High Growth Handbook
BY ELAD GIL
You’ve found a good product with strong market fit, so how do you scale from an early stage startup to list on the S&P? Author Elad Gil, cofounder of Color Genomics and VP at Twitter, lays out the key frameworks that CEOs of high-growth companies need to understand in High Growth Handbook.
He provides a comprehensive guide to hiring best practices, the three phases of CEO change management from LinkedIn Co-Founder Reid Hoffman, a roadmap for M&A success from major investor Marc Andreessen, and an eight-step framework to evaluate the pros and cons of IPOs. With specific and actionable advice for every stage of the hyper-growth, this guide is meant to launch founders and their companies to the moon.
TOP 20 INSIGHTS
Marc Andreessen's high growth framework is the following:
Step 1. hyper-focus on product-market fit.
Step 2. Great products will attract copycats.
Step 3. Innovate your products so you don't get undercut by competitors or you'll run yourself out of business by innovators who do, like Blockbuster and Netflix.
M&A is a powerful and underrated tool, even for smaller-scale start-ups in the hyper-growth phase. For example, Google Maps, Android, and Gmail were all acquisitions that Google made relatively early on. M&A brings new talent and capabilities into your organization, eliminate competition, and save you heaps of time and money. Use M&As and buy other companies liberally. Andreessen discusses the pattern of companies like IBM, Microsoft, and Cisco that grew off the back of M&A. Between 1995 and 2000 Cisco bought seventy-nine companies and that largely made them the $230 billion market cap company they are today.
A great way to eliminate bias in hiring is candidate scoring. Instead of subjectives scores, let the interviewer score based on a concrete rubric. Instead of asking interviewers to recommend “hire” or “don’t hire,” ask them to assess whether someone meets the company’s standards.
You can’t be good at everything, but you don’t have to if you hire well. CEOs shouldn’t put all the pressure on themselves to do everything, instead they should find people who are better than them and delegate. Aaron Levie, CEO of Box, had no experience building out these kinds of high growth companies, so he hired Dan Levin from Intuit as COO to help him build an organization that can manage a large number of employees. When a CEO delegates, they should take their hands off the wheel. If they “delegate” but find themselves still constantly involved with worry over what employees do, they either haven’t relinquished control or their team is not able to execute the delegated task.
During the hiring process, think of candidate conversion in terms of time spent measured against the likelihood for candidates to accept the job. The longer it takes to interview, follow up and hire them, the less likely they are to accept the position.
Don’t skimp on onboarding. Far too many CEOs put lots of time and resources into hiring (as they should) but forget to build a good onboarding program. That just wastes. Send out a welcome letter and an onboarding package with what they will need and need to know. Pair them up with a buddy, set goals, and make sure that they have real ownership over their role.
During a company reorganization, follow this seven-step framework for change management:
1) Decide why to reorganize.
2) Determine what structure is most practical.
3) Get buy-in from leaders.
4) Move quickly.
5) Make sure leadership understands and can explain it before you announce it.
6) Remove ambiguity.
7) Communicate directly, clearly, and compassionately.
Once a company finds product/market fit, the network, skills, and advice needed from the board will change. As a company approaches an IPO it will need more independent directors, operators, and specialized board members. If an independent board member needs to be changed this can be done with either
A) a board vote,
B) a stock vote, or
C) mutual agreement.
VC board members are harder to be removed and require either
A) a change in the overall composition of the board
B) a buy-out, or
C) the consent of the VC firm.
Per LinkedIn CEO Reid Hoffman, even if you need to replace your CEO, you still need someone with a founder’s mindset. A CEO is hired for a skillset, but at the end of the day, if they don’t have the right perspective, they’re just an asset manager.
Write a guide for yourself. Claire Hughes Johnson - COO of Stripe – wrote a guide to herself when she began at that company and that can be a great way to let people know what to expect from their executives as well as what executives expect from them. It can also jumpstart practices a CEO wants employees to know about when they work with them so that they lose no efficiency.
