Bootstrapping my business from 1 to 5,000 employees has been a wild ride. The nature of the business has changed a lot. As it has, I’ve had to stay on my toes to adapt to the new realities. There have been shifts in the nature of my work as I’ve needed to raise my own game and continue to be the right person to move the business forward. I think the next time I do this it might be easier. I’ve got a toolbox now. A set of principles and techniques to apply as the business expands. They will need to be adapted, for sure. But it will be easier than starting from scratch.
There have been 2 trends: The changing nature of my own work, and the changing nature of leading. When it was just me, I did 100% of all work. Now we’ve got 700 people. I’m only going to move the needle 0.015% by burning the midnight oil to get that last sale, or piece of software written.
Here is a little bit about each of the following milestones:
- It’s Just Me (1 employee)
- 2 is company (2 employees)
- The Other Founder (4 employees)
- The First Office (7 employees)
- The Second Office (15 employees)
- The Far Flung Sales Team (25 employees)
- Promoting People (35 employees)
- The Third Office (50 employees)
It’s Just Me (1 employee)
Before GrubHub was a business, it was just a hobby. I played around with a website, got some information about restaurants, put together a business plan, had an advisory board did some advertising. All of these activities certainly look like a business, but really they are just a hobby. A great adviser told me… This thing will never get off the ground unless you really commit to it. He was right. The mental difference between doing something cool and running a business to pay the bills is night and day.
Once I jumped on full time I found out quick that there was a profoundly large amount of work. By necessity I resolved to do exactly 2 things: Sell the product by day. Improve the product by night. Sure, there were a million other things to do… SEM/SEO optimization, business licenses, scalability, etc. But I put all that on hold and went into a relentless, sell -> improve -> sell -> improve cycle for about 6 months.
Another important step was to commit to paying myself from day 1. This isn’t going to be a hobby, I’m not going to do this for free for 2 years. If I can’t support myself within the first 2 months, I was going to quit. Which really just focused me to do the important stuff… make some money… which leads us to the first tool in the bootstrapped businesses toolbox: revenue
Tool #1: Revenue. Apparently there are business models that are proponents of not making money right away, but I don’t get them. Cash allows an entrepreneur to hire people and resources to get things done. At first it is all about increasing velocity on the sales -> product -> sales cycle. Successfully executing that cycle then requires supporting activities… billing,finance,IT infrastructure, etc
2 is company (2 employees)
The first role should be based on increasing revenue and product value, not on decreasing work for the founder. In fact, this trend should continue through the first 5 or 6 employees. Hire more people, generate more revenue. Rinse and repeat until the pressure for ancillary tasks becomes great enough that they can no longer legitimately be called ancillary tasks.
Our first employee was a sales representative. But really she was more than that, she was another entrepreneurial oriented person who was ready to wear a lot of hats. She was ready to help refine our product and sales materials. But be aware, salespeople by definition change the product. So much so that I’ve got my own pithy saying about it:
“No product ever survives unscathed first contact with a person trying to sell it”
But how did I attract good talent without a lot of cash for compansation? Well, that brings us to our second tool in going from 1 to 50 employees:
Tool #2: Options and Environment. Finding and motivating employee #2 can be very challenging. Options help (though less so in the midwest). The right person for this role will be very interested in equity. The right option plan will provide long term incentive when cash is hard to come by. More importantly, the startup environment will be very attractive to the right person. Meeting in coffee shops, lots of responsibility, and flexibility in direction should inspire rather than frighten early employees.
The Other Founder (4 employees)
After I had things up and running and did all the hard work, the other founder waltzed in. Actually, that isn’t accurate at all, but I like to give him a hard time about it. Back when it was just a hobby, we spent a lot of time thinking about how to run the business. As you can see by our detailed business plan to the right.
The nice thing about having a partner is perfect alignment of interests. Shareholders have a different risk profile. Employees have their own personal interests in mind. Customers only want what befits them. A partner provides a lot of peace of mind because you can discuss any issue knowing that you have the same goals and interest in mind. There are a lot of things coming at you as an entrepreneur. Its nice to know somebody’s got your back.
Divide and Conquer. Most early hires made my job harder. I had to do a lot more work. More sales means more product enhancements and data entry. More people is more management. Additional folks add complexity and scope. A partner, on the other hand, actually helps decrease workload. Tasks can be divided. Competency and expertise in specific areas can develop. Of course, you’ve got to trust their competency and integrity. Which leads us to tool #3 in getting more employees:
Tool #3.Throw away the partnership documents. Get a handshake you can trust. I swear we spent 100 hours arguing over the minutiae of our partnership document. This was largely based on several people I knew who had been screwed by their partners. The lesson to be learned is *not* about getting a long contract. In the end, you just need to pick the right partner. Because, if they want to screw you over, they’ll find a way regardless of what papers have been signed.
The First Office (7 employees)
One of my original claims to investors was “we operate efficiently without any need for an office”. At some point having an office stopped looking like a liability and started looking like an asset. An office makes communication easier. Best practices get shared. Policies are easier to keep consistent. At 7 employees, the cost of the office is very small relative to the cost of payroll,but the benefit to each employee is very large. So go ahead and get those swanky new digs.
The other big change was that with the 7th employee, it becomes very clear that the founder needs to stop doing 100% of direct effort and start putting a lot more effort towards managing employees. This is a big stumbling block for most entrepreneurs. We want to do everything ourselves. What a waste. Entrepreneurs have lots of drive and understanding of the business. This resource shouldn’t be squandered on one individuals work, but shared across the organization.
