How can startups scale up?

How can startups scale up?


(cheerful music) – Launching a new company is really hard, but scaling up a small
company is even tougher. Going from 10 employees to 1,000 means a more-complex
organizational structure, bigger risks, and the
challenge of translating a start-up culture into corporate values. So, what does a new venture need to compete in the big leagues? And what are the characteristics of start-ups that scale up successfully? Welcome to “The Big Question,” the monthly video series from Chicago Booth Review. I’m Hal Weitzman, and with me to discuss the issue is an expert panel. Michael Alter is clinical
professor of entrepreneurship at Chicago Booth. He was formerly the CEO of the Tie Bar, and before that, cofounder, president,
and CEO of SurePayroll. Amanda Lannert is CEO of Jellyvision, which makes interactive
software that helps employees choose health-insurance
and retirement plans. And Jai Shekhawat is the founder and former CEO of Fieldglass,
a software provider that helps large
companies manage staffing, consulting, and other projects, and which was acquired by SAP in 2014. Panel, welcome to “The Big Question.” Michael Alter, let me start with you, just give us the overview: What
are the toughest challenges facing an entrepreneur and a
company when they’re scaling up from say, 50 employees, above 50. – Sure, Hal, and one
of the interesting things about start-ups in general
and making that change is that it depends a little
bit. So, not one size fits all. But I think, in general, there’s a few areas that we see as a challenge. One is, once you start to scale up, your business changes
completely from maybe a building-a-product business
to a distribution business. And it’s all about distribution.
It’s how you scale, whether that’s sales or other aspects of making your product and
getting it out the door. So distribution’s one big one. I think a second one is all around the people. Do you have the right people? How are you changing out the people that you have? And then,
the role of the CEO as the leader has to change as well. So those are kind of two
pieces of the puzzle there. One of the other ones
that people sometimes forget but is critically important is cash: it’s expensive to scale. And if you run out of
cash, it’s a real problem. And then, I think, the last one that we see and that people struggle
with is this need for, sort of, process, structure, rules.
Maybe it’s “mission in vision.” And in that one, it’s sort of like asking somebody, when you run without it, to show up to play a
sporting event or a game, and they show up on the field, but you don’t tell ’em the rules. And so, you really need to make sure you have a set of rules
that everybody understands so they know how to play
the game as you scale. – OK. Amanda, does that sort of chime with your experiences at Jellyvision? – Absolutely. I think there’s
a real fundamental shift between 40 and 50 that has
more to do with how you change. You usually get to 40–50 employees because you’re very good at doing, and suddenly you need to
become good at leading, which is a fundamentally different skill set. It’s the rise of managers.
It’s the rise of the need to communicate— – And you put that difference
at about 40–50 employees— – In my experience, that’s
when it just starts to be: you can’t run in lockstep anymore, and you need to start to build systems and processes for communication, instead of just everybody,
it went without being said, and now it’s not only
said and written down, between 40 or 50 employees.
– OK. And Jai, I know that in your company you had sort of problems—not problems, but challenges, some of the
same challenges—earlier on, before that, well before
that 50-people mark because of some of the
structures that you put in place. Tell us about that.
– We did. So, most tech firms
these days need to have an offshore strategy
just so they can offset some of the costs, and I think when we had four or five employees
in the states, we already had offshore development,
15, 20, 30 people overseas. And, to the points that Amanda made, you add two other challenges.
And one of them is the issue of geography.
