. 16. In start-up and scale-up companies there are two types of people ε Figure-it-out: give me a telephone and a machete and I’ll be fine ε Scale-it-up: let’s define and execute a process and I’ll be fine The people who got you from $0M to $10M are figure-it-out people The people you need from $10M to $100M are scale-it-up people They’re different ε They don’t respect each other ε They often don’t even like each other Mistake 2: People in the Wrong Roles 16
  17. 17. Example: Figure-It-Out vs. Scale-It-Up Sellers Figure-It-Out Sellers ε Love hard problems ε Like unanswered questions ε Get bored with repetition ε Feel constrained by process ε Want to prove value of product ε Quit slowly if you keep them too long ε Artisanal ε Give me a telephone and a machete Scale-It-Up Sellers ε Love making money ε Want a playbook ε Want to lather / rinse / repeat  $$$$ ε Want a defined process ε Want to prove they can do big numbers ε Quit quickly if you hire them too early ε Industrial ε Give me a patch and a playbook 17
  18. 18. The Hardest Balance ε Loyalty is important, but winning is your paramount responsibility ε You must build a team that’s a mix of veterans and up-and-comers Strike a balance ε Truly value people ε Re-organize periodically ε Assign cross-functional OKRs ε Re-deploy people to matching roles 18 Loyalty Scaling
  19. 19. Building and Scaling are Different Building ε Small number of amazing, creative, unstoppable people ε Solving problems ε Quality = individual excellence ε Motto: amazing people can do anything ε Investors: talk about your amazing people ε Blazing trails Scaling ε Small number of amazing process- and infrastructure-oriented leaders ε Leveraging a large number of great but not necessarily amazing people ε Building systems and processes ε Quality = process ε Motto: we help great people do amazing things ε Investors: talk about your amazing machine ε Building roads 19
  20. 20. ε Other than that, I mean, how are we going to grow? ε What about new, semi-relevant competitor X? ε Are we moving to usage-based pricing? ε Should we acquire company X? ε Should we have an app store? ε Do we do ABM? ε Should we start a business unit? ε How are we expanding channels? ε Do you have a second album? ε Should we start a run-rate business? ε Should we do PLG? Mistake 3: Losing Focus 20 The Great Irony Despite all the focus on the machine You never get to say, “uh, we’re going to do more of what we did that got us here.”
  21. 21. Remember, They’re Trying to be Helpful (Most aren’t trying to distract you; they’re just throwing out ideas) 21
  22. 22. Throwing an Occasional Bone Doesn’t Work Over My Cold, Dead Body ε Paint it red and rent it ε Become vertical search engine ε Launch video search service ε Fact-extract the Twitter firehose ε Do what killed competitor ABC ε Replace Oracle in structured apps ε Sell a virtual appliance ε Build a finance solution 22 If I Run Out of Excuses ε Open source it ε Implement SQL ε Change to subscription pricing ε Focus on enterprise search ε Start an email search application ε Become Bayesian ε Launch enterprise attack ε Switch to subscription See https://kellblog.com/2017/03/01/the-dogshit-bar-a-memorable-market-research-concept/
  23. 23. Your Second Album Can Likely Wait 23
  24. 24. How To Stay Focused ε Remember your company is not a fund ○ Investors get diversification by investing in N of you ○ You should probably not be seeking diversification, especially not because of investors ε Don’t get bored with your own message ○ You’ve been saying it for years, but what percent of people have heard it? ○ Benioff has been selling cloud for two decades and we’re a long way from done ε Focus your energy on winning the market ○ Be the best in the world at what you do ○ Measure market share and penetration 24
  25. 25. Delaying expansion due to threshold anxiety Failing to adapt structure and process as you expand ε Opening the USA usually changes your entire company, not just one part Hiring the wrong people ε Europeans can’t read USA resumes (“these people are Gods”) Underestimating the importance of sales & marketing ε Tattoo this to your brain  best product doesn’t necessarily win Looking and sounding too European Mistake 4: Messing Up USA Expansion 25 See https://www.balderton.com/build/the-top-5-mistakes-european-technology-startups-make-in-us-expansion/