At this point in a company’s life cycle, there are 2 key tools for hiring:
Tool #4. Don’t hire just good people, hire good startup people. A good startup employee has a few key attributes. Look for people that have a lot of adaptability. They take initiative. They are good with ambiguity and change. Look for these kinds of things in the interview process. Give a preference to candidates that follow up and ask (the right) questions.
Tool #5. Hire deliberately. Never, ever, ever hire the wrong person because of pressure to fill a role quickly. It is always, without exception, under every case imaginable better to wait on the right person than to rush into a bad decision on hiring. In the end, your company is only as strong as its people.
The Second Office (15 employees)
Once we hit 15 employees, a lot of stuff that happened automatically before wasn’t so automatic. We moved into a larger office and communication started to get confused. Seemingly simple sales and marketing messages all went through a disastrous game of phone tag. Lots of simple things were added to help communication: cross department meetings, monthly strategy sessions, public calendar scheduling, etc. All routine things for most businesses. But they weren’t routine for us, they were revolutionary.
As we start getting a little more corporate how do we make sure to stay true to our roots? More importantly, how do we make sure we all know what our roots are when we can’t even get our simple signals straight? So, we created a mission statement and core values. It can be really hard to make decisions of a moral nature in a company because each person in the company has a different value system. But the process of talking through our common beliefs in the context of a profit generating business actually helped us gel together as a team.
Of course, there are other ways to keep the team tight. My next tool for managing a high growth team:
Tool #6 Rock Band. Ain’t nothing like playing some classic rock and drinkin’ a PBR to bring a group of people together. Sure, sure, we got a little carried away. In fact, we are still waiting for some other group to put up a decent challenge to our rock band supremacy. You can all go pound salt. We rock.
The Far Flung Sales Team (25 employees)
Most of the growth in our employee ranks came from a national sales team. Once we got to 25 employees, 9 of them were out in different markets signing up customers. The work experience for these valuable folks is very different from those of us in the office. They work from home.They have minimal contact with their supervisor. Their compensation is very clear cut and based on performance. How do you extend company culture to them? Is that culture relevant
Consistent transparent communication is the most important way to connect off site employees. For communication, we share the monthly board meeting content with the entire company and make sure the sales folks get a two way video and audio feed of the meeting. Every month we lay it all out there for the whole company to see: our mission, financial information, goals and objectives, challenges and windfalls. This level of transparency served us particularly well during an economic downturn. Everybody is nervous but accurate information dispels fear.
Is culture relevant for commission based off site sales people? Absolutely. These folks are the face of our company to our paying customers. There is a world of difference between just getting the sale no matter what, and approaching each client with a desire to improve their business. I’m no sales manager, but for the life of me, I’m not sure how you would build this value into a compensation package. Its got to be part of the company ecosystem.
Tool #7 the monthly board/employee meeting. Using content that is as similar as possible, make sure that the board of directors and every employee at the company is informed. Each person knows the strategic plan of the business. Each person knows the historical performance of the business. Each person knows the projected growth of the business.
Promoting People (35 employees)
My view on management hierarchy underwent a 180 degree flip at around 35 employees. For a long time I had been a big proponent of “We don’t need managers and hierarchy, a flat organization works a lot better.” All well and good, but when you get above 15 people asking you for direction, you become pretty much useless to all of them.
There are hundreds of books on management structure. They address a lot of important issues: should we use a matrix structure? how many direct reports should a manager have? How closely should a manager supervise their direct reports? I don’t have a clue how to answer these questions. I’ve instead relied on two principles: Promote from within; Hire rock star VPs.
Promote From Within. The folks who created and learned their jobs from scratch are the first candidates to be managers of others in those positions. Keep in mind I’m talking about a group of people with a lot of potential, drive and intelligence. These are exactly the right employees to challenge with tougher positions. The benefits of seeing a person meet these challenges far outweigh the risks of putting a junior person in a more senior role.
Hire Rock Star VPs. I keep hearing of this mythical manager who is threatened by hiring people more talented or smarter than themselves. I don’t get it. Sure, I once managed the technology team and priorities, but why would I want to hold on to that with tight fists. I’d rather have somebody who has done that for 15 years take over. Giddy up. Of course, once you get a pile of VPs, it becomes even more important to communicate. Which brings me to…
Tool#8: The bimonthly management team meeting. This is a meeting where I invite smart people to call bullshit on me. Actually, that only happens sometimes. Mostly, we just meet and talk about the priorities and work flow of the upcoming month. Doing this twice a month provides continuity and clarity. Its amazing how often the statement… “I thought we all agreed on this last month” comes up. Sure, we all agreed, but not on the same details. This regular meeting eliminates misconceptions and aligns expectations. “Muy Bueno” as they say in France.
The Third Office (50 employees)
We outgrew our 2nd office in 18 months when we went from 15 people to 50. Two things have changed about the nature of the business during this latest evolution. First, instead of being very scrappy with cash, we’ve loosened the purse strings. Second, vendor relationships have become much more important.
We used to be real cheap. We hated spending money. We worked so frickin hard to get the investments in the door that we wanted to squeeze every possible penny out of our investment. Unfortunately, its easy to save a dime and spend a dollar with that attitude. Maybe we should hire some movers for the office move… Maybe we should get a coffee service instead of running to whole foods every day… Maybe we should get a furnished office instead of worrying about starting from scratch with an empty space.
One of the ironies of getting larger is that we have identified more areas where we need external vendors to continue to grow. When there was only 10 of us, we did everything ourselves. Now, it is clear that we can be more efficient by sticking to our core competencies. Or, in Abe Lincoln’s words “whatever you are, be a good one” All sorts of stuff… from doing the dishes, to hiring mobile application developers. We rely on “vendors” Sometimes those vendors are a single person that cleans up every night. Sometimes they are large consulting shops.