Later Stage Advice for Startups
themacro.com
themacro.com
I have spent a lot of time with startups (as an employee), and I have never seen this question answered properly, at least up close.
Very often product/market fit becomes "We've solved all these peoples' problems and they pay us money." The problem? The problems and the people are all different. I've witnessed so many companies turn themselves into specialized consulting companies thinking they've built the product that's going to take them to the finish line, when all they've really done is networked their way into solving a bunch of separate business problems for their network. A product should be so good that your users are almost embarrassed to file support tickets.
IMO, sama is wrong to suggest founders take their eye off the product ball at all (even just a little) until they are 1000% sure they've built a machine that will scale, and now all they have to do is scale it.
There are many companies that grew well beyond 40 people without having the above.
Happy to debate it though, as I'm not even sure I'm right, so would love to hear people's thoughts.
I honestly wish more founders had the guts to admit when they haven't succeeded, even when they've made a bit of money. I've seen so many founders go out on funding rounds pitching scale in their market that the employees know isn't possible (and often they know too).
We all learn from failure, but a lot of people in this industry sort of half-succeed and don't have the guts to admit their idea didn't work. They plug along on the fumes of a bloated funding scene that is all to prepared to throw good money after "meh" money.
I don't really have an answer either, but this all makes the founders who have high burn rates actually look smart, IMO, because at least they're failing faster than everyone else.
Given that the article is titled "Later Stage Advice" and it says things such as switch from not caring at all about marketing to caring about it a little bit once the product is working I think Sam's advice is properly qualified.
But your point is well taken; I've seen it to, but I'm not sure what the solution is. In general I think the advice of staying focused and minimizing burn attempts to address this, but in practice these choices are rarely easy. Sometimes you need to try a bunch of different things, but then you can be saddled with maintenance costs or blowback from customers if you yank the rug out. Also, if something appears to be working and you start to hire to support growing the business in that direction you can get screwed if you hit some ceiling of market appeal.
The cases where a company is so compelling and viral that there is a clear path to scaling are the exception. For every Instagram there are probably 1000 companies that are still considered successful by their founders but at a smaller scale or slower pace. Startups are hard.
There are probably less than 20 YC companies that have reached the point where this advice is valid. Zenefits, Airbnb, Dropbox, Stripe etc.
The others never needed this advice. The nightmare scenario for employees is getting stuck at a company without true product/market fit that just sort of has it, then watching the founders justify following this advice because they have raised enough money to get to 30 employees without ever having true product/market fit.
> The cases where a company is so compelling and viral that there is a clear path to scaling are the exception.
IMO, this advice should only apply to the exceptional companies.
> For every Instagram there are probably 1000 companies that are still considered successful by their founders but at a smaller scale or slower pace. Startups are hard.
Those companies should stay small with no formal management structure and most should not follow the advice in the post, even if they have scaled.
I think the OP's point is that product/market fit is overlooked so often by founders and teams. No matter what, it should always be the true focus of the business. The number of companies that need the advice in this post is so small that YC should just write it as a personal email to founders.
I think that a large portion of The Macro's purpose is content-marketing for YCombinator. It's a taste of the advice that you will get, personalized, if you take funding from them. The point isn't necessarily to help later-stage companies (although this is a beneficial by-product), it's to convince later-stage companies or early companies that hope to get to the later stage to apply to YC so that they can get the personal emails to founders with more tailored advice.
> IMO, sama is wrong to suggest founders take their eye off the product ball at all (even just a little) until they are 1000% sure they've built a machine that will scale, and now all they have to do is scale it.
Founders are adults and part of being a founder is knowing what advice to take. That said, I think someone at YC may agree that this advice is generally bad for a lot of early founders to follow. The reason I was backing up the OP is that he/she was stating that you should be 1000% sure you have product/market fit before following any of the advice in the post. Simply having the right number of employees or making some revenue are not enough.
My point is kind of nuanced. In general, I think YC puts out the best information for founders of all early stage companies/startups.
This advice is useful to basically every startup that has raised an A round, or is >= 10 people. That list is significantly larger than 20.
Management and HR problems start significantly earlier than Stripe size (200? 300?). They start at around 10 people, and this article matches my own experiences with useful advice to founders.