So, you’re separated by 10.5 to 11.5 hours of time. So you have to, you have
a coordination problem. And the second is culture,
because the group overseas, especially where we chose in
India to place this group, they marched to a very
different drummer from us. So, it took us awhile to get
the cultures coordinated. – Yeah, you lose sort of line-of-sight management, right? And Jai lost it early, whereas
I think in Amanda’s case, once you can’t sort of cover
everybody from your office when you look out the door, or from your desk, that’s when you have to start
to manage in a different way. And something that I know
you teach our starting-out entrepreneurs here at Chicago Booth is that when they start
out, they have to do everything for themselves. They have to be the sales department and
the marketing department and everything else, but what are the different types of skills, or who are the entrepreneurs that make it through that
transition successfully? What kind of characteristics
or behaviors do they display? – Well, I think they’re adaptive people, and they’re able to learn
from their mistakes. I think the other one
is, in some ways, while entrepreneurs have an ego,
they are comfortable enough to bring in people that have
more experience than them, that might be smarter than them, and a lot of them really realize that their job as CEO is to
make the company successful as opposed to do everything
to be successful themselves. And that’s a real transition that people have to be comfortable making. – Amanda Lannert,
did your behavior change, do you think, when you hit that 40–50 break point that you talked about? – Absolutely. I was project management, and business development, and sales, and recruiting at Jellyvision
up until a certain point, and then you start to hire people who are functionally better at any role than you were good at every role. And you have to really
understand your job shifts from getting things done yourself to being able to attract,
retain, motivate, direct, and inspire people to do various jobs. And it’s a different skill set, and, I think, a different way to
prioritize your time. – Was there a moment when
you suddenly realized you were gonna have to change your behavior? – It’s almost a snowball
effect versus like, on Tuesday you wake up and have clarity.
(laughing) But I’ll tell you, the one bit of advice— everyone says not to
do it and I did it anyway, and it’s definitely a
mistake—is in that moment when you realize: I need help in managing, I need help in communicating, I need help in keeping everyone in lockstep, do not go into every department and promote your best
performer into management. Really understand that there is a difference between doing and managing, not just within the CEO,
but within everybody else. Professional management is a skill set, and we did take our best doers and put them in positions of management, and it took a couple years
to unwind that to say: there’s a difference between
leadership and management. And you really need to start to understand that at around 50 employees. – OK, so how did you overcome that? You just brought in people who you thought were more leadership-type material? – Pattern recognition:
when you start to see things going wrong, I spent a
lot of time in the community talking to more-successful
CEOs who had bigger companies trying to figure out:
What did you get right? And also, you look for pockets
within your own company of where is it working and why? And then: How can we, sort of, repeat that in multiple departments?
A lot of trial and error, and I have the scars to prove it. (laughing)
– OK, Jai, do you have a story about, sort of, how learning about how to become a leader of a
big company as opposed to— – I’ve got a couple of stories, but I’ll follow up on Amanda’s point. In the early days, I always
thought of a good employee as being a Swiss Army
knife of human beings. You know, they have all
these different tools and you can apply them,
a skilled generalist. My favorite story of learning
that you need specialization is when we hired our
first real head of QA. Before that, QA used to consist
of beer and pizza parties, and you just bang away at
the product on a Friday night and catch as many bugs as you can. And this gentleman came in and
he says, “This is idiotic.” He was GE Black Belt, Six Sigma–trained and all that, and he
said, “You cannot treat “quality assurance as a screen at the end “of the development process.
You’ve gotta treat it “as something you build in at every step.” And so I looked at him as, you know, where have you been all my life? And it was my transition moment from generalist to specialist. – I think I have a mentor who
said it, I thought, really well, which is: business is really a movie, and while the themes are really the same, sometimes the plot’s a little different. But once you’ve seen the
movie, there’s real value. And the issues you have around HR, the issues you have around
distribution, around scaling are very similar across businesses. So finding somebody who’s seen the movie is really helpful, and
when you get somebody who’s seen the movie,
it’s like, it’s magical. – And sometimes, Michael, also, it turns out to be a bit of a horror movie. Not all firms are able,
or most firms are not able to make that leap from 50
employees to 1,000 or whatever. There’s a real bottleneck there, both in terms of funding and just in terms of
success, who survives. So what are the classic
mistakes that entrepreneurs make that don’t enable them to
get through that? – Right, well there are a number of them, but one of the biggest
ones, if we can continue on with the movie analogy for a minute— – Sure, please!
