Getting Through the Hard Parts

I have been investing for more than 10 years, and even though most of the companies I invest in are at their earliest stages, most of the time I spend with companies is in their growth stages. These are companies that have reached eight-to-nine figures of revenue and have clearly developed product-market fit. These companies know their total addressable market is large, and are working on the maturation of their companies. And it is always complicated.

One of the most ubiquitous parts of any investment we have made that has mega early success, is the inevitable hard part.

When the hard part comes, the CEO and the board often know what to do. But the reason I see CEOs hesitate or fail to move their businesses through this period is because they either struggle how to communicate about the hard part with their teams, or more often struggle in taking action to shift their companies into a new gear.  Having spent a bunch of time talking with the founders we’ve partnered with through these periods, I’ve summarized the general themes we talk about here:

All Companies Go through Hard Parts

Every company we’ve invested in, even the best ones, had one year or one round where we really weren’t sure if the business would survive. If you named a company in our portfolio, I could tell you about one call I had gotten from the founder that was an “oh sh*t, how do I explain this” call.

And it’s for all kinds of reasons:

• Some legal/regulatory issue or platform policy changed that put the business model into question

• A new competitor is taking away all of the pricing power in the business

• Hiring fast is hard, and new hires (junior or senior) have made decisions or underperformed, putting the business at risk

• The company hasn’t scaled past the individual contributor phase

When the company is still trying to figure out if it has product market fit and a big enough TAM, it’s largely driven by individual contributors. CEO-led sales, a small engineering team solving a limited set of problems simultaneously, etc.

But at some point, the company becomes less reliant on heroic individual contributions and more on its processes, systems, and culture to grow exponentially. If a business is full of good individual contributors who do great work on their own, its growth is inherently capped to the individual contributions of its best people. Without the evolution of a company’s teambuilding, systems, processes, and eventually its culture,  the individual contributors will inevitably be stymied. They will complete projects more slowly, burn out more quickly, and the company will inevitably find itself mired in unwanted personnel issues and a brain drain or talent spiral.

So the hard part becomes: how do I stop relying on a set of individual contributors who are naturally and financially motivated to go above and beyond to succeed, and instead instill that attitude, motivation, and productivity into the culture? For a company to have great systems, it needs to build teams of motivated employees who:

• Identify problems (the lazy and easy part)

• Understand the rank order of the problems in the business that need to be fixed

• Proactively decide to fix them without elevating those issues to their already over-worked and insanely busy managers

• Recruit others who do not report to them to work on the problem as a team (which requires situational awareness from the broad employee base)

• Are not focused on just fixing the issue, build want to build a better process or system so that the issue does not arise again

• Know they will be rewarded for doing so

So now the question is, how do you communicate with your team about the hard part, and how to get through it?

(1)   Make sure they know it’s worth it

 People are more willing to take the risk of being one of the first 10, 20, 50, or 100 employees of a company because they know if it succeeds, this risk can lead to significant financial rewards.

For the companies that win, the ones that become enduring, iconic, and dominate their industry, their employees almost always do phenomenally well. This is the bet we’re all taking when getting involved in a new business. And if the goal isn’t to win, what is the point?

The other benefit is that working at a fast-growing company allows for incredible career development. The social contract between a fast-growing business and its employees – especially the early-stage employees - is that the employees will grow in their roles faster than they would at a mature business where career progression can be a zero-sum game.

At fast-growing companies, tenure and firm knowledge can matter more than experience; willingness to wear many hats and move quickly within a unique structural paradigm can enable a less-experienced employee to contribute more and elevate their title, role, and status within a company quickly. Employees with tenure have context, trust from management, social capital, an ability to take risks, and have made decisions on behalf of the business, oftentimes so much so that they can be more senior than someone else with more – less relevant - experience.

(2)   Communicate that it’s normal

It’s easy for the hard parts to get demoralizing. Sometimes it feels like your to-do list does nothing but grow, or that you are doing nothing but pushing things uphill. But remembering it is common and normalizing this issue as one many other companies have faced (i) ensures nobody at the company feels like they have failed just because the hard part has arrived and (ii) makes the hard part conquerable.