A valuation of $500 million to $1 billion tends to be the point when founders and employees sell or consider the sale of some stock. This is for three reasons:
1) It likely took several years to get to this point and life events may mean people need more liquidity.
2) At this point, most of their net worth may be tied up in company stock and diversification becomes attractive.
3) Employees may be less confident that the company will continue to grow at the rate it did before.
Bandwidth often matters more than perfect fit. Sometimes it’s better that an executive can do a lot of things well instead of some things perfectly. Put people into positions where they can do that. Alex Macgillivray was general counsel for Twitter. Normally a GC would not have user support, trust and safety, and corporate development/M&A all reporting to them, but Alex’s ability to juggle these tasks made him one of Twitter’s most valuable executives.
Plan for the medium term. Plan too short term and it can backfire. In a hyper-growth phase, a company can change rapidly in six to twelve months and become a whole new company. But don’t plan too far ahead either. If a company has a 10-person engineering team that grows to 30 people in a year, it doesn’t need to hire an SVP from Salesforce whose job is to manage a 1,500-person team. No one knows what the company will need three years from now, so plan for what you know now.
Patrick Collison, the CEO of Stripe says it’s easy to learn the wrong lessons from early success. If a company’s gotten to the hyper-growth point it did a lot of things right in the early stages. But it made a lot of mistakes too. Just because something worked or didn’t backfire in the past doesn’t mean that it was what should have been done or that it should be repeated.
Watch out for how the board interacts with you as CEO. Reid Hoffman created the following three-step framework to measure a CEO’s status with its board: At a “Green Light”, the CEO makes all the decisions and the board is only advisory. At “Yellow light”, there are questions that can be fixed, but a good board will not stay for long. At “Red light” there will soon be a new CEO.
There are four types of product managers and the type you choose will depend on the needs of your company. Business product managers are great for turning customer feedback into product changes. Technical product managers can deal with the engineering team and excel at inward-facing tasks. Design product managers can revolutionize user experience. And growth product managers can identify and manipulate the critical levers to product adoption.
Paradigm CEO Joelle Emerson says it’s important not only that organizations be fair, but that the people involved in them perceive them to be fair. Make sure that promotion, demotion, and hiring processes are structured and standardized so that people feel like these decisions are not arbitrary.
Do not think a good press cycle can make up for a bad business decision, or that a bad press cycle can ruin a good one. Press is not nothing, but for most companies it’s not what they should focus on. Theranos once enamored the press and is now defunct; Facebook has had no shortage of bad press and is valued over $1 trillion.
Be careful of Wall Street investors when you get late-stage funding. Unlike the Silicon Valley investors most startups are used to, Wall Street is not hyper-focused on startups and won’t be as patient or accommodating as Sand Hill Road.
Go public as soon as you can. In the past, companies waited too long. During the period from 2007-2012, most companies waited as long as they could to go public and that really limited them. Going public will give a company new capital, a better currency for M&A, let it grow faster, and have new opportunities for expansion. Tesla, for example, would not be able to fund massive ventures the way it does today without it’s highly valued stock. The benefits often outweigh the risks.SUMMARY
If your company is at the hyper-growth phase, new hires will take up a lot of your time as CEO. During his time at Twitter, Gil saw the company grow from just 90 employees to 1,500 in two and a half years.When hiring, it’s important to make sure that every candidate goes through the same process. A CEO may believe because they’ve given the same instructions to all of their managers and interviewers that this is the case, but each of those people will bring with them their own perspectives, interpretations, and biases that will change the way they execute instructions. That’s why CEOs should standardize their hiring to a greater level of detail than they may with other instances of delegation.Make sure that every candidate is asked the same questions, make sure that references are asked the same questions, and make sure that interviewers are given focus areas to pay attention to before they go into interviews.One great way to eliminate bias and interpretation is to institute a system for candidate scoring. Don’t allow the interviewer to interpret how well a candidate answered a question differently than another interviewer. Instead, create a points system or a satisfactory/unsatisfactory scoring system for each question based on a concrete, measurable rubric. Instead of asking interviewers to recommend “hire” or “don’t hire,” ask them to assess whether a candidate meets the company’s standards. These will help to eliminate the disparities between different interviewers and give the team a more accurate picture of each candidate.After new candidates are hired, don’t think that you’re done.