– Is that you’re in pain and you’re struggling
and you almost feel like your business is gonna implode. Because when we tell
the story of a business, it’s often up and to the right
in how successful it is, but the reality is, it’s
much more like a heartbeat. And so, in those points when you’re down and you’re scared if your
business is gonna survive, and you need somebody
to plug in your holes— the head of sales or the
head of customer service— you tend to look for somebody with that skill set and that experience. And the problem is if they
are not the right kind of actor to fit your role, they don’t have that right cultural fit, it’s
a much bigger disaster. And so, a lot of times you see this sort of rejection of new executives
when you try to bring them in, and a lot of it has to do with: they’ve got the great functional skills—
they’ve seen the movie— but they just aren’t
the right cultural fit. – OK, so culture is one. What else? – I think one of the other ones is realizing that you’ve got to turn from focusing on a set of
customers that got you here is usually not the set of
customers that will get you there. We all hear about, in the
technology world, early adopters. And most of your customers
are probably early adopters. A lot of them have found you in some way, they’ve put up with some
of your bugs and your scars a little bit, and now it’s
time to turn to somebody who is expecting a little bit
more of a finished product. And what works to get at them is usually very different than what got you there, and you need to make that transition. – I’ll chime in on that. I think it’s really important to remember: it’s not what you’ve done; it’s what you can do. And having history and pattern recognition can help you be a more effective operator, but a lot of times you
could be on a winning team and be an undercontributor or be an amazing contributor
at a company that was just going downhill despite
your valiant efforts. So, really it’s important to start with a very clear job description,
where you describe your company, what you
value, how you like to work, so the people interested can lean in. The most important marketing
a company in early stage, and probably ever, will do is
write a good job description. Get people who would be
attracted to lean in, and then really, really get to
know the person, their DNA. There’s nothing as valuable
in this time in business as being an adaptive self-learner. The job will change. The
product the person is working on will change. The economy will change. Really, there’s no rinse and repeat: you were successful
then; use the exact same playbook and be successful again. And it’s so tempting for a
start-up who’s trying to de-risk, who just wants it to be easier, to say: “Please bring in your playbook, and let’s hope and assume it’ll work.” It doesn’t. So you need to have someone who’s still got
the grit, the resilience, the perspective to be
on their feet and adapt, rather than a company assuming
because it worked then, it will work in the same
way now. That’s a myth. – And have you seen—you
were involved in the start-up, entrepreneurial community—
have you seen examples of people who selected the wrong people and it actually kinda
dragged the business under? – I’ve done it. Everyone’s done it. – We’ve all done it, yeah. – And it seems, on paper, a great idea— – So, tell us about how could
you learn from that, I mean. – Yeah, the whole thing is: do not become enamored by a résumé. If I’m hiring someone
mostly because I’m impressed with a résumé, it’s not the right hire. I need to be most impressed with how we start to brainstorm
in an interview. Most impressed by their curiosity. Are they a great question asker? Most impressed by how
they build relationships. I cannot be impressed by the résumé, that is a mistake that I
make multiple times in hiring, where I overrate the
résumé versus other reads and characteristics and
feedback you can get throughout an interview process. – So is that, to you, the biggest
mistake that people make, is just hiring the wrong people? – Yeah, or just not following the process. I really try to look at a résumé late. And I know that sounds
crazy because résumés are a really important description
of what people have done, but for us, I look heavily
at the cover letter. I’ll look more at a LinkedIn profile, try to figure out if we
have shared connections, deeply back-channel reference,
and then I spend a lot of time in conversation
throughout an interview process. That is how I should
be making my decisions, not relying on a résumé to
say (clicking sound), “This will work.” – But to you that’s the key
to success in this case? – Yes, and CEOs spend an awful lot of time finding the right people for right now. That’s a huge part of the job. – Does that mean that if you
continue to have success, you continue to grow,
you need to continue to review your staffing and maybe
have to get rid of people who have not made the transition with you? – Michael said it, “What got you
here will not get you there,” and our executives
regularly have conversations about how tiring it is to be elastic all the time, but that’s the regime. Structures break, processes break, expectations break over and over, and you just have to be adaptive and assume whatever was a good
groove for the last six months is gonna need to be revisited, and potentially rebuilt from the ground up when you’re in a high-growth environment. – Yeah, and if you’re really growing, you have to assume that
that’s going to happen faster and faster, so just as the CEO, when you get comfortable,
it’s time to change again. Because otherwise it’s too late. – Well, the thing to keep
in mind, to Amanda’s point, is that the résumé is
a marketing document. It’s not the full end of
a material data spec sheet, where you describe an item with its chemical composition.
