It is easier to start something now than ever before. The ability of social media to help you get escape velocity is great, but it cuts both ways. A strong value proposition carried at the speed of Twitter and Facebook to the right audience could crush your company just as fast as it grew if you can’t scale. Despite advances in cloud infrastructure, many businesses still have fleshy parts—soft underbellies where a human hand is required to keep quality control, stuff something into a box, order inventory, hire enough engineers to keep the site going or manage cash.
Scale brings complexity. In straightforward businesses like ecommerce, you’ve got a lot of logistics to manage to get a product in someone’s hand, not the least of which is inventory control, customer service, wholesale buying, and negotiating better shipping or credit card authorization fees. Even if your business is completely digital, like Twitter, scale brings complexity when it comes to strategic issues—like creating a claims process for trademarked domains, managing inbound business development opportunities, or keeping spam at bay.
The best way to address these types of problems is often through hiring—finding people who have addressed these challenges before and who can specialize in solutions to very specific pain points. This is where your business starts to incur real costs—but it’s also where entrepreneurs don’t like to be short term “sellers” of their equity. They’re hesitant to raise money—selling equity to investors—when things look great. If you feel like you’re on a rocket ship ride to success, you might feel like a lot of the risk has been taken off the table. You get dilution sensitive and you start optimizing on price of a financing deal, versus finding the right partners or raising enough money to grow. Remember in Batman Begins where Liam Neeson reminds Christian Bale to “Mind your surroundings” and never to “sacrifice sure footing for a killing stroke”. Christian Bale thinks he’s got Neeson beat, only to find out the hard way that he’s a tap on thin ice away from nearly drowning.
The right lead investor and the right amount of cushion in a raise can help with the best defense against scaling disaster—hiring. If you’re a company, perhaps less than a year old, and you’re entering the first phases of strong growth, you’re in an interesting position in the talent market. There’s still a lot of risk left in your company. Hell, you barely even look like a company—your processes are mostly duct tape and a little gum at best, and you’re bursting out of your office space. You haven’t slept in weeks and even though you’re making money as a company, yet you’re all still dirt poor because you simply haven’t had enough time to figure out raising everyone’s salary to a reasonable living wage yet. Healthcare? Yeah, maybe we should look into that. This isn’t necessarily the kind of company that easily wins over A+ tier talent without a little help. So what happens? You grab who you can, because you’re desperate for bodies to fill roles and you make due—only to realize that six months from now, things aren’t really any easier. You’re bigger, but you’re still putting out fires just as often—even more so. Your team isn’t scaling because they’re learning on the job—whereas paying up a bit for a marquee hire might have made the difference. If you’re lucky, you realize it in time. If you’re not, you realize it only after you notice the systematic failure in your supply chain and you’ve got nothing to sell going into Black Friday.
The right partner goes to bat for you during the recruiting process—helps you identify and court the hires that you look back at as key to your success. They can also help you become a better manager and get the most out of your people. By requiring a plan, the setting of milestones, and asking the right questions, they can help you turn chaos into a well oiled machine with processes in place to help you take the company to the next level. Sometimes, that’s helping you figure out who has the capability to grow into their role with the right guidance and other times it’s pointing out areas where staffing up makes a real impact. They can do this because they’ve done it before—and if you’re a first time entrepreneur, their experience is invaluable.
A slightly larger raise during early growth with a clear lead partner also serves as a market signal. You may be splitting up a round because your traction gives you the leverage not to give up too much control. You become a price maker versus a price taker, but the outside world might see it as a lack of conviction from everyone involved. I’ve seen lots of deals where it seems like everyone and their mother is in, but no one walks around touting that it’s their deal, that potential partners should look at it, and potential late stage folks should fund it’s later growth.
Major league baseball players have trainers. The best hitters talk to their batting coaches all the time. Do you think that Wade Boggs or Tony Gwynn ever had a batting coach that could hit as well as they could? Definitely not. They weren’t talking to coaches to get told what to do. They went to coaches to talk out what’s working, what’s not, and to help them keep up the extreme amount of preparation that it takes to maintain performance at a high level. Natural talent only takes you far, just as a good service or idea only goes so far. The rest of success is having the help and being well positioned for uncharted territory to make sure you keep going at the same pace.
So instead of feeling like you don’t really need that much help and that you’ve got it all figured out because things are going so well, think about protecting the progress you’ve already made. Make sure you’ve got sure footing to get to the next level. Wouldn’t it be better to walk into a hiring conversation knowing that you can’t be outbid for the dream hire? Wouldn’t you feel more confident about negotiating a big business development deal when you’ve got a supportive board of experienced people behind you telling you that this is going to be good for the company?
It’s like when the Yankees have the best pitching staff in baseball and then they go trade for an All-Star pitcher. It’s a formula they’ve had for years—never miss a chance to pick up marquee talent, even if you’re already stocked and even if you’re already not in the best budget position. The result is that the Yanks have won 5 championships in the last 14 years, while the Mets have always overpaid for the next tier down—toiling in mediocrity for years.
In the end, if you build the best team in a category, and they execute well enough that you far exceed your potential, you’re going to be enormously successful. I’ve never heard of a team that did this, and then regretted the decision to take a little more money (and dilution) in a round to get the best people around a table.