“Many companies make the mistake of spending months building a pipeline for recruiting the very best people, but then spend little time actually onboarding them to make sure they are successful.”Onboarding best practices
Send out a welcome letter: Send a letter to new employees with their relevant teams cc’d. In it explain their role, who they report to and their goals. Ask for an interesting fact about them that they’re willing to share.
Create a welcome package: This can include practical items like a laptop and email address but should also include things like a book that expresses the management style you hope to emulate or company merch. Personal touches are nice. For instance, a signed or handwritten note or a company onesie if they have a newborn.
Use a buddy system: There are going to be processes, jargon, tools, and structures that are unique to the company. Pair new employees up with someone who has more experience so that they can learn all of these and become maximally efficient faster.
Make sure they have real ownership over their work: Try to give them their own projects or transition projects over to them that they can make their own. They’ll feel more connected and prouder of their work that way.
Set goals: Setting 30-, 60-, and 90-day goals gives new employees a sense of direction. But make sure to check in on these goals and update them or else they’ll become useless pretty quickly.CHANGE
At this phase in a company’s growth, you’ll have essentially a new company every 6-12 months. Like Google, which grew from 1,500 employees to 15,000 in three and a half years.If a CEO is not able to adapt to this change, the board of directors may soon begin to realize that they’re no longer the best person to lead the company. What can a CEO look out for? How can one know when that’s starting to happen?Reid Hoffman talks about how the board of directors should interact with a CEO and lays out a three-leveled scale for how boards should interact with CEOs.
Green light: “You’re the CEO, make the call, we’re advisory.” This is where you want to be as CEO. The board is not there to run the company and if a CEO’s doing well, they won’t be. If the CEO handles the management of the company with only advisory input from the board and the board trusts them to do so, everyone’s at green light.
Yellow light: “I have a question about the CEO. Should we be at green light?” If you’re at yellow light, there’s some kind of problem or the board has some kind of questions. This is ok, but the trick is that this should be temporary. Never let yellow light be the standard state of affairs for long. Either fix the problem to move to green light, or the yellow light should become red.
Red light: “The CEO will not be the CEO much longer.” If the board is handling management of the company, it usually means the CEO is doing a poor job. If the board has people who are experienced and know what the job of a board is supposed to be, they’ll be looking for a new CEO, whether the CEO knows it or not.
“The hard part is that most people want to just do the first part, which is figure out what the company should do. In practice, time-wise, I think the job is 5% that and 95% making sure that it happens. And the annoying thing to many CEOs is that the way you make it happen is incredibly repetitive. It’s a lot of the same conversation again and again with employees or press or customers. You just have to relentlessly say, “This is what we’re doing, this is why, and this is how we’re going to do it.” And that part—the communication and the evangelizing of the company vision and goals—is time-wise by far the biggest part of the job.” — Sam Altman, Y CombinatorEventually, you’ll have hired so many people that you have nearly a whole new staff. The company will have new procedures and operating principles. It’ll have new products and new markets. There will be whole new departments in the company. Leaders have to remember that they can’t predict where the company will be in three or five or ten years, so they can’t plan for that. At this phase, plan everything for the medium term. Hire people who will meet the company’s needs for the next 12-18 months, build an organizational structure for the next 12-18 months, build a board for the next 12-18 months.Inevitably, this means that you will have to reorganize your company. Probably more than once. Gil walks us through how to do this:
Decide why the company needs the new org structure
Determine what org structure is most pragmatic
Get buy-in from the right people before implementation
Announce and completely implement the reorganization within 24 hours. Everyone has to move quickly or else they give people time to resist the reorg and time for rumors and panic to spread. If there is much time between announcing a reorg and implementing it, that will be unproductive time.