That’s a true document. The résumé is a marketing document. And the thing to look for—the
thing that I would look for— is attitude, and then
a core set of skills, and then a demonstration of how
you contributed those skills to the last few places you worked at, with attitude being heavily overweighted. That’s what you’re looking for. My second point is when you pull a group of talented people together,
it doesn’t tell you how they will work with each other. And the flip side of diversity, because we brought in a lot of very, people from different ethnicities,
both genders and so on, and it works really well in the long run, but in the short run, it
creates a coordination problem as to how we all work together. And I think the thing you have to do is focus everybody on the third thing, which is the thing you’re building outside of all of the individuals, and make sure we all understand we are coauthors of this
thing that we’re building, and no longer individual contributors. So, I think if you get
that right, then diversity just sort of bakes you a
better cake, so to say. – Right, and I think
it’s also the CEO’s role to make that cake mix
work, and so that means you have to change how you’re behaving, because you drive how all
of that fits together. And so one of the other challenges is making sure you’re really looking at what are the things you’re choosing to do, and more importantly, what are the things you’re choosing not to do anymore, because that sets the
tone for everybody else. – That’s very true. So, to that point, I decided I’m not going to
think about my weaknesses because it’s going to take
me forever to ever fix them. I don’t have enough time in my life. I’m going to take the one or two things I’m good at and only do those things, and then hire for the things that I can’t. I’ll give you a quick anecdote on this. It was a Friday night one time and I’m interviewing this
lady who’s a tax specialist, and I really liked her.
I didn’t understand most of what she said,
but at the end of it, I felt comfortable enough, you
know, we offered her the job and I said: “What draws
someone to what you do? “And God bless that you do it,
but what draws you to it?” And she says, she looks back,
she says: “Jai, do you know “what my idea of a good
time is on a Friday night?” She says: “I pour myself a
glass of wine and I pull down “the latest IRS tax
regulations, and I read them.” – Wow.
(laughing) – And then she proceeded
to lay out the architecture of the tax code in a way
that was actually remarkable. I really got interested and I sort of understood another 5, 10 percent more. – That’s cool. That’s passion. – It’s passion. It’s passionate. – She saw something. She
made it so interesting, and, you know, that’s
what you’re looking for. I will never be 1 percent as good
at what she does as she was. – Anything can be
interesting and important if you work with people that have curiosity and passion,
though. That’s just proof. Anything can be interesting.
– That is a remarkable story. I wonder how many people
read the IRS code for fun. A glass of wine maybe tempers some of the harsher points there.
(laughing) But I was gonna ask you, you know, there’s a lot of advantages
in the culture of a start-up and all of you pointed to that. When you start growing,
and maybe growing very fast or faster and faster, how
do you maintain that culture that you get in a start-up
of people diving in and helping other people when they don’t necessarily need to,
or just being innovative and being entrepreneurial
and problem-solving, how do you maintain that
when things are bigger, when you’re spread over
various different countries? – Well, one point, I’ll leverage
what Amanda said earlier, is the thing that you guys said, the thing that you did earlier, there’s a lot of fire drills
in the early-stage start-up. And it’s the heroic save,
it’s the diving catch, and you look good because
you saved the client. That does not scale, and you have to, in fact, cut out those things
and stop rewarding behaviors, the diving-catch behavior,
because often people will sort of set their own fire and then be the fireman, and then you discover that
later, not intentionally, but you want to create sort
of a duller repeatable process, where there’s more discipline
and it sometimes takes a little bit more time, but more process. It’s the balance between the diving catch and then the team that got you to be in a good position
to take that catch. – But is process the enemy
of a start-up culture? I guess that’s what I’m asking, ’cause— – It’s a balance. It’s not the enemy. Too much of it will kill
you, but this is where the CEO needs to, you know. It’s a fine art between how much process
we have and what we don’t. – Yeah, to me, again, it’s back to giving the rules to the game. Because there are people that, you know, if you think about
basketball as an example, that make unbelievable
shots, and how they do it, but they do it within the rules that they know that they can’t travel. And so, making sure that you have rules gives people the structure to then be so much more successful and be themselves. – Amanda?