> most should not follow the advice in the post, even if they have scaled.
Which part, precisely is flawed? Frequent, clear communication and proper delegation are almost so true as to be tautological. Most founders don't go wrong because they don't agree that these are valuable, they go wrong by forgetting to do them.
I think Sam does a nice job by explaining:
>There is very little management in the beginning, and that actually works well. When there are fewer than ~20 employees, most companies have everyone report to the founder. That’s optimal in the early stage.
And throughout the article he makes the point to caveat his advice by saying it doesn't apply to small companies. That is really solid and is kind of the difference IMO between advice YC gives and most other startup/business advice.
Where I think (and I believe the OP thinks) that this article could be strengthened is in the beginning by reiterating how important it is to make sure the company has product market fit before addressing any of the advice in the article. YC does a nice job of hammering that in many other posts.
I can visualize some of the founders I know seeing this post and saying to themselves... Great, I'm at 19 people, now I just need to get to 20, then I need to hire HR. When in reality, they don't have full product market fit and should be focusing on that.
My guess is that someone at YC is reading my post here and saying... "All that goes without saying". But, it is such a common mistake that I don't think it goes without saying.
At the end of the day, the article is valuable. I just wish that product/market fit had been hammered as the standard instead of headcount.
> I can visualize some of the founders I know seeing this post and saying to themselves... Great, I'm at 19 people, now I just need to get to 20, then I need to hire HR. When in reality, they don't have full product market fit and should be focusing on that.
Yes, if you're not at product/market fit, then as a business getting to product/market fit is probably the most important thing. However, people problems always crop up when you have people involved, and your people problems will be largely uncorrelated to whether the business has product/market fit. (It's not likely that you will have fewer people problems because the business doesn't have PMF).
The article could probably be made more clear that this isn't a 'list of things to do after you're successful', it's more a 'common failure patterns we see in companies with headcount > X'. And of course, there's the unstated advice, which is 'try to avoid having large headcount until after PMF'.
In B2C, this is true almost by definition. So I think Sam's comments are appropriate. He is limiting the scope of his advice to growth-stage companies that found their fit. Obviously, that's a problem that one revisits. But on the rare occasion that you solve for product market fit, you need to tackle other problems like the ones he describes.
http://themacro.com/articles/2016/06/the-real-product-market...
>Very often product/market fit becomes "We've solved all these peoples' problems and they pay us money." The problem? The problems and the people are all different.
Sorry for the tone, but to continue - "We don't have product-market fit! All we have is a bunch of people who consider us the solution to their problems and pay us a bunch of money! But where's the market? What are we even doing?"
I mean take an iconic, successful product. the iPhone. What's an iPhone?
I mean, sure, Apple sold 50 million of them last quarter but really it's just "we've built this thing all these different people want and they all pay us money". But the reasons people want one are all different! Or take the app store - what a disaster. What problem does it solve? It's just this place for a bunch of developers to do a bunch of different things! To hear you tell it, Apple needs to kill the app store -- despite taking a $6B cut in 2015 -- yes, this means $6,000,000,000 in revenue, and actually find some product/market fit, not a hodge-podge of random stuff people buy and developers are happy to give a cut of.
I mean why would anyone choose a $6 billion cut over actual PRODUCT-MARKET FIT? Would you rather wake up with $6 billion tomorrow or with a product that actually has "product-market fit".
I know which one I'd wake up with tomorrow. Sorry that I'm not able to be more eloquent but I find it so hard to wrap my head around what you'er trying to say.
What even is your idea of a product that has product-market fit?
You don't give any examples. Try to express what you mean using some concrete examples, if you still maintain your (extreme) position. So far you don't seem to include any positive examples of what you have in mind.
> Senior People: In the early days, hiring senior people is usually a mistake.
I know a lot of folks (including myself) are of the opposite opinion - it's a mistake to hire non-seniors to build the first round. Senior folks can often see pitfalls ahead of time and dodge them, saving valuable time while the company is pre-product/market fit. I can think of plenty of definitions of "Senior" that I _wouldn't_ hire (overspecialized, 'senior' in years only) though. Our disagreement may only be one of definitions [0].