  26. 26. To go public in 2021, it took 11 years, $200M in burn, and $225M ARR ε That’s a long time to be focused on scaling go-to-market That’s an eternity in the technology world -- in 2010: ε AWS was 4 years old (and a $500M business) ε New Relic was 2 years old ε MongoDB was 1 year old ε React wouldn’t be developed for 1 year ε Terraform and Kubernetes wouldn’t be released for 4 years Mistake 5: Accumulating Debilitating Technical Debt 26 See https://www.meritechcapital.com/blog/2021-review-select-saas-ipos on select cohort class of 2021
  27. 27. I Have One Thing To Say About Technical Debt That shit will kill you 27
  28. 28. Managing Technical Debt ε Second only to overall product direction, the most important CEO-level product priority ε Hire and empower strong architect(s) ○ As feared as they are respected ○ Separate role from VP of Engineering ε Do trust releases once every 4-6 cycles ○ Architects assume PM duties in prioritizing backlog ○ Features added only if they also reduce debt 28 Marley’s Chains
  29. 29. Ingore Technical Debt Accumulation at Your Peril
  30. 30. Here’s how to avoid the five most common scale-up mistakes: ε Understand repeatability, accelerate GTM proportionally to amount you have ε Build a mixed team of loyalists and new hires, reconfigure it periodically ε Stay focused on winning in the market, never try to throw a bone to someone ε Start in the USA early and build a holistic attack plan ε Hire strong architect(s) and empower them to manage technical debt strategy Summary and Conclusion 30
  31. 31. THANK YOU

Description

Presentation Dave Kellogg gave at SaaStr Europra 2022 in Barcelona on the top 5 mistakes in scale-up phase for startups

Transcript

  1. 1. The Top 5 Scale-Up Mistakes (And how to avoid them) DAVE KELLOGG EIR, Balderton Capital www.kellblog.com @kellblog
  2. 2. Former Operator ε CMO 3x for 10+ years ε CEO 2x for 10+ years ε Enterprise, B2B SaaS Including: ε Business Objects, Host Analytics, MarkLogic, Alation (gig) Advisor, Angel, and Director ε Advisor 18x+ ε Angel 20x+ ε Non-exec director 7x for 10+ years Including: ε Numerous Balderton companies ε Nuxeo, Pigment, Recorded Future, Scoro, Alation, Bluecore, GainSight, MongoDB, Tableau Who Is This Person? 2
  3. 3. Who Is This Person? 3
  4. 4. You’ve got product-market fit (PMF) ε The Andreessen test ε The Sean Ellis test You’ve identified a buyer (persona) to sell to And a problem you solve for them You’ve sold maybe $2M to $10M in ARR You’re no longer in founder-led sales The product is no longer MVP Congratulations! You’re exiting start-up and entering scale-up Image source: https://nzrise.org.nz/9-rules-to-interrogate-hockey-sticks/ 4
  5. 5. 5
  6. 6. How hard should you step on the gas? When? Do you have the right people on your team? Do you have a repeatable sales formula? Do you have the right support and enablement? What’s your holistic plan for entering international markets? What shape will you be at $100M? Do the e-team and board agree? How do you stay focused in an idée du jour environment? When should you make your second album? Do you need one? What’s your product plan and when do you start worrying about technical debt? Well, Maybe Not 6
  7. 7. Now, You Have Different Questions (But they’re still hard)
  8. 8. 1. Prematurely accelerating go-to-market (GTM) 2. Putting (or keeping) people in the wrong roles 3. Losing focus 4. Messing up USA expansion* 5. Accumulating debilitating technical debt The Top Five Mistakes in Scale-Up 8 * This presentation is intended for a European startup audience
  9. 9. By far the top scale-up mistake Causes: ε Prematurely thinking you have repeatability ε Board pressure ε Model-induced hallucination Consequences: ε Dead VP of Sales; wounded founder/CEO ε Millions of dollars burned ε Loss of investor confidence ε Reduced employee morale Mistake 1: Premature GTM Acceleration 9 Catching air on the lifecycle curve World’s worst reason to hire a seller “If I don’t hire we have no chance of making it, if I do then we might.”