– I really strongly agree. Process isn’t bad; bad process is bad. Just like management isn’t
bad; bad managers are bad. These are incredibly
helpful tools and constructs for a group of people to
be productive at scale. – But I guess I’m just thinking that
sometimes people can cling to process in a way that,
well beyond that process being productive, or useful, or efficient. – So let’s bring it back to culture. To me, culture isn’t an
ethos. It isn’t a feeling. It’s to do. It’s behavior.
It’s how you get stuff done, what do you tolerate,
what makes you laugh, how do you celebrate: it’s
rituals around behavior. And I think to protect
culture as you grow, it’s a method that really is
always top-down; it’s not— it largely becomes the
people that you have. So, who do you hire, who do you retain, who do you promote, who
do you put on a plan? And it’s the treatment of the people. The rituals of culture change. The rituals of celebration
change with scale as people stop being, you
know, four people in a room. It becomes 40 people in a room, 400 people in dozens of rooms. The rituals change, but the
ideas behind them don’t. And it all comes down to: Do you hire a tribe of people who are aligned, or not? – And I think some of
it also is a commonness among the language that you
adopt that creates your culture. You know, Amanda, you have, I think it’s called the Schmutz test? – The Schmutz pact, yeah—
– Schmutz pact, right. – We story-tell, yeah.
We’re storytellers. – And the way that you do that— – What is that, just tell us what that is. – So, instead of saying,
“You should give feedback.” “You should give feedback.”
“You should give feedback.” “You need to speak up.” “We hire you “because you have an
opinion.” “It’s important.” Instead we just say this: “Have you ever been to lunch with someone and noticed they have a little bit
of food in their teeth? And then finally you’re like: ‘Hey, you got a little something.'” What does that person say? “Thank you,” or “Why didn’t you tell me earlier?” Why? Because nobody wants
schmutz on their face. Giving feedback is kind—
– So you call it the Schmutz— – The Schmutz pact. So
we say, “Give feedback in the moment because it’s kind, because nobody wants
schmutz on their face.” So instead of saying: ‘”You have a moral imperative to speak up!” we just say: “Hey, Schmutz pact, let’s
have a conversation.” And it helps us grow, and
it helps us get better. – OK.
– I want to make a comment on your process point. I think
of process as an algorithm for behaviors. It’s a
behavioral algorithm. It’s a set of steps, and it’s
just like with any algorithm: they run their course, and then they have to be shut down or killed off. And so, in my mind, and I
never did this in the moment, I can say this with the
wisdom of many scars, is that your collection
of processes, which is your schedule of meetings, how
long they run, who’s in them, they should all be considered
living things that don’t deserve to live a moment
more than they are necessary. And so, the CEO in their
mind should have a sense of the collection of processes that are enabling their firm. It’s
behavioral algorithms. – Michael, you talked
earlier about the question of distribution, talk a little bit more about that, what is the challenge? – Well, I think one of
the biggest challenges when you’re starting a business, you’re trying to figure
out, most people talk about product-market fit, right,
will the dogs eat the dog food? And I think that’s true,
and it’s important. The challenge is, once you get to a point where you have that, then the challenge is: How do you get people to buy more of that? And the biggest way you do that is they gotta know about you. And so, how do you get that distribution? Whether it’s through a channel, whether it’s through a direct-sales force, whether it’s through marketing, and that’s the thing that
really people struggle with. Because it’s very hard to build a very scalable distribution
channel quickly. It’s one of the reasons why so many of the big tech companies acquire great little companies that
have product-market fit, and then they stick it into
their sales channel, and boom, it’s a big business. And
so, how do you do that, and how do you create this replicable, scalable, repeatable process? Because it’s so different
than the first process, right? That was: I don’t really know.