I have seen startups die due to lack of talent early on (I worked at a startup that died due to technical debt, but that's another story). What scenarios have you seen that were caused by senior folks that causes you to see hiring them as a mistake?
[0] More on my opinions on what 'senior' should mean: https://rkoutnik.com/2016/04/21/implementers-solvers-and-fin...
The first is to be a very experienced individual contributor. Amazing programmer with deep experience, world class designer, sales person who can get to the right person in any org. These people are gold. Hire the best and most experienced you can.
The second way to be senior is to be great at hiring and building organization. These people are very valuable later, and will save you a lot of heart ache. Hiring them early is a mistake in general, because their instinct for solving problems is to hire great people and develop great process rather than to simply solve the problem themselves. For an early stage startup there are too many unknowns and this amounts to premature optimization. Later on this is the a critical skill set.
Inexperienced managers are nearly universally terrible. Inexperienced individual contributors can often make up for it with raw talent, and you gain experience fast at a startup. Therefore early on experience is not at a premium, you should hire primarily for talent above everything else. Later on experience becomes increasingly valuable.
Short version: Hire the best makers you can early even if they're junior, hire the best managers you can later which means more senior folks.
Interesting - this jives a lot better with my experience while still not contradicting what sama has to say. (I've worked under some abysmal managers...).
I like to say "Hire for first derivative, not Y-intercept" and it sounds like you agree with that as well. Good thoughts, and thanks for replying!
(2) There's a difference between the founder of a startup and early employees. The founder has to be a manager from day 1. I wish I had been more experienced starting Twitch. I generally think more experience for founders is a positive, especially when it comes to management.
Spot on. I do find in practice that "senior people" get the product right the first time, but are less risky to try to steer the company in directions that may appear "disruptive".
1) The last company I worked at started out with an experienced founder/CEO and a few entry-level people (including me). The company was in the heavily-regulated and very conservative health benefits space, and we were attempting to do something pretty radical. Things were going great.
After raising the series A, they brought in a bunch of executives who had been very successful working at more traditional healthcare companies. Those people immediately started executing the playbook they already knew which meant our startup went from being agile and disruptive to basically being a smaller version of all the existing companies in the industry. It didn't go well.
2) After that, I co-founded my own company. We're bootstrapped so it took a while before we could hire people, but when we did start hiring, there was a big difference between the entry-level people vs. the more experienced people we hired. This is almost entirely my fault, but here's what happened: I knew the entry-level people would need guidance and mentorship, so I invested heavily in onboarding them, making sure they understand the mission, and so on. With the experienced people (who I already knew well) I trusted them to know what needed to be done and do it, so I didn't spend nearly as much time trying to align them with the goals of the company. Big shock: that didn't work out very well for some of those experienced hires.
Once again, this is my fault, not necessarily a problem with hiring experienced people in general, but it doesn't change the fact that our entry-level hires have all worked out great while the experienced hires were much more hit-or-miss.
I have no idea if that's what sama is talking about, but I definitely nodded my head a bit when I read his advice.
As to #2, I've met folks with lots of experience who think that makes them right all the time, and folks with lots of experience who have learned that they still have much more to learn. It sounds like you've hired the former - and I'm not trying to say "You hired bad, don't do that". This is an incredibly tricky thing to filter for, it may not be apparent until six+ months down the line. I'm thankful my current employer (Netflix) has worked hard to hire & retain only the latter. I'm also impressed by your humility near the end - it's clear to me that you're the sort of experienced folk who keeps learning.
Thanks again for your perspective, especially from the regulation side of things.
When you hire some senior people, you may run into issues because how successful they have been in the past. When they get stuck, problems arise. It is natural, they were really successful in the past doing X. Now, you want them to do Y but they think X is they way to go because it has worked before. Who can blame them?
[0] https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect
That's interesting. I've never heard that before. My understanding is that most startups die because no one wants what their making. No market. Did you actually have a product that was selling? How did technical debt kill the company?
Does this actually happen?
I'm going to guess that Sam went to a "top 10 school" and has only worked in Silicon valley. In this case I'm guessing that this advice seems self evident to him as you tend to run into the same people over and over again.