  10. 10. How Much Does a Seller Actually Cost? Direct Costs ε $300K OTE ε $180K for 2/3rds of an SC ε $60K for 2/3rds of an SDR ε $60K for 1/6th of a manager ε $100K of marketing for 25-40 oppties ε $700K = direct cost of carrying the wrong person for a year Opportunity Costs of a Bad One ε Deals lost that you could have won ε Flagship clients on competitor’s website ε Damage to your reputation ε Impact on coworkers ε “Impaired, but contributing” – wrong ε Deals lost, resources wasted – right ε Test: are you proud they represent you? 10
  11. 11. “You can never fire someone too early.” ε By the time you find out there are problems, a lot of damage has already been done Do you even think about firing your best employees? ε If you are thinking about it, the employee is definitionally not a star or superstar In countries where terminations are difficult by law ε Be extra careful on the initial hire (background/profile, references, work test samples) ε Setup formal review prior to expiration of probation period Aside: Remember the Old VC Adage 11
  12. 12. Be realistic in self-assessment ε Advisors and directors can help Hire according to empirical indicators, not the financing plan ε Indicators: quota attainment, forecast accuracy, pipeline growth and coverage ε Beware: pipeline discipline, pipeline chicken or egg problem ε Qualitative: does the VP of Sales want to make the hires? ε This is intelligent use of capital, not a bait-and-switch on your investors Learn what repeatability looks like so you can know how close you are Avoiding Premature GTM Acceleration 12
  13. 13. The Search for Repeatability What is it? How do you know when you have it? Conceptually, it’s simple ε Given standard inputs, ε And a standard process, ε Do you get a standard output? 13
  14. 14. Defining the Repeatable Sales Process 14 Standard Process • Tools and ongoing training • Management and cadence • Sales process and methodology Standard Inputs • Profile/background • Hiring criteria • Onboarding Standard Output • Ramping • Productivity • Attainment (X% at Y%) See https://kellblog.com/2021/01/14/the-holy-grail-of-enterprise-sales-defining-the-repeatable-sales-process/
  15. 15. Nostalgia can be pretty nostalgic ε “In the good old days, we had 80% of our sellers at quota every quarter.” ε “Back at BigCo, if you missed quota two quarters in a row, you were summarily fired.” Such comments have little value ε 80% at 100% on the year is a maybe, 80% at 100% every quarter, NFW. ε At that time BigCo was a $500M category-leading company growing at 50% -- not our situation ε If they were really firing everyone so quickly, the analysis is likely survivor-biased My take ε I like 80% of sellers at 80% of quota on the year, and even that’s a high bar ε In emergencies say this: “I can fire everyone who’s missed two consecutive quarters, but then we’d have no salesforce. And that would seem problematic.” Quick Thoughts on Attainment 15
  16. 16. In start-up and scale-up companies there are two types of people ε Figure-it-out: give me a telephone and a machete and I’ll be fine ε Scale-it-up: let’s define and execute a process and I’ll be fine The people who got you from $0M to $10M are figure-it-out people The people you need from $10M to $100M are scale-it-up people They’re different ε They don’t respect each other ε They often don’t even like each other Mistake 2: People in the Wrong Roles 16
  17. 17. Example: Figure-It-Out vs. Scale-It-Up Sellers Figure-It-Out Sellers ε Love hard problems ε Like unanswered questions ε Get bored with repetition ε Feel constrained by process ε Want to prove value of product ε Quit slowly if you keep them too long ε Artisanal ε Give me a telephone and a machete Scale-It-Up Sellers ε Love making money ε Want a playbook ε Want to lather / rinse / repeat  $$$$ ε Want a defined process ε Want to prove they can do big numbers ε Quit quickly if you hire them too early ε Industrial ε Give me a patch and a playbook 17
  18. 18. The Hardest Balance ε Loyalty is important, but winning is your paramount responsibility ε You must build a team that’s a mix of veterans and up-and-comers Strike a balance ε Truly value people ε Re-organize periodically ε Assign cross-functional OKRs ε Re-deploy people to matching roles 18 Loyalty Scaling
  19. 19. Building and Scaling are Different Building ε Small number of amazing, creative, unstoppable people ε Solving problems ε Quality = individual excellence ε Motto: amazing people can do anything ε Investors: talk about your amazing people ε Blazing trails Scaling ε Small number of amazing process- and infrastructure-oriented leaders ε Leveraging a large number of great but not necessarily amazing people ε Building systems and processes ε Quality = process ε Motto: we help great people do amazing things ε Investors: talk about your amazing machine ε Building roads 19
  20. 20. ε Other than that, I mean, how are we going to grow? ε What about new, semi-relevant competitor X? ε Are we moving to usage-based pricing? ε Should we acquire company X? ε Should we have an app store? ε Do we do ABM? ε Should we start a business unit? ε How are we expanding channels? ε Do you have a second album? ε Should we start a run-rate business? ε Should we do PLG? Mistake 3: Losing Focus 20 The Great Irony Despite all the focus on the machine You never get to say, “uh, we’re going to do more of what we did that got us here.”