Brief everyone on leadership and make sure that they’re ready to answer questions about it before announcing.
Remove ambiguity, make sure leadership knows 100% where everyone is going and that everyone else knows 100% where they are going.
Communicate directly, clearly, and compassionately. Listen to people’s concerns, but keep backtracking to a minimum, this is being done for a reason and backtracking could just start to undermine that.The best way to retain good employees is to give them someone that they can learn from. This will help them to adapt from the company they were hired into to the company that it will be 8 months later. Make sure to communicate these changes though. People cannot grow with something if they don’t see the growth, so a CEO needs to make sure that everyone under them understands how and why the company is changing and help them find the way that they will best fit into the new company.
“When it comes to culture, I think that the main mistakes that companies make are being too precious about it, being too apologetic about it, and not treating it as dynamic and subject to change.” — Patrick Collison, StripeESTIMATION QUESTIONS
Interviewers care more about your problem-solution approach than a numerically accurate answer. Use this 8 step process to answer estimation questions.
Clarify the question — Repeat the question back to the interviewer and ask about any detail which seems ambiguous.
Identify knowledge required to solve the question — Find out what data you have and what needs to be computed. You can ask interviewers for critical facts in some cases.
Make an equation — Form an equation to solve the problem. Before you choose one approach, brainstorm multiple possible equations and choose the best plan of attack. Communicate your approach to demonstrate your thought process to the interviewer.
Think about edge cases — Think about possible edge cases and problems in the approach. Be open about challenges to show the interviewer that you are detail-oriented and unafraid to discuss shortcomings of your approach.
Break it down — Compute each component of the equation through the construction of sub-equations.
State your assumptions — Rely on experience and intuition to make reasonable estimates for key variables. State your assumptions clearly. Pick round numbers.
Compute — Do the math. Remember that estimation questions only require a ballpark answer.
Sanity Check — Before you share the answer with the interviewer, double-check if your answer is reasonable in accordance with commonly known facts.CASE QUESTIONS
PM interview case questions can lead you astray because they are dangerously similar to consultant case questions. Unlike case interviews where consultants will be asked to solve organization-scale problems based on data, interviewers expect PM candidates to solve product questions through reliance on their product instincts. PM candidates must make sound business decisions in the absence of detailed data. Use management frameworks like the 4P's, SWOT analysis and Porter's five forces to structure your response."The best way to learn Product Management is through observation and interaction with seasoned PMs. Look out for products users love and find ways to get in touch with the PMs behind them. Talk to them to understand their process and the frameworks they use to make decisions. Besides the ability to learn more about Product Management, a robust network can open many PM opportunities."MERGERS AND ACQUISITIONS
M&A, in Gil’s approximation, is a criminally underrated tool for businesses in the hyper-growth phase. Usually thought of as a tool for giants, most hyper-growth stage companies are in fact in a strong position to be acquiring other companies. This tool can give a company access to talent it wouldn’t otherwise be able to get, can knock out competitors or prevent competitors from entering the market, can improve its own products, and can advance development by months or years. Many of the products we think of today as integral to a company’s strategy were in fact gotten through M&A. Google, for instance, acquired Android, Google Maps (from ZipDash) and Gmail (from Reqwireless) this way.THERE ARE THREE MAIN WAYS THAT YOUR COMPANY CAN USE THIS TOOL:
Hiring M&As – These M&As, also called team M&As or acqui-hires, are done to get the personnel that another company has. If a company wants to build a machine learning product and a failing startup has outstanding machine learning and AI engineers, that company can buy the startup just to add those engineers to the team. Their product can be kept, but it’s not the main point.
Product M&As – These are done for the sake of a piece of IP. The three M&As from Google above are a great example. If a company wants to build out an email application, sure, it can do it itself, but many times it will be far easier, faster, and cheaper to just use the work someone else already did.