The financial industry behaves very similarly where all other things being equal, its considered almost a negative if you can't find someone who actually knows a potential hire. This makes it easy to move around but tougher to break in.
I'm not sure if this is good advice or bad advice but it is something that does happen so its best to follow the old advice and make friends/network. It doesn't have to be slimy, it can be as simple as emailing someone on hacker news who made a comment you learned something from to thank them for making it.
This implies that they aren't at the stage that this article is aimed at.
However one that stands out as unnecessary: "Senior People: In the early days, hiring senior people is usually a mistake."
The best people I hired in the past were senior. Ton more experienced and older than I. Of course they didn't come from corporate backgrounds but from fast paced tech cultures/environments. With all the equality talk in the valley around gender and ethnicity I'm surprised age discrimination is still so loosely thrown around. The key here should be "hire experienced people fit for the stage of growth". Burning time teaching / hand holding inexperienced people is a drag on the company's speed to execute and culture.
Any views on holacracy?
Senior people aren't always old.. this has nothing to do with age discrimination
If I have to pay say 2x junior rate for 1 senior role that can move/execute faster than 2+ juniors, then I will. Apart from having someone that hits the ground running I'm also sending a strong business message to the market and investors that I can bring in top hires to execute faster than the shop down the road that's still learning business fundamentals.
I've seen a number of startups who think the only part of HR where they need to invest resources is recruiting, right up to the point where the wheels start coming off. Once you're feeling the pain points - disgruntled employees, people leaving, communication problems, etc... - it takes a lot more time to get things working again.
It's hard because these issues aren't the things recruiters are good at solving, so they need more specialized knowledge, but at 20-50 people don't have the capacity to bring on the right expertise.
Ostensibly if you are later stage you have a bevy of advisers, investors, mentors, peers etc... that would be in a much better position to give you advice about your specific - end even general - issues. Who is this advice really for?
You do. But Sam (and the rest of the YC team) have seen a lot of startups at every size and make an effort to share it, as more successful startups (whether YC or not) is something they believe is a net good (I agree)
As an aside: my gut feeling is that many startups tend to over hire as it's sort of a status symbol to have more employees. I mean look at how many people were needed to build and scale WhatsApp. Is your startup really doing something that is technically more complicated or harder to scale?
Tell me a startup that went anywhere within one year? Now count the startups that went nowhere. That ratio has to 1/1000 or greater. I actually question how many YC startups this really applies to. 10 or less? How many really have market fit?
That sounds horrid. My weekends are mine, they're not to be used to improve the company's performance. If you're doing this, do it during the work week.
I agree that my weekends are mine, and there needs to be a work/life balance no matter what position you are in.
This seems like a pretty snarky comment. I've worked with some incredible senior people who had nothing to do with the company out of hours.
I think equating hours spent with career advancement is a mistake. In my more junior days (in which I include senior roles) I gave far more hours to my job than I should have. In the scheme of things that was a mistake and I could have advanced my career much more by approaching it differently.
Your comment feels like something that might have made sense decades ago, but is not necessarily great advice these days.
I get it, and in the context of just the best people going away for the weekend I can see it working too. Having said that, I have a family, including kids. If the company mandates that I go away for the weekend, it's my wife and kids that pay for it.
Why can't it be done during the week? Does the company fall apart when the top people are out of the office? If so, maybe it's worth looking at why that is / how to fix it.
I feel like this position is almost hyperbolic.
Even if you have a family, I'm sure you can manage to get away once or twice a year. After all, there are people with families who even travel for work. The horror!
If I'm a consultant: not much, which is why I often work them instead of weekdays. Not both, but instead of.
Yes, in general, my weekends are mine. I would not work for a company which consistently asked me to work every weekend.
But I'm happy to share one or two weekends a year with my employer.
Moreover, I also consider my evenings "mine." That doesn't mean I'm going to throw a hissy fit when the company has its holiday party.
For example for a fintech startup, a 5 year devops guy may be making market salary... but a 2 year, talented data science guy may be offered market++ salary. So how do you really structure bands ? And does bands really solve the problem of not pissing people off in this case ?