  21. 21. Remember, They’re Trying to be Helpful (Most aren’t trying to distract you; they’re just throwing out ideas) 21
  22. 22. Throwing an Occasional Bone Doesn’t Work Over My Cold, Dead Body ε Paint it red and rent it ε Become vertical search engine ε Launch video search service ε Fact-extract the Twitter firehose ε Do what killed competitor ABC ε Replace Oracle in structured apps ε Sell a virtual appliance ε Build a finance solution 22 If I Run Out of Excuses ε Open source it ε Implement SQL ε Change to subscription pricing ε Focus on enterprise search ε Start an email search application ε Become Bayesian ε Launch enterprise attack ε Switch to subscription See https://kellblog.com/2017/03/01/the-dogshit-bar-a-memorable-market-research-concept/
  23. 23. Your Second Album Can Likely Wait 23
  24. 24. How To Stay Focused ε Remember your company is not a fund ○ Investors get diversification by investing in N of you ○ You should probably not be seeking diversification, especially not because of investors ε Don’t get bored with your own message ○ You’ve been saying it for years, but what percent of people have heard it? ○ Benioff has been selling cloud for two decades and we’re a long way from done ε Focus your energy on winning the market ○ Be the best in the world at what you do ○ Measure market share and penetration 24
  25. 25. Delaying expansion due to threshold anxiety Failing to adapt structure and process as you expand ε Opening the USA usually changes your entire company, not just one part Hiring the wrong people ε Europeans can’t read USA resumes (“these people are Gods”) Underestimating the importance of sales & marketing ε Tattoo this to your brain  best product doesn’t necessarily win Looking and sounding too European Mistake 4: Messing Up USA Expansion 25 See https://www.balderton.com/build/the-top-5-mistakes-european-technology-startups-make-in-us-expansion/
  26. 26. To go public in 2021, it took 11 years, $200M in burn, and $225M ARR ε That’s a long time to be focused on scaling go-to-market That’s an eternity in the technology world -- in 2010: ε AWS was 4 years old (and a $500M business) ε New Relic was 2 years old ε MongoDB was 1 year old ε React wouldn’t be developed for 1 year ε Terraform and Kubernetes wouldn’t be released for 4 years Mistake 5: Accumulating Debilitating Technical Debt 26 See https://www.meritechcapital.com/blog/2021-review-select-saas-ipos on select cohort class of 2021
  27. 27. I Have One Thing To Say About Technical Debt That shit will kill you 27
  28. 28. Managing Technical Debt ε Second only to overall product direction, the most important CEO-level product priority ε Hire and empower strong architect(s) ○ As feared as they are respected ○ Separate role from VP of Engineering ε Do trust releases once every 4-6 cycles ○ Architects assume PM duties in prioritizing backlog ○ Features added only if they also reduce debt 28 Marley’s Chains
  29. 29. Ingore Technical Debt Accumulation at Your Peril
  30. 30. Here’s how to avoid the five most common scale-up mistakes: ε Understand repeatability, accelerate GTM proportionally to amount you have ε Build a mixed team of loyalists and new hires, reconfigure it periodically ε Stay focused on winning in the market, never try to throw a bone to someone ε Start in the USA early and build a holistic attack plan ε Hire strong architect(s) and empower them to manage technical debt strategy Summary and Conclusion 30
  31. 31. THANK YOU

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