I’ve gotta figure it out, and so I need people
that figure stuff out. And now I need a process where
people actually have to do the same thing over and over again. And the people that
like to figure stuff out don’t like to do the same thing over and over again, and vice versa. And so, it’s a real challenge
to think through that, and it can be very expensive, especially if you scale too quickly. – And Jai, I mean, your
company was bought out exactly in the way that
Michael describes, right? Presumably to bring a
lot more distribution. What were the challenges
you had before that buyout? – So, Michael’s point of
distribution is an interesting one because it varies greatly
depending on who the, what the conduit is
that is already selling into the place you’re selling. So in our case, we could’ve partnered with the large consulting firms and we tried that. That didn’t work, and we tried to go directly initially, and that didn’t work
because IT is blocking it. We found out that we
could piggyback off of the larger staffing organizations
and provide the software. So, it became a co-sale, so
not a resale, but a co-sale. And then, eventually, we
were able to get into pulled positions, where the
customers asked us to come. So, the distribution landscape
is a battle landscape for the amount of, sort of, premium that is being fought over in the
distribution channel. And so, once we figured it out, it is the greatest experience ever because the day you figure it out, you’re able to step back and
look at this thing you created, which previously resembled
a collection of Jenga blocks and you say: “This isn’t falling. “This is actually running on its own.” And that’s a great moment. That’s when you know you have a scalable model. – Amanda, what were the challenges you had in distribution, and how
did you tackle them? – Well, I think about it in a simple box. It goes from, you know, sort of, the founder-CEO sale, to having someone else
in the organization sell, to having a repeatable
process where you can sell the same thing to satisfy
customers profitably. Right, then you start to get to scale. And for us, one of the
struggles was understanding that the first sort of enterprising, really, really creative,
iterative salesperson may not be a great sales leader, or cultivator of people,
or establisher of process. And one of our early salespeople
is a magical salesperson, but what he’s not as good at is setting up a methodical process. He
wants to change everything every day and constantly iterate. Works great when you’re an
independent contributor; it’s havoc when you
have 20 direct reports. So, I think it’s important to understand the different skill sets of
the first person who can set up a process versus
someone who iterates a process versus someone who coaches
or trains a process about getting a product to market. Really different skill sets—
– So, again, for you, it all comes down to getting
the right people in place. – For the right job, at the right time. Right? Now we’re a data-driven organization that has 90 salespeople.
It’s a different process than when it’s three of us trying to get the 20th customer, the 30th,
40th. It’s a different process. – There’s another element of this, where there comes a tipping point where you are not having
to push the product as hard into the customer, and it’s
starting to get pulled through. And that’s when you know
that what you designed as a solution is a very good fit to a problem on the other side, and then it’s being pulled through. And many, many things
have to come together. So, it has to be an important
problem on the other side. It has to be owned by
someone that has a budget, and then you have to be
viewed as a successful firm. Because as a young tech
firm, it’s very hard to get into large organizations. But when you get that tipping point, it’s being pulled through
instead of being pushed. And you can feel it as a firm. – OK, Amanda, I wanted to ask you, you know, for many businesses, the journey to kind of really
scaling up means changing the nature of the company and the product, and I know that’s what
happened at Jellyvision, that you started off in one
direction and had to pivot. Tell us a little bit what
you learned in that process. – Well, I think that there’s something really glorified about pivoting, but for us it’s: we were going
to die if we didn’t change. – Just remind us what Jellyvision was originally.
– We were originally a company that made games on CD-ROMs. These things that held data
that you put into a computer. When those things died, so
too did our business model. And so, we wildly had to change, and we went from a hits-driven B2C gaming company to a B2B enterprise SaaS company, so a pretty major change. It really was. Games were fun, but then we got into health insurance, which was our calling. But the reality is, we
were trying to find a way where we could provide real
value, where we could own IP and create a recurring business
model. We just weren’t able to do it sustainably in games at the time. – OK, so, but tell us about how, what was that pivoting like? What was the realization
like that you had to pivot, and then how did you actually do it? – I’m gonna be really
honest. We more or less shut down most of the company. There’s not some great
story where we were able to save everything. We
utterly went from 70 people to 10 people so that we could retrench, build all new software.
It was almost a restart. It wasn’t a subtle click. It was a 180. And where there’s a 180,
all the momentum you have doing what you do in Part
A is utterly different. So I would call it a
rebirth more than a pivot, a complete rebirth.
– OK, well, let me put it this way, what
were the characteristics of the 10 people who were able to stay on and then make the new business a success? – We went from incredibly
talented game designers who stayed incredibly talented
game designers back to a core team of people who
could do three or four jobs. We rebooted back to start-up days, where, by the way, you’re not
only an incredible designer, you also are a project manager, and you take out the trash on Tuesdays. Going back to the days where you have no affordability for having
a vertical expertise. You need to carry three
or four bags at all times. And that was the core team we went down to to be able to replatform,
completely relaunch, you know, figure out our
business-development process. It was that, you go back to those multihit players, multitalented players. – But I mean, that’s a very dramatic story, but presumably every business has, there is a path that they
didn’t choose to go down for whatever reason.