Strategic M&As – These are usually about competition. They can either be to eliminate a competitor, such as Facebook’s acquisition of Instagram, or to prevent Big Scary Company X from entering the market by acquiring the same company being acquired now.While your team may push back against these rollups in favor of internal development, it will usually be the case that you will save yourself a lot of time, energy, money, and hassle with strategic M&A.As you consider an M&A, make an M&A roadmap.
Ask yourself:What do you need? Do you need people, new engineers, or coders? Facebook’s acquisition of drop.io was largely to get Sam Lessin. Do you need a tool that can be adapted into a product you already have, like Twitter’s acquisition of Summarize and subsequent transformation of it into Twitter Search. Or do you need a new product all together, like Google’s acquisition of Android? It may also be that you need to keep a competitor out of the game — although this practice is currently under scrutiny as anti-competitive.
Who has what you need? Figure out which company has something similar to what you need. There may be more than one. If so, figure out whose product is best, who has something you can’t make yourself, and who seems most open to a sale.
What type of M&A am I pursuing? Product? Hiring? Strategic?Is this company a good fit for mine? Run these general considerations through your head:
Can we absorb a company of this size without screwing up our culture?
What will our org chart and reporting structure be?
Will the leadership of the team have an impact more broadly on our company?
Are there areas we are struggling with that they can own?IPOS
Gil believes that for much of this century companies waited too long to go public. A lot of companies through the 2000’s and early 2010’s waited as long as they could. Gil thinks that this is a mistake and that CEOs should try to go public as soon as possible. In his opinion, the pros heavily outweigh the cons — But how does one know when it is right for their company?PROS
Employee retention, hiring, and conversion: After an IPO conversion and new employee retention will often go up. New employees will value the new, more liquid stock higher and believe that they have more of a future in the company. Old-timers may leave now that they can sell their stock more easily, but many would have left anyway.
Mergers & Acquisitions: When buying a company now, there’s no longer any need to discuss and debate how much stock is actually worth as a currency.
New capital sources for a company: Public markets give a company access to a lot more funding. Tesla for instance would not have the cash it has now were its stock not so valued on the public market. Especially in a tight capital marker, this can provide funding when none other is available.
Ability to partner or sell at scale: A public company tends to be taken more seriously for partnerships, sales, and other business activities.
Fiscal and business discipline: Public market pressure can force companies to take more seriously their financial position. For Facebook, monetization was not a major concern until after their first big dip in sale prices when Zuckerberg directed his team to more seriously develop it.CONS
Larger, more complex board of directors: Once a company goes public, it has to staff committees at the board level. This makes the board larger and more complex, which also means it will be harder to manage.
Financial and other controls: Companies will have to abide by more regulations and financial controls. Some of this will be good for the business overall, but more will just slow it down.
Employee mix shifts: As the company develops, new employees will be more risk averse than early ones. If they were more open to risk, they would have joined earlier.THE ICARUS CONUNDRUM
Last, Gil shares the top 3 scenarios to avoid when it seems like everything is on an upward trajectory with no end to the good times in sight.
Waste not – At the height of its fundraise, Dropbox bought its office a giant chrome panda. But as time went on, the panda became a symbol for wasteful spending. If your company wants to spend VC money on a Juicero machine, you’ve probably flown too close to the sun.
Expand too far – While Uber was able to capture 20% of the Chinese market with its investment in its Chinese counterpart DiDi, nearly every other tech giant that has tried to launch in China has had its operations blocked and shut out for its failure to abide by China’s rules. Don’t try to expand too fast without weighing the rules of the countries you want to enter or you’ve flown too close to the sun.
False casual – Gil once worked for a 120-person team at a startup backed by the VC firm Sequoia. Three months after he joined, the company expanded to 150 team members. After a round of layoffs, the company thought a pool table would help employee morale. But in the nine months that followed, the company held four more rounds of layoffs until the team shrunk down to 12. The pool table became a symbol for “company waste” and anyone Gil saw play pool ended up losing their job in the following round of layoffs.While it seems like a good idea to try to build morale with workplace perks (especially at the height of your growth) — it's better to spend money where it counts so you don’t fly headfirst into the sun.