From James Clear on Atomic Habits

(3)   Identify what needs to be true to get through the hard part, and make sure these requirements are stated, taught, and rewarded

The companies that get through the hard parts:

Identity

Have employees who consider their job and their place of employment as part of their identity. If you’ve ever met an early employee from Stripe, it’s clear that “being early at Stripe” will forever be one of the parts of their life they will cherish and be most proud of for the rest of their lives.

Employees who treat their job as a part of their identity are proactive and not reactive. They take personal offense to seeing the company fail at anything. They will think about how to fix the business before they go to sleep at night, on the way into work, and in the moments during the weekend when they’re spacing out. The best companies are often described as cults because employees feel nearly religious about where they work. The employees who feel the company is part of their identity need to be cherished, and the ones who don’t might not be long for the business.

The employees who consider working at the company as “their job” are reactive, not proactive. They need more hands-on management from top-performing team members and managers and often need course correction on how they organize their days and prioritize their time. They wait for a task to come in, receive it, execute it, and then go outside, walk their dog, hang with friends, go to lunch and wait for the next task to come in.

It is hard to tell how much capacity they have or what their actual potential is within the firm or more broadly in their careers. Because they are neither proactively building or growing the firm nor spotting and solving problems to make systems, teams, processes, and culture any better, they become slack in the system. The best companies cannot afford slack.

Belief in their colleagues

The best way to guarantee you are accelerating your career as fast as possible is to be on the best team. Because the best teams build the best product, grow the fastest, solve problems the quickest, and win.

And even when things are hard, if you believe you’re on the right team (and that your team is better than the other team) there is no reason to jump ship, because on the best team, you always have the best chance at winning.

On top of that, it’s crazy de-motivating to feel like you are carrying the rest of the team.

The North Star is clear

In order for the team to have situational awareness, they need to know what is on the other side of the tunnel.

• “Once we get through this, you will be working in an operating system that allows for less individual heroics and more time with your kids.”

• “Once we’re on the other side of this, we will have built such high barriers to entry that our only limiting factor is TAM.”

How to get there - “the path” - is clear

The plan needs to be concrete and credible. There needs to be a strategic plan and a visible roadmap outlining what specifically needs to occur for a change to happen or a milestone to be hit.

Problems need clear solutions. Acting like things are going well or acting like things are working when they’re not creates mistrust and devalues firm leadership’s credibility and vision for the future among the team. Your team knows how things are actually going. They’re more OK with it than you think. But in order for them to believe the plan, they need to believe you agree with them about the facts.

Once the problems are stated, plainly, there needs to be belief that the plan to fix them will work. And once the plan is communicated of “how do we solve this?”,  the conversation turns away from all the problems that exist, and the focus returns to all of the things that need to get done to get to the other side.

Celebrating wins along the way

This advice gets ignored by the best CEOs, and followed by the worst ones - because it’s usually applied to the wrong wins.

The wrong wins are:

• Revenue growth

• Fundraising rounds

• A large number of employees being hired

The right wins to celebrate are the individual hard parts that de-risk the business:

• Product-market fit has been achieved

• The company no longer relies on founder-led sales and the sales playbook has been established

• The target market has expanded either via a cross-sell that has started to catch fire, or some new market discovered

• The product has started to build a barrier to entry through some data moat, compounding improvement, or something similar

• Celebrating these wins creates a culture of winning. Winning creates momentum and establishes a culture of winning – which gives people the confidence to make decisions, and importantly to take and manage risks.

People want their personal identity to be tied to winning. A culture that perpetuates that will attract and retain more talented team members.

The financial return needs to be clear

When people do well, they need to get paid and promoted. Title and compensation motivate most employees, while also giving others visibility into how their good performance will be rewarded.

The economics need to be shared enough, with the team, especially those who are adding unique and differentiated value. Even more so with employees who trust the company.

What does it mean for an employee to trust the company? An example would be an employee who does something not specifically within their job scope, but who believes the company will provide a reward in the form of more responsibility and pay at some point in the future as a result.

Because the employees who trust the company, who are then rewarded, become the culture carriers.

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Getting through the hard part is hard… because it’s the hard part.

Most founders know what to do, but are less sure how to communicate with their teams and get them to do it. And so far, the above is as good of advice as I have for you if you’re in one of those spots, or working at one of those companies who is “in it” right now.

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