Jai, what was your story? – So ours was less dramatic,
so I can’t top that. I would think of it
more as a sailboat tacking, constantly adjusting to the wind, but generally heading
in the right direction. So we were more—
– We’re getting some great analogies: you have sailing,
basketball, movies, baking— – We’ll have a wider
audience, a sports audience. – And yeah, also, people
think and talk in stories. – But that’s how I see it:
we had to tack constantly. And there were a lot of dead
ends that didn’t get realized, but as long as you can contain
it as a financial problem and you have adequate money,
you can say: “Well, I lost “a million dollars here, or
a few hundred thousand dollars here “on bad development,” so
you’ve gotta make up time. But I never wanted to
end up on that branch where you have this moment
where you’re saying: “I’m really far out on this branch “that’s in the wrong direction,
and I can’t make my way back. “I don’t have the resources.
I don’t have the credibility.” So, that never happened, and
we developed a collective skill at being very honest with each other, saying: “This is gonna
head down a bad path.” So lots of tacks, but—
– But was that a sense, sorry, just one second, was
that sort of your intuition, or calculated risk, or
was it more that you experimented in a small
way and that failed? – It was probably more
of the calculated risk, because we didn’t, I wish
we had more resources to experiment, but you just never do. But what you’re doing is
you’re trying to solve an anticipated customer problem just so you become more relevant to them. Remember, the more of the problem you solve on the customer side, the more likely your chance of being pulled through. And sometimes you get it wrong. Like, we got certain problems
that we thought they had, and yes, they did have
them, but they really didn’t want to solve them at that stage, and that led to development
cycles that went sideways. So, we had a good bit of
that, but then we just became much better at
solving the central issue. – Yeah, one of the things
I think is really important, and I don’t know if you
guys would agree, is: the biggest challenge are the
pivots that you didn’t take. And one of the toughest
challenges of a CEO is to say no. Because you have all the resources
that you can do anything, and as you’re starting to scale up, the world is your oyster, and
you can do all of these things, but the most successful people are still very narrow and very
focused as they scale, and they build off of that as opposed to trying to cover the water—
– There are a lot of shiny objects that will
look like quick revenue. And people will take
them. Someone will say: “Why don’t you just build this for me “and I’ll pay you.” And you
need the money, and you do it. And before you know it,
you’ve ended up with essentially spaghetti code, so
your code doesn’t make sense for anyone, and then that doesn’t scale. We’re talking about scaling people. Well, you have to scale the product too. In our case, thanks to a
very disciplined tech team, we today serve 600 global companies, the largest companies in the world, off a single code base, one code line. And I’d say what took down
most of our competitors in the early days is they
allowed the code to branch off, and at some point, you’re
looking at a massive rewrite of the whole thing,
and that’s problematic. – I’ll go back to say, what is the advice about the successful business? You have to think about
what’s at the fulcrum. And as long as what is at the fulcrum is what your company is uniquely great at, what you’re really, your
true core competency is— for us it was the
interface. So, we completely changed industries, but, for us, the interface was still at the core. It would be a mistake to
say: “Well, we’re selling into this channel. We’ve
just built a channel, so now we’re gonna pivot to sell a bunch of other things
into this channel,” if, in fact, what you’re really good at is quality-assurance testing, for example. So, I think a successful
pivot is, at its roots, honoring what you uniquely
do well as a company, as a team, as a brand, as a product, and staying true to that versus
just chaotic opportunism. – Well, unfortunately we’re gonna have to pivot to the ending now
because our time is up. We’ve had a great discussion of baking, and movies, and basketball, and sailing— and some entrepreneurship along the way. So my thanks to our panel, Michael Alter, Amanda Lannert, and Jai Shekhawat. For more research, analysis, and commentary, visit us online at Review.ChicagoBooth.edu and join us again next time
for another “The Big Question.” Goodbye.
(cheerful music)

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